Government Releases much-awaited National Security Review Guidelines

Michael Kilby - 

On December 19, 2016, the Minister of Innovation, Science and Economic Development issued Guidelines on the National Security Review of Investments under the Investment Canada Act (ICA).

Overview of the Guidelines

Most significantly, the Guidelines list factors that will be taken into account by the government in determining whether foreign investments into Canada could be injurious to national security. These factors are:

  1. The potential effects of the investment on Canada's defence capabilities and interests;
  2. The potential effects of the investment on the transfer of sensitive technology or know-how outside of Canada;
  3. Involvement in the research, manufacture or sale of goods/technology relating to certain controlled goods noted in the Defence Production Act, including firearms, military training equipment, certain types of aircraft, weaponry and defence systems, etc.;
  4. The potential impact of the investment on the security of Canada's critical infrastructure. Critical infrastructure refers to processes, systems, facilities, technologies, networks, assets and services essential to the health, safety, security or economic well-being of Canadians and the effective functioning of government;
  5. The potential impact of the investment on the supply of critical goods and services to Canadians, or the supply of goods and services to the Government of Canada;
  6. The potential of the investment to enable foreign surveillance or espionage;
  7. The potential of the investment to hinder current or future intelligence or law enforcement operations;
  8. The potential impact of the investment on Canada's international interests, including foreign relationships; and,
  9. The potential of the investment to involve or facilitate the activities of illicit actors, such as terrorists, terrorist organizations or organized crime.

The Guidelines represent the first time any such disclosure has been made since the ICA was amended in 2009 to provide for a national security review process. It also represents the second time in 2016 that the government has provided eagerly sought-after details regarding the national security review process, signaling significantly enhanced transparency in relation to the administration of the national security review process. (Earlier in 2016, the government for the first time published certain statistics on the frequency and outcomes of national security reviews.)

Insights from the Guidelines

The Guidelines are notable in at least three respects.

First, they set out nine factors that will be considered in assessing the national security implications of a foreign investment. While these factors are not intended to be exhaustive, and while some of them are capable of broad interpretation, others are more precise and provide meaningful information to investors contemplating investment into Canada. It is certainly true that some of these factors may already have been, broadly-speaking, self-evident to foreign investors and their counsel; nevertheless, the specifics identified in the guidelines are useful, particularly as this type of disclosure was previously non-existent. Most notably, the factors reveal a core focus on defence, technology and intelligence-related concerns.

Second, the Guidelines recommend that foreign investors file their ICA notifications “early” and prior to the deadlines set out by statute. By way of context, the ICA sets out that the only filing requirement in respect of the vast majority of foreign “control” investments into Canada (i.e., 95%+) is to file a form known as a notification, which may be filed up to 30 days after closing. However, where an investor desires certainty regarding the application of the national security provisions to its investment, it may voluntarily file this notification early, prior to closing, and, if 45 days elapse following the filing of such notification, with no action being taken, the investor can proceed with closing knowing that the period within which a national security review could be ordered has expired.

The Guidelines encourage investors to file their notifications early – even though this is not required by law – particularly in cases where the assessment factors described above may be present. In the past, we believe it would have been accurate to characterize the government as largely indifferent as to when a foreign investor filed its notification – certainly the statute itself is formally indifferent. We believe that recent, complicated situations in which the government has sought post-closing divestitures of Canadian businesses on national security grounds have led the government to conclude that it is far easier to manage national security concerns on a pre-closing basis, before ownership has transferred, and hence to formalize the recommendation to file early.

Third, the Guidelines set out that Investment Review Division officials are ready to meet with and engage in consultations with foreign investors in relation to their transactions with a view to facilitating national security assessments and clarifying information requirements, “at the earliest stages of the development of their investment projects”. While it has always been open to foreign investors to engage with the Investment Review Division, the Guidelines go further in actively encouraging early engagement. Foreign investors and the Canadian businesses in which they propose to invest may previously have been reluctant in some cases to engage in this manner with governmental authorities; the Guidelines may on balance lead to earlier and more involved engagement. 

Competition Bureau completes update of Intellectual Property Enforcement Guidelines

Jeff Brown and Margaret Kim - 

On March 31, 2016, the Competition Bureau (the Bureau) released the anticipated final version of its updated Intellectual Property Enforcement  Guidelines (2016 IPEGs), seven months after the public consultation of the Phase II draft revision (Draft Phase II IPEGs) concluded in August 2015. The 2016 IPEGs further clarify, and provide practical guidance on, the Bureau’s enforcement approach to several important issues at the interface between competition and intellectual property (IP) laws, namely (1) patent litigation settlements between brand and generic pharmaceutical companies, (2) product switching (also known as product hopping), (3) patent assertion entities (PAEs) and (4) collaborative standard setting and standard essential patents (SEPs). 


The IPEGs set out the general approach of the Commissioner of Competition (the Commissioner) and the Bureau to the administration and enforcement of the Competition Act (the Act) with respect to potentially anti-competitive practices involving IP.  Changes in the 2016 IPEGs reflect past Bureau enforcement experience, Canadian case law, and guidance documents released in other jurisdictions. In producing the 2016 IPEGs, which were preceded most recently by the Draft Phase II IPEGs, the Bureau addressed concerns expressed by domestic and international stakeholders, including the Competition Law Section of the Canadian Bar Association, the Antitrust Law Section of the American Bar Association, industry associations, major technology firms and competition law scholars.

The 2016 IPEGs conclude a more than two-year process of updating the Bureau’s IPEGs, which were first published in 2000 (the 2000 IPEGs). The update process was undertaken in two phases, beginning in April 2014 with publication of a revised “phase I” consultation draft (the Draft Phase I IPEGs), followed by a final phase I IPEGs in September 2014 (the Revised Phase I IPEGs). Also in September 2014, the Bureau published a white paper entitled Patent Litigation Settlement Agreements: A Canadian Perspective (White Paper), which set out the Bureau’s proposed approach to patent litigation settlements between brand and generic pharmaceutical companies. The Bureau’s “phase II” consultation draft IPEGs followed in June 2016 (the Draft Phase II IPEGs), followed finally with publication of the 2016 IPEGs on March 31, 2016. 

For more information of how the IPEGs have evolved over time, see our previous post

Summary of Major Changes in the 2016 IPEGs

As noted previously, the 2016 IPEGs clarify, and provide practical guidance on, the Bureau’s enforcement approach with respect to patent litigation settlements between brand and generic pharmaceutical companies, product switching, PAEs and standard setting.  The following briefly discusses the Bureau’s enforcement approach in each of these areas, as set out in the 2016 IPEGs.

(a)   Pharmaceutical Patent Litigation Settlements

The 2016 IPEGs update the Bureau’s enforcement approach in respect of settlements of proceedings between brand and generic pharmaceutical companies under the Patented Medicines Notice of Compliance (PMNOC) Regulations. The Bureau’s approach to such settlements was first proposed in the White Paper, as a precursor to its inclusion (in revised form) in the Draft Phase II IPEGs. The 2016 IPEGs further refine the Bureau’s analytical framework for reviewing pharmaceutical patent settlements in a number of ways. 

The 2016 IPEGs confirm that, other than in certain defined circumstances, the Bureau will review pharmaceutical patent settlements under the Act’s civil reviewable practice provisions (section 90.1, for competitor collaborations, or section 79, for abuse of dominance). The circumstances in which the Bureau will review settlements under the Act’s criminal cartel provision (section 45) are limited to settlements in which the settlement:

  • extends beyond the exclusionary potential of the patent by delaying generic entry past the patent expiry date;
  • extends beyond the exclusionary potential of the patent by restricting competition for products unrelated to the patent subject to the PMNOC proceeding; or
  • is a “sham”.

The Bureau recognizes that certain features of Canada’s PMNOC Regulations that govern generic entry prior to patent expiry differ from the features of counterpart regimes in other jurisdictions, including in particular the United States. The Bureau acknowledges that these differences may affect the relative incentives of parties to reach settlements, as well as the potential terms of settlements in Canada, as compared to under regimes in the United States. These differences, and their potential impacts, include:

  • First generic filer exclusivity: In Canada, there is no exclusivity period following patent expiration for the first generic challenger, which, relative to the United States (which has such exclusivity), reduces the incentives for the first generic filer to enter into settlements with the brand.  
  • Section 8 damages: The prospect of a brand firm’s liability under section 8 of the PMNOC Regulations, which has no counterpart in the United States, is a relevant consideration when evaluating the magnitude of a brand firm’s payment to the generic firm in a settlement agreement.
  • Dual litigation / double jeopardy: The PMNOC Regulations create a system of legal double jeopardy, insofar as a generic firm can face an infringement action even if it successfully defends a PMNOC proceeding, and a brand firm can face patent impeachment proceedings even though its prohibition application was successful.  The potential follow-on litigation, which again has no counterpart in the United States, is a relevant consideration when assessing the magnitude of how much a brand firm paid the generic firm in a settlement agreement.

Based on the 2016 IPEGs, the Bureau differentiates its enforcement approach to patent settlements based on whether a settlement is an “entry-split” settlement (see Example 12 of the 2016 IPEGs) or a settlement with a “payment” (see Example 13 of the 2016 IPEGs). If a settlement does not involve the brand firm providing consideration to the generic firm other than allowing the generic to enter the market “on or before” patent expiry (an “entry-split” settlement), it will not raise competition issues under the Act. On the other hand, if a settlement includes the brand firm providing a payment (whether monetary or otherwise) in addition to allowing the generic firm to enter the market before patent expiry, the Bureau will likely review the settlement under the Act’s competitor collaboration provision (section 90.1) to assess whether it will have the effect of delaying generic entry and, as a result, substantially lessen or prevent competition.  In this regard, the Bureau will focus on the actual anti-competitive effects of a settlement, rather than its purpose, considering factors such as (i) the fair market value of any goods or services provided by the generic firm, (ii) the magnitude of the brand firm’s section 8 damages exposure under the PMNOC Regulations and (iii) the brand firm’s expected remaining litigation costs absent settlement.

(b)   Product Switching

The Bureau’s enforcement approach to product switching (or product hopping) was first set out in the Revised Phase I IPEGs in September 2014.  The 2016 IPEGs introduce the distinction between a “hard” switch (e.g., removal of a branded incumbent product (Product A) prior to generic entry in order to effect the switch of consumers to a follow-on product, Product B) and a “soft” switch (e.g., attempting to encourage or persuade patients and doctors to switch to a follow-on Product B by such means as offering rebates and other discounts, without removing an incumbent Product A from the market).  In Example 9A of the 2016 IPEGs, the Bureau suggests that a “hard” switch will likely be reviewed as a potential abuse of dominance under section 79 of the Act if the Bureau finds that the conduct could be for the purpose of excluding or impeding generic entry. Conversely, Example 9B of the 2016 IPEGs suggests that a “soft” switch is not likely to raise competition concerns provided that it did not anti-competitively undermine the prescription base of the incumbent product, for example through the use of false or misleading representations about the product.

Related to the Bureau’s enforcement approach to product switching is the definition of “mere exercise” of an IP right, and in particular whether the mere exercise of an IP right (which can be addressed using the special remedy in section 32 of the Act but not under the Act’s so-called “general provisions”) includes the “non-use” of an IP right. The 2000 IPEGs defined the “mere exercise” of an IP right as the “exercise of the owner’s right to unilaterally exclude others from using the IP”, as well as “the use or non-use” of IP by the owner.  In the Draft Phase I IPEGs, “non-use” was removed from the definition, presumably to allow the Bureau to enforce the Act in respect of the “non-use” of a patent right associated with product switching (which the Bureau had recently considered in the context of an inquiry involving Alcon Canada Inc.).  The Bureau’s removal of “non-use” from the definition of “mere exercise” of an IP right drew some criticism, and the Bureau responded by re-inserting “non-use” into the definition in the 2016 IPEGs.  Notwithstanding reversion to the prior definition, the Bureau has kept open the possibility of examining non-use of an IP right under the Act’s general provisions: in a footnote to Example 9A of the 2016 IPEGs, the Bureau notes that “there may be limited circumstances where non-use of an IP right may been viewed as something more than the ‘mere exercise’ and therefore could potentially raise issues under the general provisions of the Act”.    

(c)    PAEs

The Bureau first addressed conduct of PAEs in the Draft Phase II IPEGs. The Bureau’s initial guidance was limited to the use of potentially misleading representations by PAEs to support the assertion of IP rights. Absent from the Bureau’s initial guidance was how it would address the acquisition of IP rights by PAEs. The 2016 IPEGs fill this gap, addressing both types of conduct by PAEs.

The 2016 IPEGs clarify the Bureau’s position with respect to PAEs sending notice letters to firms that are allegedly infringing its patented technologies. Example 10 illustrates a scenario in which a company sending notice letters would be found to violate the misleading advertising and deceptive marketing practices provisions in sections 74.01(1)(a) (civilly reviewable practice) or 52 (criminal) of the Act. The Bureau will focus on whether “the notices included representations that were false or misleading in a material respect”, including the “general impression created by the notice, as well as its literal meaning.” If the Bureau’s examination reveals that the firm’s claims were untrue (e.g., false representations that other businesses have paid a licensing fee or that a PAE intends of commencing legal proceedings), then the representations could be found to be false or misleading. The Bureau would find that representations would be considered “material” if they “would affect the likelihood of the recipients taking some significant action in response to the claims, up to and including acceding to the demand.”

The Bureau has also added Example 11, in which it states that assignment by a firm of its patents to a PAE for the sole purpose of more effective enforcement is, on its own, unlikely to raise issues under the Act. Rather, it appears that such assignments will be treated in a similar manner to assignments to any other purchaser, with the focus being on the extent to which the assignment would create or enhance market power as a result of the PAE’s pre-existing portfolio including IP the competes with the assigned IP rights.  While the Bureau acknowledges concerns expressed by some about PAEs owing to the different incentives that they have with respect to enforcement of IP relative to companies that use IP to manufacture products,  the Bureau also recognizes the benefits of PAEs, such as assisting innovators in maximizing their returns from their research efforts and incentivizing further research.

(d)   Standard Setting and SEPs

In the 2016 IPEGs, the Bureau refines its view of Standards Development Organizations (SDOs), in particular with respect to what is permissible and impermissible in the context of SDO arrangements. The Bureau recognizes that the development of standards through SDOs can provide many procompetitive benefits, such as lowering production costs, increasing efficiency and consumer choice, reducing barriers to entry and fostering interoperability and innovation.

The Bureau confirms that it will review the joint conduct involving SDO participants under the Act’s civil competitor collaboration provision (section 90.1) according to the analytical framework described in the Competitor Collaboration Guidelines, provided there is no evidence that such conduct was for the purpose of facilitating an agreement prohibited under the Act’s criminal cartel provision (section 45).  

The 2016 IPEGs also state that the Bureau is likely to review patent hold-ups (also known as patent ambush) under the Act’s civil abuse of dominance provision (section 79). Patent hold-up occurs where the owner of a patent participating in the standardization process, in violation of SDO rules, fails to disclose its patent to an SDO then later asserts the patent when access to its patented technology is required to implement the standard.

The Bureau identifies a number of steps that SDOs and/or patent owners can take to reduce the potential for patent hold-up:

  • Adopt an IP policy that requires participants to disclose their patents that are essential to the standard that the SDO selects;
  • Ask participants to identify their most restrictive licensing terms and conditions, including the maximum royalty rate that they would demand if access to their patents becomes necessary to implement the standard;
  • Facilitate negotiations between participants who are potential licensees of the standard and IP owners of rival technologies; and
  • Avoid reneging on a licensing commitment by making an ex ante licensing commitments (e.g., an explicit maximum royalty rate) by encouraging its technology to be incorporated into a standard and then later, if successful, abandoning that commitment (e.g., charging a royalty higher than the maximum royalty it promised to charge).

The 2016 IPEGs also address the potential anticompetitive use of injunctions by SEP owners who have made commitments to license IP on fair, reasonable and non-discriminatory (FRAND) terms. The 2016 IPEGs expressly state that the Bureau does not view a FRAND commitment as a commitment to license on a “royalty-free basis” and that firms are “entitled to seek royalties to recover the value of their investment.” Recognizing that potential licensees may seek to take advantage of FRAND commitments by “holding out” for a particular royalty or by refusing to undertake licensing negotiations in good faith, the Bureau identifies circumstances in which a firm that has made a FRAND licencing commitment can seek an injunction against the infringing party. Previously, in the Draft Phase II IPEGs, the Bureau identified the following as appropriate circumstances for a licensor to seek an injunction:

(i) where a prospective licensee has refused to pay a royalty that has been determined to be FRAND by a court or arbitrator; and
(ii) when a prospective licensee refuses to engage in licensing negotiations.

The 2016 IPEGs identify two additional circumstances:

(iii) when a prospective licensee constructively refuses to negotiate (e.g., by insisting on terms clearly outside the FRAND terms); and
(iv) when a prospective licensee has no ability to pay damages (e.g., a firm is in bankruptcy).

Finally, while the 2016 IPEGs make it clear that there are circumstances where patent hold-up may be addressed under the Act, they also note that the Bureau will exercise enforcement discretion in determining whether the Act should be used to address conduct involving SEPs.  The 2016 IPEGs state, for example, that the Bureau is not a “price regulator”, and will therefore leave the determination of royalty rates to negotiations between parties or the courts, absent a clear breach of a licensing commitment (e.g., asking a royalty greater than a previously agreed commitment). The Bureau also notes that patent hold-up could be addressed as a matter of contract law “and will consider this possibility when exercising its enforcement discretion in a given case”.


The 2016 IPEGs, which complete a more than two-year exercise at updating the Bureau’s guidance in relation to its enforcement approach in relation to the competition / IP interface, offer more robust and practical guidance on the Bureau’s enforcement approach in relation to IP. In addition to providing more predictability to businesses that rely heavily (and often increasingly) on IP, the 2016 IPEGs reflect the Bureau’s openness to updating its thinking in an area that is constantly evolving. In this regard, the Bureau has indicated it will review the IPEGs annually, and  revise them as needed, based on its ongoing enforcement experience, changing circumstances and decisions of the Tribunal and the courts.  

Competition Bureau releases "Phase II" Draft Revision of the Intellectual Property Enforcement Guidelines

 D. Jeffrey Brown and Jessica Rutledge - 

On June 16, 2015, the Competition Bureau released an updated draft version of the Intellectual Enforcement Property Guidelines (IPEGs), which set out its approach to enforcing the Competition Act  against potentially anti-competitive practices involving intellectual property. The draft updates concentrate on the Bureau’s enforcement approach in three areas, namely (a) patent litigation settlements, (b) standard-essential patents and (c) patent assertion entities. The most significant changes include the creation of a “safe harbour” for settlements of patent infringement litigation between branded and generic drug manufacturers that do not involve a reverse payment (i.e., a payment from the branded manufacturer to the alleged infringer). The draft IPEGs also signal a narrow scope of litigation settlements that may be subject to enforcement under the criminal cartel provisions of the Act.


The IPEGs set out the Bureau’s enforcement approach with respect to the Competition Act and potentially anti-competitive practices involving intellectual property. 

The first IPEGs were released by the Bureau in 2000, and in 2013, the Commissioner of Competition, John Pecman, announced the Bureau’s plan to undertake a two-phase update of the IPEGs. The first phase revision began with publication of a revised draft of the IPEGs in April 2014, and ended with the publication of revised IPEGs on September 18, 2014. Phase I changes to the IPEGs were primarily technical in nature, focusing on updates relating to statutory amendments since 2000. The second phase is a more substantive update, addressing the Bureau’s enforcement approach to key issues that have arisen in the IP/competition interface in recent years, namely settlement of patent litigation between branded and generic pharmaceutical companies under the Patented Medicines Notice of Compliance (PMNOC) regulations, standard essential patents (SEPs) and patent assertion entities (PAEs).

Prior to Phase II, the Bureau released a white paper (the White Paper) setting out its proposed approach to enforcement of the Act to PMNOC litigation settlements (see our earlier comments on the White Paper). The White Paper’s proposed enforcement approach to reviewing such settlements was controversial, with a particular concern expressed being the suggestion in the White Paper of an openness on the part of the Bureau to reviewing such settlements under the Act’s per se criminal cartel provision. The potential application of these provisions to legitimate settlements of patent litigation was criticized for reasons including the risk of a potential chilling effect on the settlement of complex pharmaceutical patent litigation.

Summary of Proposed Changes

The Phase II draft IPEGs were released for public comment on June 9, 2015, with a comment period running through to August 10, 2015. As noted previously, changes in the Phase II draft focus largely on the Bureau’s enforcement approach in respect of PMNOC litigation settlements, SEPs and PAEs.

(a) Pharmaceutical Patent Settlements

The Bureau expressly acknowledges that parties may wish to settle PMNOC proceedings rather than run the risk of an adverse outcome from fully litigated proceedings, and that society also benefits from the settlement of litigation. At the same time, the Phase II draft states that settlement of PMNOC proceedings may “pose competition risks if the agreement of the parties goes beyond what is reasonably necessary to reach a settlement and delays the benefits of generic competition.”

For the purposes of determining the Bureau’s enforcement approach to PMNOC litigation settlements, the Phase II draft divides such settlements into three categories.

  1. The first category of settlements is for “entry-split” agreements, whereby a generic company agrees to delay its entry into the market to some point prior to the patent term expiry in exchange for not challenging the patent’s validity. If such an agreement does not include consideration (whether monetary or otherwise) from the brand-name company to the generic firm, the Phase II draft states that the Bureau will not review the settlement under the Act. As the Bureau, in the White Paper, had stated previously that both entry-split settlements and “pay-for-delay” settlements could be subject to review under the Act, the Phase II draft’s treatment of entry-split settlements creates a new “safe harbour” that will help parties assess the risk of potential Bureau scrutiny of settlements.
  2. Settlements that go beyond delaying generic market to some point prior to the patent term expiry to include some form of consideration (whether monetary or otherwise) from the brand to the generic comprise the second category of settlements. According to the Phase II draft, such settlements, which involve “reverse payments” and are referred to as “pay-for-delay” settlements, would be reviewed under the Act’s competitor collaboration provision, section 90.1 of the Act, although “[i]n certain circumstances” the Bureau “may also choose to review a settlement [as a potential abuse of dominance] under section 79 of the Act.” In either case, the Bureau will seek to determine whether the settlement results, or is likely to result, in a substantial prevention or lessening of competition, in which case the Commissioner may seek a remedial order from the Tribunal. In making this determination, the Bureau will consider “whether the magnitude of the payment was so large that it was probably for the purpose of delaying generic entry” (taking into account, for example, the brand’s exposure to damages under section 8 of the PMNOC regulations, the brand’s expected litigation cost savings and litigation costs incurred by the generic up to the date of settlement) and “the likely price difference that would have prevailed between the branded version of the pharmaceutical drug and the competing generic drug” (taking into account, among other things, potential entry by other generics). Even if it is expected that such reviews will normally be conducted under section 90.1 of the Act, for which the principal available remedy would be an order prohibiting implementation of the settlement, the potential applicability of section 79 raises the potential additional risk of substantial administrative monetary penalties in an amount up to $10 million.
  3. The final category of settlements consists of settlements that are reviewable under the Act’s per se criminal cartel provision, section 45. Whereas the White Paper was criticized for its overbroad approach to section 45’s application to patent litigation settlements, the Phase II draft states that a PMNOC litigation settlement “may be reviewed under section 45 only where the intent of the payment was to fix prices, allocate markets or restrict output,” which “[t]he Bureau anticipates … would occur on a limited basis.” Two specific examples identified by the Bureau as likely to offend section 45 of the Act are pay-for-delay agreements where the market entry is after the expiry of the patent, or settlements where there is direct evidence that the intent of the parties was to fix prices, allocate markets or restrict output.

(b) Standard Essential Patents

SEPs are patents that are required for a product or technology to comply with a technical standard. In the Phase II draft, the Bureau recognizes that the development of such standards, whether through formal Standard Development Organization (SDO) or other means, can have pro-competitive benefits, including ensuring product interoperability, lowering production costs, increasing efficiency and consumer choice, and fostering innovation. However, the Bureau also notes that standards can have anti-competitive effects, as a result of such conduct as patent ambush, reneging on licence commitments or seeking injunctions in respect of SEPs, and due to the fact that SDOs involve competitors or potential competitors in discussions regarding licensing terms and conditions and royalty rates in the context of setting an industry standard.

Patent ambush arises where a patent holder fails to disclose patents to an SDO during a standard-setting process and then, after the standard is set, uses the fact that firms are locked into the standard (for instance by high investment costs) to increase its market power beyond what was inherent in its patents. According to the Phase II draft, the Bureau will review patent ambush as a potential abuse of dominance under section 79 of the Act, to determine whether the conduct results, or is likely to result, in a substantial prevention or lessening of competition, in which case the Commissioner may seek a remedial order from the Tribunal.

The Phase II draft sets out a similar approach with respect to a patent holder reneging on commitments (e.g., with regard to licensing terms and royalties) made in the course of a standard-setting process, or seeking injunctions against firms that are “locked-in” to a standard and face prohibitive costs to switch to alternative technologies. In this latter regard, the Bureau “accepts that in certain circumstances it may be appropriate for a firm that has made a FRAND [fair, reasonable and non-discriminatory] licensing commitment to seek an injunction against an infringing party,” such as where the potential licensee is unwilling to enter into negotiations or to pay a FRAND rate. 

The Phase II draft also sets out the Bureau’s approach to reviewing policies of SDOs with regard to disclosure of IP rights, licensing commitments and conduct of members in relation to joint negotiation or discussion of licensing terms. The Phase II draft gives the example of an SDO that adopts a disclosure policy requiring members to disclose all existing or pending patent rights relating to the possible standard, and to agree to license such rights on FRAND terms to all prospective licensees, with additional encouragement on the part of the SDO for members to specify the most restrictive licensing terms and conditions (including the maximum royalty) that they would require to license their patented technology. Recognizing that its members would include entities that compete with one another, the SDO’s policy also prohibits the joint negotiation or discussion of licensing terms among members. In such a scenario, the Phase II draft states that “if the Bureau determined the SDO arrangement was only to set a standard for … interoperability [of the subject products] and there were no joint discussions of licensing terms and conditions, it would likely conclude that the SDO was not an agreement that constituted a ‘naked restraint’ on competition”, with the result that it would review the arrangement under section 90.1 of the Act, according to the framework outlined in the Bureau’s Competitor Collaboration Guidelines.

(c) Patent Assertion Entities

The Phase II draft sets out the Bureau’s approach to PAEs, albeit in the limited context of a hypothetical involving a PAE that makes false or misleading claims in the course of asserting its patent rights. In the Bureau’s example, a PAE that acquires certain patents and then sends “thousands of notices to various businesses stating that it had proof that the recipient was infringing one or more of these patents, and demanding that each recipient pay a licensing fee to avoid litigation,” may contravene the Act’s provisions relating to false and misleading representations. Focusing on the narrow issue of whether the PAE had any basis for its alleged proof of patent violation, the Phase II draft states that the Bureau would review such conduct under paragraph 74.01(1)(a) of the Act, which prohibits representations to the public that are false or misleading in a material respect, or criminally, under subsection 52(1) of the Act, if the representations were made knowingly or recklessly.

Absent from the Phase II draft is guidance on the Bureau’s approach to other types of conduct, including the acquisition of patents by PAEs.

The Bureau has invited comments on the Phase II draft by August 10, 2015.

What's old is new - dusting off the OSP rules

Jennifer Rad -

It has been almost a decade since the Competition Bureau sunk its teeth into the enforcement of ordinary price claims, pursuant to the Competition Act’s deceptive marketing practices provisions. But what is old may be new again as recent signals from the Competition Bureau point towards increased enforcement focus on these types of claims in the future. As such, Canadian businesses should ensure that their corporate compliance programs and pricing practices are in-line with the OSP rules of the Act and the Bureau’s Ordinary Price Claims Guidelines which the Tribunal relied on heavily when analyzing past cases.In particular, Subsections 74.01(2) and (3) of the Act set out specific requirements for the calculation of the ordinary selling or reference price on which savings claims are based, known as the “volume test” and the “time test”:

Volume Test In order to meet the volume test, the reference price must be one at which a substantial volume of product has been sold at that price (or a higher price), within the relevant geographic market, within a reasonable period before or after the savings claim is made.

Time TestIn order to meet the time test, the product has to have been offered at the reference price (or a higher price) in good faith in the relevant geographic market for a substantial period of time recently before or immediately after making the savings claim. 

The fundamental principle behind the ordinary price claim rules is that an advertised savings must be bona fide, such that the savings described are real and do not exist in perpetuity.

Use of savings claims is a key component of virtually all advertising in the marketplace, and can be used as a powerful tool to attract consumers. It follows that businesses (and their legal teams in particular) need to be vigilant about the proper use of savings claims. By implementing compliance programs and providing regular compliance training to marketing teams, businesses will be able to avoid running afoul of the OSP rules. 

Competition Bureau introduces criminal cartel whistleblowing initiative

In remarks delivered to the Canadian Bar Association, Commissioner of Competition John Pecman (then interim Commissioner) announced a new whistleblowing program developed by the Competition Bureau’s Criminal Matters Branch. The Criminal Cartel Whistleblowing Initiative will encourage members of the public to provide information to the Competition Bureau regarding possible violations of sections 45 to 49 of the Competition Act, i.e., the criminal cartel provisions which prohibit, among other things, agreements or arrangements among competitors to fix prices, allocate markets, restrict output or rig bids.

The Competition Act and the Criminal Code already provide for a variety of protections to whistleblowers. The Competition Act provides that any person who has reasonable grounds to believe that a person has committed (or intends to commit) an offence under the Act may notify the Commissioner of the particulars of the matter and may request that his or her identity be kept confidential with respect to the notification. The Competition Act also bars retaliation by employers against whistleblowers who act in good faith and on the basis of reasonable belief. The Criminal Code contains broader protections for whistleblowers who provide (or intend to provide) information to anyone responsible for law enforcement with respect to any kind of offence (under any federal or provincial act or regulation) committed by someone in their organization (including directors and officers and other employees).

The Competition Bureau’s new whistleblowing initiative augments these provisions by highlighting the Bureau’s particular interest in receiving information about possible violations of the criminal cartel provisions of the Competition Act, and by introducing a toll-free telephone number for the Bureau’s Information Centre for that purpose (tel.: 1-800-348-5358; TDD for the hearing impaired: 1-800-642-3844; fax: 1-819-997-0324).

In describing the program, the Bureau notes how information that is reported can be used by the Bureau, explaining (for example) that it may be communicated to a Canadian law enforcement agency and may also be communicated for the purposes of administration or enforcement of the Act – with the caveat that the Bureau will ensure that any information provided by a whistleblower that is communicated in these circumstances does not reveal the identity of the whistleblower. The Bureau also notes that, depending on the circumstances, a whistleblower may be asked (but will not be required) to testify in court. (Issues regarding the interplay between the assurances provided by the Bureau and the Charter rights of an accused are not addressed in the program.)

Finally, the Bureau stresses that how much personal information the whistleblower provides is a matter of his or her own discretion, while noting that it may be impossible for the Bureau to act on the information provided (or in some situations, to protect the whistleblower’s identity) unless sufficient personal information is offered with the complaint.

In recent years, the Bureau has emphasized the effectiveness of its Immunity and Leniency programs, although some commentators have questioned whether the Bureau can develop stronger incentives to companies to self-report. The Commissioner has framed the new whistleblowing initiative in similar terms. In announcing the program, the Commissioner characterized it as an effort to “support increased reporting of anti-competitive behaviour, while ensuring the protection of individuals who come forward with such information”.

Vertical pork mergers pass mustard with Competition Bureau

Michael Laskey -

On December 17, the Competition Bureau released a position statement summarizing the approach it had taken in analyzing two proposed vertical mergers (i.e., mergers between firms at different levels of a supply chain) in the pork industry. Both proposed mergers involve the acquisition of a large Western Canadian hog producer by a company that sells finished food products (pork cuts) to consumers: Olymel L.P. plans to acquire Big Sky Farms Inc. and Maple Leaf Foods Inc. plans to acquire Puratone Corporation. The Bureau decided not to challenge either merger.

The key concerns considered by the Bureau, and its conclusions about each, were:

  1. that Olymel or Maple Leaf may have the ability and incentive to refuse to supply its hogs to other competing sellers of pork cuts, and thereby foreclose their access to a necessary input. The Bureau determined that this ability and incentive would indeed exist, but concluded that no substantial lessening or prevention of competition would result because sufficient effective competition would remain among suppliers of pork cuts (including competition between Olymel and Maple Leaf); and
  2. that Olymel and/or Maple Leaf may harm other hog producers by foreclosing their access to a sufficient customer base. In particular, the Bureau was concerned that both Olymel and Maple Leaf would control a significant amount of slaughterhouse capacity in Western Canada, and may be able to harm other hog producers by refusing to purchase hogs from external suppliers, leaving the rival hog producers with no local slaughterhouse to which to sell their hogs. The Bureau concluded that each of Olymel and Maple Leaf would indeed have this ability, but that the costs of refusing to purchase hogs from external suppliers would outweigh any associated benefits, and they therefore lacked an incentive to do so.

The position statement provides insight into how the Bureau analyzes vertical mergers. Consistent with the guidance provided in the Merger Enforcement Guidelines, the position statement suggests that the Bureau’s principal concerns about such mergers will likely relate to input foreclosure (i.e., a refusal by the merged entity to supply an input to a downstream competitor) and customer foreclosure (i.e., a refusal by the merged entity to purchase inputs from upstream competitors). The statement also demonstrates that the Bureau will approach these issues carefully: although it concluded that both input foreclosure and customer foreclosure were possible in the case of these pork mergers, it also found that neither was likely to lead to a substantial lessening or prevention of competition.

John Godfrey Saxe (or, perhaps, Otto von Bismarck) once stated that “[l]aws, like sausages, cease to inspire respect in proportion as we know how they are made.” With respect to pork mergers, at least, the opposite appears to be true.

Canada's Competition Bureau releases revised Merger Review Process Guidelines

Susan M. Hutton and Michael Laskey -

On January 11, 2012, Canada’s Competition Bureau published revised Merger Review Process Guidelines, updating the Bureau’s approach to the administration of the merger review process under the Competition Act in light of experience gained since the implementation of the two-stage U.S.-style notification process in 2009. 

In particular, the Guidelines discuss: (i) the statutory waiting periods which apply to mergers that exceed certain thresholds set out in the Act; (ii) the two-stage notification process including the use of Supplementary Information Requests (SIRs), similar to the “second request” process in the United States; (iii) the use of timing agreements as an alternative means of obtaining information about a transaction and (iv) provide the Bureau’s view of how parties should conduct their searches for documents and information when responding to a SIR, in the form of sample search instructions.

All transactions involving an operating business in Canada which exceed certain thresholds are subject to mandatory pre-merger notification under the Act, and the parties are not permitted to close the transaction until the expiry or early termination of a 30-day waiting period following pre-notification.  That waiting period can be extended, however, if the Commissioner of Competition requires additional information to complete her review of the likely competitive impact of the transaction and issues a SIR.  Where a SIR is issued within the first 30 days following notification, the waiting period does not expire until 30 days following compliance with the SIR.

The most significant changes in the revised Guidelines include:

  • Hostile Transactions: A new section of the Guidelines deals with the merger review process in the context of hostile transactions. This new section is largely repetitive of the Bureau’s second enforcement guideline regarding hostile transactions and notes that, in the context of a hostile transaction, a target is not able to affect (e.g., delay) the commencement of the relevant waiting periods by delaying its pre-notification filing or its response to a SIR. The section also notes that, to ensure that it receives SIR responses from targets on a timely basis, the Bureau will typically issue a SIR in combination with a timing agreement (to certify compliance on or before a specified date) and/or a court order obtained pursuant to section 11 of the Act, which compels the target to provide information to the Bureau.
  • Pre- and Post- Issuance Dialogue: The revised Guidelines provide more detail about the dialogue between the Bureau and the parties before and after the issuance of a SIR. In particular, pre-issuance dialogue can serve to narrow the scope of a SIR and identify technological barriers to production, while post-issuance dialogue can help to prioritize information to be supplied and specify the custodians and search terms to be used in collecting data. The Bureau typically expects parties to use best efforts to respond to a SIR in a timely manner and on a rolling basis.
  • Updated Search Periods: The revised Guidelines provide that, when a SIR is issued, the default search period for hard copy and electronic records will generally be the year-to-date period immediately preceding the date of issuance of the SIR and the previous two full calendar years. For data requests, the time period will generally be limited to the year-to-date immediately preceding the SIR issuance and the previous three full calendar years. However, these default search periods may vary depending on the facts of a particular case.
  • Requirement to Refresh: The revised Guidelines note that the Bureau will require parties to produce “refreshed” information where the period between the date of issuance of a SIR and the date of certification of a complete response exceeds (typically) 90 days. In such cases, the Bureau will require responsive records to be current to within 30 days of the certification of a party’s response.
  • Timing Agreements: A revised section on “timing agreements” provides more detail about the situations in which the Bureau will consider using a timing agreement as an alternative means of obtaining additional information about a proposed transaction, as opposed to issuing a SIR. The revised section also notes that, in the context of a hostile transaction, the Bureau may request that a bidder provide a timing commitment (not to certify compliance before a specified date) to ensure that the Bureau has sufficient time to obtain and analyze information from all parties.
  • Sample SIR Instructions: The revised Guidelines contain sample SIR instructions, which set out the logistical procedures that parties must follow in complying with the SIR. The instructions include the relevant search periods, the means by which documents must be provided, and an acceptable manner in which to certify that a party has fully complied with a SIR.

Canadian Merger Enforcement Guidelines to be revised

Michael Kilby -

On February 24, 2011, the Commissioner of Competition announced that the Competition Bureau will undertake “moderate revisions” to the Canadian Merger Enforcement Guidelines (MEGs). This announcement follows a series of roundtable consultations with competition law practitioners across Canada, consultations with foreign agencies and an internal Bureau review. A wide variety of opinions were expressed during these roundtable consultations, including opinions as to whether revisions were necessary, particularly given that the MEGs were last revised in 2004 following a thorough review and consultation process. In this regard, an important factor driving the revisions is generally believed to be the 2010 revisions to the U.S. Horizontal Merger Guidelines (although these had last been revised in 1992).

The Bureau’s press release indicates that the MEGs will not undergo a “full rewrite” but rather will address specific areas where the current MEGs do not fully reflect Bureau practice and current economic and legal thinking. The Bureau’s announcement identifies a non-exhaustive list of seven areas in which the Bureau is considering revisions. These are: 1) providing additional guidance on monopsony issues; 2) explaining the Bureau’s approach to minority interests and interlocking directorships; 3) providing additional guidance on the Bureau’s approach to unilateral effects, in light of current economic thinking; 4) clarifying the framework for assessing coordinated effects; 5) providing more accurate guidance on vertical issues, focussing on foreclosure effects; 6) incorporating the Efficiencies Bulletin into the MEGs; and 7) clarifying that merger review is not a “linear process” that must start with market definition but is rather an iterative process where market concentration is considered together with other evidence of competitive effects. This last area is understood to refer to economic tools such as the “upward pricing pressure test” articulated by the economists Joseph Farrell and Carl Shapiro in 2008. The degree to which such tools find their way into the new MEGs is sure to be a matter of considerable interest and debate. 

The Bureau intends to publish revised draft MEGs in the second quarter of 2011 and will be seeking public feedback prior to finalizing the revised MEGs in the fall of 2011.

Competition Bureau confirms enforcement approach to new Guidelines on "Made in Canada" and "Product of Canada" claims

The Competition Bureau today clarified its enforcement approach with respect to the Bureau's revised Enforcement Guidelines for "Product of Canada" and "Made in Canada" Claims released in December 2009. The Guidelines will be an important resource for businesses who need to understand the Bureau's approach in assessing "Product of Canada" and "Made in Canada" claims for non-food products under the false or misleading representations provisions of the Competition Act, the Consumer Packaging and Labelling Act and the Textile Labelling Act. The Guidelines will take effect on July 1, 2010 and a six-month transitional period will follow. During this period, the Bureau states that it will only consider enforcement action in circumstances of bad faith.  In other cases, the Bureau will limit its response to apparent non-compliance to education and warning letters.

Canada's new US-style merger review process may increase burdens for more complicated transactions

Susan M. Hutton and Michael Kilby

New Merger Review Process

On September 18, 2009, following a consultation and comment period, the Competition Bureau issued its final Merger Review Process Guidelines, which explain the Bureau's approach to administering Canada's new, two-stage merger review process. The publication of the final Guidelines sheds important light on the Bureau's approach to the new process - especially given the lack of meaningful debate within the Canadian competition bar or Parliament as to the desirability or scope of the changes, prior to them becoming law in March, 2009, as part of an omnibus budget stimulus package rushed through Parliament in response to the economic crisis.

In summary, the new Canadian merger review process mimics that in the U.S., with an initial thirty-day waiting period, which can be extended for another thirty days after the merging parties comply with a "supplementary information request," or SIR, if one is issued during the initial waiting period. Anyone familiar with U.S. merger review will, of course, also be aware of the complaints regarding the enormous time and expense of complying with such "second requests" - and the questions regarding the efficiency of what some see as disproportional document production requirements.

While the Bureau was quick to deny that it would mimic the U.S. approach in terms of either the scope of documentary production, or the number of such requests that are issued, the Guidelines - and recent experience1 - indicate that many features of U.S. procedure and practice have been adopted - creating a more burdensome process for merging parties in complex cases than they were used to under the old regime.2


The merger process amendments were first formally proposed in the Gover Report, issued to the Commissioner of Competition on June 19, 2008, but only publicly released for broad distribution on August 12, 2008. Following an unfavourable Federal Court decision calling the Commissioner to task for seeking, on an ex parte basis, overbroad and duplicative document production in the Labatt/Lakeport merger3, Mr. Gover had been given a mandate by the Minister of Industry to investigate the Bureau's use of its investigative powers under section 11. Gover's recommendation, based on a limited consultation, was to implement a U.S.-style "second request" merger regime - thus allowing the Bureau unilaterally to issue wide-ranging document production subpoenas, without any judicial oversight at all. This recommendation was somewhat surprising - its implication being that the appropriate legislative response to the Federal Court's concerns over abuse of the Commissioner's powers was to eliminate the possibility for oversight of the Commissioner by the Federal Court.

On June 26, 2008, the Competition Policy Review Panel (the "Wilson Panel") issued its final report, Compete to Win, and similarly recommended adoption of a U.S.-style merger regime, despite the facts that its terms of reference did not include consideration of the merger review process, and that none of the approximately 155 written submissions made prior to the submission deadline, including the Commissioner of Competition's submission, had advocated or even suggested the possibility of adopting a U.S.-style merger regime. Subsequent written submissions by the Commissioner and oral submissions by invited experts to meetings of the Wilson Panel did address the merits of a U.S.-style merger regime and, as noted above, it had been promoted in the Gover Report issued to the Commissioner prior to issuance of the Wilson Panel report - but the nature of the process leading to both of those reports ensured the proposal remained largely under wraps until included in a blue-ribbon panel report whose broad-ranging recommendations to improve Canada's competitiveness were quickly adopted by the government of the day.

Given the lack of public debate about the merits of the amendments, little was known about the Bureau's approach to issuance of and compliance with SIRs. Moreover, questions were raised about how the new procedure would interface with unique, and well-regarded, features of the Canadian regime, including the ability of the Bureau (exercised in the vast majority of cases, which do not raise competition issues) to clear a transaction well within the thirty-day waiting period on the basis of a request for an "advance ruling certificate" (ARC) or no-action letter, rather than on the basis of formal notification.

The Guidelines

In that regard, the Guidelines do confirm that the best features of current practice regarding non-problematic transactions will remain in place. They also indicate, in our view, a more formalistic approach to compliance with documentary production requests than had necessarily been the case with the old section 11 order process.

  • The Bureau's practice of reviewing "non-complex" transactions within a maximum two-week timeframe (after receipt of sufficient information regarding the likely competitive impact), and of issuing ARCs where appropriate, remains unchanged. Such an approach maintains the widely acknowledged efficiency with which the Bureau reviews transactions that do not raise potential competition issues.
  • The Guidelines discuss the class of transactions falling within the Bureau's "complex" designation, which the Bureau endeavours to review within a maximum ten-week, non-statutory period, a period that is obviously longer than the initial thirty-day statutory waiting period. The Guidelines state that for some "complex" transactions, the Bureau will be willing to refrain from issuing a SIR, allowing the waiting period to lapse on the understanding that the parties will not close the transaction for an agreed-upon period and will cooperate with the Bureau's information requests on a voluntary basis. It should be noted, however, that based on limited experience to date, a "very complex" transaction will likely be subject to a SIR, and the Bureau appears likely to ask for a timing agreement in place of a SIR for a "complex" transaction - in practice, the waiting period will be extended (voluntarily or otherwise) for "complex" and "very complex" transactions.
  • The Guidelines note that before issuing a SIR, the Bureau will generally engage in limited "pre-issuance dialogue" with the merging parties, including providing a draft SIR to the parties. In this manner, parties may be able to identify issues related to how certain information is requested or is to be provided. The Bureau is open to the possibility that pre-issuance dialogue may lead to a reduction in the potential burden of the SIR - provided such dialogue is concluded quickly (i.e., a few business days, at most).
  • The Guidelines explain that the Bureau will engage in post-issuance dialogue with the merging parties regarding the scope of the SIR, and set out certain post-issuance practices and procedures. Most notably, a custodian maximum limit of thirty individuals (not including records contained in central files) will generally apply, in all but exceptional cases, where the parties cooperate in providing the Bureau with detailed information about their personnel structures, including specific discussions about individual roles and responsibilities.4
  • The Guidelines contemplate that in some circumstances (such as where there are no competition issues unique to Canada) it may be possible to limit custodians to the same custodians agreed upon for purposes of a U.S. second request. In certain circumstances, the Bureau may accept records provided to foreign competition agencies as being responsive to the Canadian SIR.
  • The Bureau will generally limit document production to year-to-date records plus the previous two calendar years. The Bureau will generally limit data requests to year-to-date data plus the previous three calendar years. The Bureau will generally not require parties to resort to producing records contained on back-up media if the Bureau can obtain sufficient records through less onerous means. The Bureau recommends that parties provide it with access to members of technical staff to discuss archival systems.
  • The Bureau is open to entering into timing agreements (wherein the parties agree not to fully comply with the SIRs before a specified date or event), which can include provisions respecting when the parties and the Bureau expect to reach certain milestones in the review of the transaction.

The Guidelines contain several elements of potential concern:

  • The Guidelines contemplate that where records provided "appear to be substantially incomplete," the Bureau could revisit the issue of custodians, including designating additional custodians to be searched. As a practical matter, requiring additional searches once the parties have fully complied with the SIR would delay the commencement of the second thirty-day waiting period by several weeks and, as discussed below, calls into question the legal grounds upon which the Commissioner can challenge the sufficiency of SIR compliance once the affidavit is filed.
  • The Guidelines' approach to potential challenges to SIR compliance is especially troubling. The Guidelines state that the Bureau must receive each party's response to its respective SIR before it can properly assess whether any information remains outstanding, and that the Bureau reserves the right to request additional information if production is deemed to be insufficient, and will do so "as soon as reasonably possible." This approach appears to ignore, however, 116(3) of the Act. Subsection 116(3) permits the Commissioner seven days within which to notify a party that it is required to submit information excluded on the grounds of subsection 116(2) (lack of relevance to the Commissioner's inquiry), or (2.1) (information previously supplied) - seven days commencing when the party submits the affidavit (without regard to whether the other party has also complied). More importantly, there is no express provision for the Commissioner to second-guess a party's sworn claim under subsection 116(1) that information cannot reasonably be obtained, is subject to solicitor-client privilege, or would breach a confidentiality requirement established by law. Absent challenge under subsection 116(3) within seven days of the filing of a party's affidavit, the Commissioner arguably has no power unilaterally to require the production of additional information or to delay commencement of the second waiting period.5
  • The Guidelines set out internal appeal procedures should the parties seek to contest the scope of the SIR, or should the Bureau contest the completeness of the SIR response. Under these processes, a senior Bureau official (including, potentially, an official not involved in merger review) is charged with resolving disputes between another senior Bureau official and the parties. The effectiveness and fairness of such internal review mechanisms - as compared to the potential for court supervision under the old section 11 regime - remain unclear.

As of mid-September, 2009, after six months of experience with SIRs, senior Bureau officials revealed that SIRs had been issued in respect of five proposed transactions. The Guidelines claim that the SIR process allows the Bureau to obtain records and data "through a more efficient and less formal information-gathering process than that associated with obtaining orders under section 11 of the Act." Time will tell, but experience to date suggests that the information-gathering process has become more, not less, formal with the new procedures - at least from the point of view of the merging parties. Moreover, the Guidelines' approach to questioning the sufficiency of SIR compliance may well prove contentious.


1 Members of Stikeman Elliott LLP's Competition Group, including the authors, have been counsel to parties that have received SIRs from the Competition Bureau under the new regime.
2 The old system, with a choice between a short and a long-form notification, had finite waiting periods, which the Commissioner could not extend without obtaining an injunction from the Tribunal to delay closing - thus putting power to delay closing beyond the waiting periods in the hands of the Tribunal, not the Commissioner. It also featured a requirement for the Commissioner to obtain a court order, albeit available on an ex parte basis, if she required further documents and information beyond that contained in notifications or provided voluntarily by the parties. The new regime eliminates, for practical purposes, court and Tribunal oversight for at least a period of several months, while parties must comply with detailed "supplementary information requests" issued by the Commissioner, before being in a position to bring the waiting period to a close.
3 See "Substantial disclosure obligations for production orders: Federal Court rebukes Commissioner in Labatt/Lakeport merger" (
The Competitor, February 2008).
4 Of note, the Bureau also reserves the right to require additional custodians to be searched, depending on its view of the sufficiency of production it receives once both parties have complied. Moreover, given the time and expense of document review for each custodian (outside technology firms are typically engaged to assist with retrieval of years of archived e-mails and documents, and small armies of lawyers are required to review the documents for relevance and privilege), the proportionality of even thirty custodians compared to the probative value of additional documents received must surely be questionable, at best, in many cases.
5 In this regard, in the case of a disputed subsection 116(1) claim that information is "not reasonably obtainable," privileged or would breach a legal requirement of confidentiality, the Commissioner would appear to have to use the new section 123.1 of the Act, pursuant to which the Commissioner may seek a court order enjoining completion of a transaction in violation of the waiting period (or, among other things, imposing a $10,000-per-day fine in respect of closed transactions), and/or requiring a person to submit information required under subsection 114(2) of the Act (the SIR provision). Arguably, by operation of subsection 116(1), however, information that the affiant believes in good faith to be subject to the 116(1) exceptions is not required under subsection 114(2) of the Act. Time will no doubt tell how courts will view the interplay between these provisions, but the exclusion of subsection 116(1) from the ability of the Commissioner unilaterally to challenge SIR compliance, and the limitation of the Commissioner's ability to request additional information to seven days after filing of the affidavit, are surely significant.


Canada's tougher cartel law into force March 12, 2010

Susan M. Hutton

The one-year delay before Canada's new, tougher, cartel law comes into force expires this month. Starting March 12, 2010, prohibited agreements between competitors will be criminally illegal in Canada, regardless of their impact on competition. The amendments result in the creation of a new category of "per se" criminal offences (so-called because the outlawed categories of agreement are "per se" illegal without proof of economic effect). Penalties under the new offence will also increase: from the former maximum five years imprisonment and/or C$10 million fine, to a maximum of 14 years and/or C$25 million.

The prohibited categories of agreement include agreements with existing or potential competitors to fix prices, allocate sales, customers, or markets, and to limit or control production or supply of a product. Such agreements are a criminal violation of Canadian competition law, unless the defence can show that they are both "ancillary and necessary" to a broader or different agreement, the purpose of which is not also prohibited (e.g., customer allocation could be necessary, in some circumstances, to a distribution agreement).

The amendments removed the requirement, which had existed in Canadian law since 1890, for the Crown to prove that the impugned agreement had led or was likely to lead to an "undue lessening of competition" - thus facilitating the prosecution of "hardcore" cartels.

As noted in the January 2010 edition of this newsletter, the Competition Bureau has issued Competitor Collaboration Guidelines outlining its intended approach to the enforcement both of the stricter section 45 prohibition against cartels, and of the accompanying civil provision under the new section 90.1 of the Competition Act, which enables the Competition Tribunal, on application by the Commissioner of Competition (head of the Bureau), to prohibit agreements which - although not criminally illegal - nonetheless have led or are likely to lead to a substantial lessening or prevention of competition.

While the Commissioner and the Guidelines have gone out of their way to attempt to reassure the Canadian business community that the new powers will be used responsibly, the fact remains that many agreements which were previously regarded as legal under Canadian law, due to their lack of economic impact, need to be reassessed under the new law.

Bureau Guidelines focus on consumer rebate promotions

Kim D.G. Alexander-Cook

On September 21, 2009, the Competition Bureau released its Enforcement Guidelines on Consumer Rebate Promotions. These Guidelines set out the Bureau's (non-binding) interpretation of both the criminal and the civil provisions relating to false or misleading representations under the Competition Act, the Consumer Packaging and Labelling Act, and the Textile Labelling Act as applied to consumer rebate promotions, and include examples of recommended best practices.

The Guidelines define consumer rebate promotions to include any type of promotion that involves a partial refund or discount from a manufacturer or retailer to consumers upon purchase, and make a distinction between "instant" rebates and "mail-in" rebates, the latter of which include any rebate obtained other than immediately at the time of purchase. The Bureau does not consider gift cards and other forms of credit on future purchases to be "rebates" for the purposes of the Guidelines, apparently taking the view that most consumers are likely to associate the term "rebate" specifically with the return of a portion of the price paid for the article or service in question.

The Guidelines review the issue of who bears responsibility for making false or misleading representations in connection with consumer rebates. As a general principle, liability for a representation attaches only to the person(s) who cause the representation to be made. The Guidelines make it clear that, pursuant to statute, the Bureau will generally view both the manufacturer and the retailer to be liable for misleading consumer rebate representations on or accompanying a product, unless the manufacturer is outside Canada, in which case the Bureau will view the importer and the retailer to be liable.

The heart of the Guidelines describes, with examples, the following five consumer rebate promotion practices that, in the Bureau's view, could comprise false or misleading representations, and in each case advises how to avoid problematic representations:

  • Inadequate Disclosure of Rebate Conditions, Limitations and Exclusions - avoided by clear and conspicuous disclosure of all information that may be material to a consumer's purchase decision (a list is provided);
  • Rebates Disguised as the Sale Price or Regular Price - avoided by refraining from the use of "sale" in reference to a consumer rebate;
  • Mail-in Rebates Disguised as Instant Rebates - avoided by prominent disclosure of the type of rebate offered;
  • Discounts on Future Purchases Disguised as Rebates - avoided by excluding any gift card or other future-purchase discount from representations as to the "price" of a product or as a "rebate";
  • Mail-in Rebates that are not Fulfilled - avoided by taking measures to ensure fulfillment houses and other service providers are performing in accordance with the rebate terms and conditions. The Guidelines go on to provide hypothetical examples of best practices with respect to instant and mail-in rebate offers.

The Guidelines reaffirm the Bureau's view that a case-by-case application of the false and misleading representations prohibitions under the legislation it administers is most appropriate for a wide variety of marketing practices, including consumer rebate promotions. However, the Guidelines also signal that the Bureau will firmly apply certain rules, at least presumptively, as it enforces these prohibitions. In particular, the Bureau clearly opposes the framing of any "in kind" payments to consumers (e.g., gift cards) as "rebates," and the characterization of a "rebate" as a type of "sale." In view of this, marketers will do well to ensure that any use of "rebate" or "sale" is accompanied "clear and conspicuous disclosure" to consumers of just what is meant by these terms as used in the representations in question.

Canadian Competition Bureau unveils Revised Merger Review Process Guidelines and filing requirements

Susan M. Hutton

The Canadian Competition Bureau recently unveiled draft new Guidelines for The Revised Merger Review Process, as well as a proposed Regulation Amending the Notifiable Transactions Regulations1.Both documents are in draft form, with comments requested by May 29, 2009 in the case of the draft Guidelines, and by June 3, 20092 in the case of the proposed Regulation. The sudden implementation of a U.S.-style two-stage merger review process on March 12, 2009 left the Bureau rushing to update the filing requirements, not least because the current Regulation speaks of a choice between a short-form and a long-form notification that no longer exists. The Bureau's draft process Guidelines seek to answer questions concerning "supplementary information requests," the equivalent of so-called "second requests" for documents and information in the United States. The issuance of such a request triggers the second stage of merger review and suspends the waiting period while the parties supply the additional information requested.

Among other things, the proposed amendments to the Notifiable Transactions Regulations set out the new uniform merger filing requirements, which essentially will mandate the filing of a "short form" notification plus documents in all cases. A "short-form" notification currently requires, along with certain basic information about the parties and the transaction, lists of the top twenty customers and suppliers for the principal products of each party and its affiliates with significant business in or with Canada. After coming into force (likely in summer 2009), the amended Regulation will also require the filing of two categories of documents:

  1. legal documents that are to be used to implement the proposed transaction (or the most recent drafts thereof); and
  2. studies, surveys, analyses and reports prepared or received by a senior officer for the purpose of evaluating or analysing the proposed transaction with respect to "market shares, competition, competitors, markets, potential for sales growth or expansion into new products or geographic regions."

The latter requirement is virtually identical to specification 4(c) of the merger notification form used in the United States3.These types of documents were previously required to be filed in Canada only as part of a long-form notification, but will now be required in all cases where formal notification is made. How many transactions this will affect remains to be seen, however, as the vast majority of notifiable transactions in Canada do not raise any serious competition issues and have in the past been the subject of requests for advance ruling certificates (ARCs) rather than formal notifications. It is not yet known whether the Bureau will now expect the so-called "4(c)" documents to accompany ARC requests - even in cases involving no or trivial competitive overlap. Doing so would significantly increase the regulatory compliance burden for the majority of notifiable transactions in Canada, arguably with little or no benefit to those reviewing such routine transactions.

The more controversial of the two draft documents, however, is likely to be the draft Guidelines for the The Revised Merger Review Process. The Guidelines seek to outline the Bureau's approach to the new two-stage merger review process generally, and to "supplementary information requests" in particular. As described in the Guidelines, the Act now provides for an initial 30-day waiting period, during which the majority of mergers will be reviewed (and during which the transaction may not be completed). For transactions where further review is required, the Act authorizes the Bureau to issue a "supplementary information request" which extends the waiting period for an additional 30 days from the date the requested information is supplied.

Second requests issued by the Bureau's counterparts in the United States are infamous for the time, money and managerial resources that must be expended in order to comply, and for the exhaustive scope of the information required. The American Bar Association revealed in 2007 that for 23 transactions for which information had been gathered, the total cost of complying with a second request had averaged over US$5 million (median US$3.3 million) and that agency review had taken about seven months (both average and median) to complete4. Competition Bureau Officials in Canada have sought to allay fears over the potential adoption of a comparable approach in Canada. That said, the draft Guidelines seem implicitly to confirm the Bureau's intention to adopt the basic premise of U.S. second requests, which is that before allowing the waiting period to expire, the agencies will require the production of e-mails and other documents generated or received over a two- to three-year period by those in positions of authority concerning the overlap products - whether probative or not.

The Canadians propose to limit the search to a maximum of 30 custodians in most cases (the ABA letter referred to above revealed that an average of 126 custodians and a median of 94 were required to be searched in the sample of second requests surveyed), and to engage in pre- and post-issuance dialogue in order to avoid, or at least narrow, the scope of a Canadian second request. The draft Guidelines also discuss internal controls on the scope and issuance of second requests, and outline internal "appeal" procedures parties may follow if they object to the scope of a second request.

Implicit throughout the Guidelines, however, is the assumption that - within 30 days of being notified of a proposed transaction that raises serious competition issues - the Bureau will demand production not only of the  information most relevant to its analysis (as was previously its practice with the issuance of relatively targeted information requests or court orders, typically much later in the process), but of all information that could potentially be relevant in any way to eventual litigation of the case. As such, it would appear that despite limiting the scope of second requests as compared to its U.S. counterparts, the burden that the Competition Bureau will place on parties to transactions that raise complex competition issues in Canada (and who wish eventually to see the waiting period expire) is about to undergo a quantum leap.

The Guidelines also indicate that, consistent with the practice in the United States, the Bureau will be open to identifying the most important information it requires on key issues, and to working through the issues and potentially clearing the transaction before the full scope of the information requested in the second request is actually produced. While parties may in some cases have their transactions cleared without fully complying with a second request, not all parties will be able easily to reach agreement with the Bureau on required remedies. For such transactions, the cost of reaching the position where the Bureau must go to the Competition Tribunal and prove a prima facie case in order to further delay the transaction may now be very high indeed.

As noted above, comments are requested in respect of the draft Guidelines by May 29, 2009, and in respect of the draft amendments to the Regulations by June 3, 2009.

1Canada Gazette Part I, April 4, 2006.
2Bill C-10, The Budget Implementation Act, 2009, received Royal Assent on March 12, 2009. In addition to measures designed to stimulate the Canadian economy, Bill C-10 included sweeping reforms to the Competition Act and the Investment Canada Act. Please see the
March, 2009 issue of The Competitor for details.
3The language in Item 4(c) of the Hart Scott Rodino Antitrust Improvements Act of 1976 reads "all studies, surveys, analyses and reports which were prepared by or for any officer(s) or director(s) (or, in the case of unincorporated entities, individuals exercising similar functions) for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets. . ."
4Letter to the Antitrust Modernization Commission dated February 22, 2007 from the Section of Antitrust Law of the American Bar Association re: Data Regarding the Burden of Responding to HSR Second Request Investigations (available

Canada's Competition Bureau seeks comments on revised Abuse of Dominance Guidelines

On January 16, 2009, Canada's Competition Bureau (the Bureau) released draft revised Abuse of Dominance Guidelines (the Updated Guidelines), which are intended eventually to replace the original guidelines released in 2001.

Abuse of dominance occurs when a dominant firm (or group of firms) in a market engage in a practice of anti-competitive acts with the result that competition is prevented or lessened substantially in a market. Sections 78 and 79 of the Competition Act set out the powers of the Competition Bureau to prohibit a dominant firm (or group of firms) from engaging in anti-competitive practices, or to require other remedial action if necessary to restore competition. At present, no damages or fines for abuse of dominance are provided for under the Act, although amendments to introduce fines have been proposed by the Government. To prove abuse of dominance, three principal elements must be established:

  1. one or more persons substantially or completely controls, throughout Canada, a class or species of business;
  2. the person or persons have engaged in a practice of anti-competitive acts; and
  3. the practice has had, is having, or is likely to have the effect of preventing or lessening competition substantially.

The Updated Guidelines do not represent a fundamental shift in the Bureau's enforcement policy, but rather expand upon the original guidelines and revise them in light of recent jurisprudence and developments in economic thinking. Most notable among these is the decision of the Federal Court of Appeal in the Canada Pipe case, which provided the first opportunity for the Federal Court to consider the application of the abuse of dominance provisions in sections 78 and 79 of the Act. Other relevant events include the publication of two separate bulletins clarifying the Bureau's approach to the abuse of dominance provisions in the context of the retail grocery and telecommunications industries, respectively.

Notable changes from the original guidelines include:

  • An updated explanation of how the Bureau will assess market power, including the application of the "hypothetical monopolist" test in defining the relevant market.
  • An updated approach to joint dominance. According to the Updated Guidelines, the Bureau will consider joint dominance where the firms appear to collectively hold market power based on their combined share of the market, and are engaged in similar alleged anti-competitive practices. In determining issues of joint dominance, the Bureau will also address, among other factors, barriers to entry or expansion in the affected market. The Updated Guidelines do not seem to require any co-ordinated conduct between the firms and emphasize that the mere exercise of market power on a collective basis does not in and of itself raise any issue under the abuse of dominance provisions.
  • An outline of the Bureau's approach to anti-competitive intent and legitimate business justifications in light of the FCA's decision in the Canada Pipe case. The Updated Guidelines indicate that the Bureau may consider valid business justifications for conduct that is allegedly anti-competitive, where it can be demonstrated that the anti-competitive effects were not the predominant purpose of the conduct. However, the Bureau will also consider the necessity of the conduct and whether there is an equally effective manner in which the cost savings could be achieved other than through the conduct in question.
  • Expanded discussion of specific forms of anti-competitive conduct, including: exclusive dealing; tying, bundling and bundled rebates; and denial of access to a facility or service.
  • Acknowledgement by the Bureau that it may consider a regulated conduct defence in its assessment.

The Updated Guidelines remain in draft form and are open to public comment until April 20, 2009. 

Transport Canada introduces guidelines for new CTA merger review provisions

Kim D.G. Alexander-Cook

On July 28, 2008, Canada's Ministry of Transport, Infrastructure and Communities (Transport Canada) released draft Guidelines for Mergers & Acquisitions Involving Transportation Undertakings (the Transport M&A Guidelines). The Transport M&A Guidelines, which were prepared in consultation with Canada's Competition Bureau, relate to the potential for a public interest review under section 53.1 of the Canada Transportation Act (the CTA) of certain proposed merger transactions involving federal transportation undertakings (those having an inter-provincial or international dimension).1,2

Transport Canada has also requested input on the possibility of new regulations exempting certain classes of transactions from the merger and review provisions of the CTA. Submissions related to the draft Transport M&A Guidelines and/or to exempting classes of transactions will be accepted until September 30, 2008.

Merger Review under the Canada Transportation Act

For all transactions "involving" a federal transportation undertaking, Section 53.1 of the CTA, enacted in June, 2007, provides that a copy of the Competition Act merger notification must be sent to the Minister of Transport at the same time it is filed with the Competition Bureau.

In the first phase of review, the Minister, after receiving a notification, forms an opinion as to whether the proposed transaction raises issues with respect to the public interest as it relates to national transportation.  If the Minister is of the opinion that such public interest issues are raised, a second phase of review commences. If not, the process ends. If a second phase of review is ordered, the Minister will direct the Canada Transportation Agency (the Agency) or any other person to examine and report on any national transportation-related public interest issues that are raised. Such reports, along with a report from, and consultation with, the Commissioner of Competition,3  are meant to inform the Minister's eventual recommendation to the Governor in Council (the Cabinet) for or against Cabinet approval of the proposed transaction, with or without terms and conditions.4

The Transport M&A Guidelines

The CTA contains explicit provision for Ministerial guidelines, elaborated in consultation with the Competition Bureau, that (1) specify the information parties must provide to the Minister and Agency when giving notice of a proposed transaction, and (2) include factors that may be considered to determine whether the transaction raises public interest issues in respect of national transportation.5

Public Interest Factors

The Transport M&A Guidelines enumerate five categories of public interest factors to be considered in assessing whether a transaction involving a federal transportation undertaking raises issues with respect to the public interest as it relates to national transportation.6The five categories (Economic, Environmental, Safety, Security and Social) and the numerous potential factors set out under these headings can be summarized as follows:

Economic Outcomes: Factors potentially impacting economic outcomes are listed under five sub-headings:

  1. Impacts on Users of the Transportation System: The prime interest here is any impact on prices, service levels and access to services by users.
  2. Impacts on Communities: Included are impacts on the location of a non-transportation industry (e.g., tourism), on labour and employment, and on service availability/affordability in low-density areas.
  3. Impacts on Other Transportation Undertakings: This includes impacts on intermodal connections and vertical and horizontal competitive effects.
  4. Impacts on Canada: Impacts on Canadian competitiveness, leadership, management/workforce expertise, harmonization and productivity improvements, trade, gateways and corridors, innovation, technology and R&D, taxation and government expenditure are all mentioned.
  5. Impacts on the Undertakings Involved: Mentioned here are the viability of the resulting entity and the cost/revenue impacts on the undertakings.

Environmental Outcomes: Improvement of the quality of life and the environment by reducing congestion and pollution will be a positive public interest factor.

Safety Outcomes: Where relevant, the potential to improve safety in the workplace and communities will be considered.

Security Outcomes: Transactions are not to have an adverse impact on the capacity to protect citizens and to respond to any threat, and the reliability of new owners where there is a change of control of a "key undertaking" could be relevant.

Social Outcomes: Impacts on low-income workers and families, on persons with disabilities, on public- and private-sector accountability and transparency, on culture and on Canadian sovereignty are identified as potential factors.

Information Requirements for a Notice of a Proposed Transaction

The Transport M&A Guidelines specify that a notice of a proposed transaction should include: (1) information required to be filed under the Competition Act; and (2) a Public Interest Impact Assessment.

As regards (1), it is already a requirement under the CTA that a notice to the Minister/Agency contain a copy of the information required to be filed in a statutory notification under the Competition Act. However, the Transport M&A Guidelines go on to indicate that the notice to the Minister is also to include information supplied to the Competition Bureau in support of a request for an advance ruling certificate (an ARC) under the Competition Act. This is not uncontroversial, however, because receipt of an ARC exempts a transaction from notification under the Competition Act, and thus also, on the face of the legislation, from any requirement to give notice under the CTA.7 

As regards the Public Interest Impact Assessment, the Transport M&A Guidelines provide that this submission should include, along with any other information the parties may wish to include:

  • a description of the transaction and its objectives, the transportation undertaking(s) involved and the objectives with respect to the undertaking(s), and of any proposed changes to the business or strategic plans in respect of such undertaking(s);
  • an assessment of relevant public interest impacts, information with respect to these impacts and a description of any proposed mitigation or remediation for any adverse impacts;
  • identification of major stakeholders who may be interested in the transaction and a description of any consultations with them;
  • identification of other government approvals required and their status; and
  • supporting evidence for the statements made in the submission.

The draft Transport M&A Guidelines are open for comment, as noted above, until September 30, 2008. While they add clarity to the form that filings with Transport Canada will take, stakeholders may well take issue with the view that transactions that have been the subject of an ARC, and are thus exempt from notification under the Competition Act (and, on the face of it, the CTA merger review provisions), must file under the CTA if they meet the financial thresholds.  Another area where clarification would be useful is the definition of a "transportation undertaking."

An obvious category of exemption from the CTA merger review provisions would be, for example, transactions subject to public interest review by the National Energy Board or, for that matter, foreign investment review (which includes consideration of national transportation policies) under the Investment Canada Act. Given the broad scope of information requested in the draft Transport M&A Guidelines, however, it appears at first blush that Transport Canada contemplates a review that would largely duplicate such processes.

1The CTA refers simply to a "transportation undertaking". The "federal" qualifier used here reflects the fact that certain transportation undertakings are only intra-provincial in nature and therefore, as a constitutional matter, are not subject to the CTA.

2In the case of a proposed air transportation undertaking, notice must also be given to the Canada Transportation Agency.

3If a public interest review is ordered under the CTA, then the Commissioner's review of the transaction is effectively subsumed as part of the broader CTA public interest review.

4Additional details about the process were reported in the July, 2007 issue of The Competitor.

5The Transport M&A Guidelines also address certain other features of the review process, including confidentiality, consultations with stakeholders, requests for additional information, assessment timing, and pre-notice consultations with parties.

6These categories spring directly from the "goals" for any regulation and strategic public intervention in transportation in Canada enumerated in Canada's National Transportation Policy as set out in the CTA, namely "economic, safety, security, environmental and social outcomes that cannot be achieved satisfactorily by competition and market forces".

7The Transport M&A Guidelines also state that parties are required to file the CTA notice of a proposed transaction (including, presumably, the Public Interest Impact Assessment) at the same time as parties either file a request for an ARC or a notification under the Competition Act.

Bureau publishes new Predatory Pricing Enforcement Guidelines

Susan M. Hutton

On July 21, 2008, the Competition Bureau (Bureau) published its new Predatory Pricing Enforcement Guidelines (New Guidelines), following the issuance of draft guidelines in October, 2007 and a period of public consultation.1 The New Guidelines supersede all previous statements of the Bureau and the Commissioner of Competition on the subject.

By way of background, the Bureau first released guidelines on predatory pricing - the practice of pricing goods or services below their cost, so as to eliminate or discipline or deter entry by a competitor - in 1992. A 2002 attempt to revise those guidelines was met with controversy, and that draft was ultimately withdrawn. Draft guidelines reappeared in October, 2007, and these have now been finalized in the form of the New Guidelines. The New Guidelines do not depart significantly from the draft version of October, 2007.

The New Guidelines confirm three policy changes in terms of the Bureau's enforcement approach to predatory pricing.

First, the Bureau will, at first instance, examine allegations of predatory pricing under the civil "abuse of dominance" provisions of the Competition Act (Act), which are contained in sections 78 and 79 (and which include a "substantial lessening or prevention of competition" test). Generally, it is only in the case of egregious conduct (such as predation as a disciplinary measure in furtherance of a cartel, or where the person or firm has a history of non-compliance with the Act) that the Bureau will seek to have a firm prosecuted under the Act's relevant criminal provision in paragraph 50(1)(c).2

Second, the Bureau establishes "average avoidable costs" as the yardstick it will use to gauge when prices are "unreasonably low." In theory, these include all costs, including opportunity costs, which could have been avoided by not selling the products in question during the period of time for which low prices prevailed. In addition to variable costs of production (which generally include ongoing expenses such as labour, materials, rent and utility costs, use-related plant depreciation, and promotional allowances), avoidable costs include some fixed costs (those that are not product-specific), but do not include sunk costs. The longer the period of time for which the low prices are in effect, the greater the proportion of costs that will become "avoidable." According to the New Guidelines, the Bureau will take a default position that a firm is pricing predatorily if it is selling products below average avoidable costs.

Third, the New Guidelines clarify that the presumption that a firm selling products below average avoidable costs is selling at unreasonably low prices can be overturned by a reasonable business justification, including, among others, the need to meet the competition's prices, the quick sale of perishable goods, and introductory sales.

Both the abuse of dominance and the criminal provisions require consideration of whether substantial harm to competition results, or is likely to result, from the alleged predation.4 In the context of predatory pricing, the New Guidelines take the view that a substantial lessening or prevention of competition takes place when a firm increases its market power to the point where it can recoup its losses - including through cross-subsidization - once the desired anti-competitive effect has been achieved. In the case of the criminal provision, despite the fact that it contemplates the elimination of a competitor (as opposed to a substantial lessening of competition) as a basis for criminal liability, the New Guidelines provide that, in general, the mere elimination of a competitor is not a sufficient basis for the Bureau to pursue predatory pricing under the criminal provisions.

The Commissioner has stated previously that she supports proposals to repeal the criminal prohibition and to rely solely on abuse of dominance to control predatory pricing. Such potential repeal is not mentioned in the New Guidelines. However, Bill C-454, a private member's bill to amend the Act by, among other things, repealing the criminal predatory pricing provision, has received second reading and will be reviewed by a Parliamentary committee this fall.

While the standard of "avoidable costs" has not been endorsed by Canadian courts, and is of questionable utility to business people who make pricing decisions without benefit of the economic experts necessary to calculate such costs, the other revisions to the Guidelines provide welcome clarification to the Canadian business community. The New Guidelines will hopefully alleviate the "chilling effect" currently flowing from the antiquated criminal predatory pricing provisions. Low prices are, after all, what competition is all about.

1Competition Bureau, "Predatory Pricing Enforcement Guidelines," July 21, 2008. 

2Paragraph 50(1)(c) of the Act stipulates that "[e]veryone engaged in a business who... engages in a policy of selling products at prices unreasonably low, having the effect or tendency of substantially lessening competition or eliminating a competitor, or designed to have that effect, is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years."

3The criminal provision in paragraph 50(1)(c) is in fact broader, needing the Crown to prove that the accused "engages in a policy of selling products at prices unreasonably low, having the effect or tendency of substantially lessening competition or eliminating a competitor, or designed to have that effect.."

New draft guidance on multi-level marketing and pyramid selling

Kim D.G. Alexander-Cook

On March 31, 2008 the Commissioner of Competition (the Commissioner) issued a draft Information Bulletin entitled Multi-level Marketing and Scheme of Pyramid Selling, Sections 55 and 55.1 of the Competition Act.  Once finalized, this bulletin will replace existing 1996 guidance on the same topic.  Written comments on the draft Bulletin will be accepted by the Competition Bureau until June 30, 2008.

Section 55 of the Competition Act (the Act) criminally prohibits an operator of or participant in a multi-level marketing (MLM) plan from making representations about compensation under the plan other than those that constitute or include "fair, reasonable and timely" disclosure relating to compensation actually received or likely to be received by "typical participants" in the plan. In addition, section 55 obligates MLM plan operators to ensure that compensation representations made by plan participants to prospective plan participants meet this "fair, reasonable and timely" disclosure standard, subject to a due diligence defence.Section 55.1 of the Act defines when an MLM comprises a "scheme of pyramid selling," and prohibits a person from establishing, operating, advertising or promoting a scheme of pyramid selling. Both sections 55 and 55.1 are criminal provisions featuring a maximum sentence for conviction on indictment of five years in prison and/or a fine in the discretion of the court, and a maximum sentence on summary conviction of one year in prison and/or a fine of $200,000.

The draft Bulletin revises and extends the Bureau's 1996 guidance. However, it does not appear to signal any significant change in the Commissioner's approach to interpreting and enforcing sections 55 and 55.1 of the Act.

Beyond rearranging and refining the contents of the 1996 guidance, the following additional material is included in the draft Bulletin:

  • Bureau definitions for "operator," "prospective participant," "non-typical participant" and "operator's or seller's cost";
  • a more detailed description of communication that in the Bureau's view comprises a "representation relating to compensation";
  • additional examples of conduct that in the Bureau's view comprises or may comprise a "scheme of pyramid selling," in particular related to:
    • prohibited compensation for the recruitment of others to an MLM plan,
    • prohibited purchase requirements as a condition of participation in an MLM plan, and
    • inadequate rights for participants in an MLM plan to return products for substantial reimbursement;
  • a list and description of information required in support of a written advisory opinion from the Bureau concerning an MLM plan; and
  • a list and description of circumstances under which the Bureau will refuse to provide a written advisory opinion concerning an MLM plan.

The new draft Bulletin undoubtedly improves upon the 1996 Bulletin.  It is more comprehensive and carefully crafted, and the additional examples of suspect conduct are a helpful elaboration on the Bureau's views.  Moreover, the description of information required by the Bureau for an advisory opinion and the description of when such an opinion will not be rendered will be of genuine practical assistance to anyone proposing an MLM plan.

Bureau releases new draft Predatory Pricing Enforcement Guidelines

Ian Disend and Susan M. Hutton

On October 9, 2007, the Competition Bureau (the Bureau) released new draft Predatory Pricing Enforcement Guidelines (the Guidelines)."1Public comment is requested before January 18, 2008.

The Bureau first released guidelines on predatory pricing - the practice of pricing goods or services below their cost, so as to eliminate or discipline a competitor - in 1992. An attempt in 2002 to revise the Guidelines met with controversy, and that draft was ultimately withdrawn. The latest draft Guidelines go further than previous Guidelines in confirming the treatment of predatory pricing by the Bureau, at the first instance, as a civil matter under the "abuse of dominance" provisions, and thus subject to a competitive impact test (the actual legal provision being criminal and being capable of enforcement if a competitor is likely to be eliminated, even if there is no substantial lessening of competition). The new draft Guidelines also fully adopt the "avoidable cost" standard for the determination of unreasonably low prices.

According to the Guidelines, the Bureau's default approach to allegations of predatory pricing will be to examine the conduct under the civil "abuse of dominance" provisions of the Competition Act, which are contained in sections 78 and 79 (and subject to a substantial lessening or prevention of competition test). It is only in the case of particularly egregious conduct (such as predation as a disciplinary measure in furtherance of a cartel, or in contravention of a Tribunal order) that the Bureau will seek to have a firm prosecuted under the Act's relevant criminal provision in paragraph 50(1)(c).2

In the Guidelines, the Bureau establishes "average avoidable costs" as the yardstick it will use to gauge when prices are "unreasonably low." In theory, these include all costs, including opportunity costs, which could have been avoided by not selling the products in question during the period for which low prices prevailed.  In addition to variable costs of production, avoidable costs may include, depending on the time period in question, use-related depreciation, "quasi-fixed costs," and incremental fixed and sunk costs linked to sales during the period of alleged predation.

According to the draft Guidelines, the Bureau will take a default position that a firm is pricing predatorily if it is selling products below average avoidable costs. This presumption can be overturned by a reasonable business justification, which includes meeting the competition's prices, the quick sale of perishable goods, introductory sales, etc.

Both the abuse of dominance and the criminal provisions require consideration of whether substantial harm to competition results, or is likely to result, from the alleged predation.3.In the context of predatory pricing, the Bulletin takes the view that a substantial lessening or prevention of competition takes place when a firm increases its market power to the point where it can recoup its losses - including through cross-subsidization - once the desired anti-competitive effect has been achieved. In the case of the criminal provision, the potential or actual elimination of a competitor can also be the basis for sanction even without substantial anti-competitive effect, and this includes preventing a competitor from entering a market. The Commissioner has stated previously that she supports proposals to repeal the criminal prohibition and to rely solely on abuse of dominance to control predatory pricing. Such potential repeal is not, however, mentioned in the draft Guidelines.

1Competition Bureau, "Competition Bureau Seeks Comments on Predatory Pricing Enforcement Guidelines," October 9, 2007,

2Paragraph 50(1)(c) stipulates that "[e]veryone engaged in a business who . engages in a policy of selling products at prices unreasonably low, having the effect or tendency of substantially lessening competition or eliminating a competitor, or designed to have that effect, is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years."

3The criminal provision in paragraph 50(1)(c) is in fact broader, needing the Crown to prove that the accused "engages in a policy of selling products at prices unreasonably low, having the effect or tendency of substantially lessening competition or   eliminating a competitor, or designed to have that effect.."


Bureau consults on abuse of dominance provisions as applied to telecommunications industry

D. Jeffrey Brown and Kevin Rushton

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

The Abuse of Dominance Provisions

In order for the Competition Tribunal to find under section 79 of the Act that a firm (or group of firms) has abused its dominant position, the Commissioner of Competition must establish three elements: (1) the person(s) substantially or completely controls a class or species of business (i.e., has market power); (2) that person(s) has engaged in or is engaging in a practice of anti-competitive acts; and (3) the practice has had, is having or is likely to have the effect of substantially lessening or preventing competition in a market. Section 78 lists several "anti-competitive acts" for the purposes of section 79, however the list is not exhaustive and other conduct the purpose of which is exclusionary, predatory or disciplinary may also be "anti-competitive".

The Draft Bulletin reviews the Bureau's enforcement approach to section 79 as set out in its Enforcement Guidelines on the Abuse of Dominance Provisions, highlighting considerations specific to the telecommunications industry. While the Bureau continues to regard a "sector-specific" focus as "the exception rather than the rule,"1 the Bureau believes that the Draft Bulletin will assist with the telecommunications sector's transition from sector-specific regulation to greater reliance on market factors, including greater reliance on the Act. In this regard, the Bureau states that "[g]iven the complex relationships that exist within the industry and the history of competitive disputes which the CRTC has considered, the Bureau may receive a significant number of complaints within the sector." "Nothing in the [Draft] Bulletin," however, "deviates from the enforcement approach outlined in the [Bureau's more general] Enforcement Guidelines on the Abuse of Dominance Provisions."

Dominance (Market Power)

A product and geographic market generally must be defined in order to assess whether a firm possesses market power. The principles underlying relevant product and geographic definition do not differ when applied to the telecommunications sector. The Draft Bulletin does, however, highlight certain features of the telecommunications sector that, while not unique to it, may be relevant to the question of market definition in the telecommunications sector.

The Draft Bulletin states, for example, that a bundle of telecommunications services may constitute a separate product market if consumers would not purchase the services on a stand-alone basis in the face of a small but significant and non-transitory price increase. This is only true, however, if all competitors can offer a comparable bundle, otherwise the bundle may not be a distinct product market. With respect to geographic market definition, "the Bureau would define the relevant geographic market based on a specific location if subscribers to services provided at that location were not willing to substitute to services supplied at a different location." Thus, "[i]n essence, a household or place of business theoretically could be defined as a relevant geographic market." That said, the Draft Bulletin states that "the Bureau would aggregate all locations that have the same competitive alternatives . into a single geographic market", such that "a geographic market can be defined around the network of a dominant firm based on its overlapping footprint with competing networks that provide the relevant telecommunications services".

The Draft Bulletin also highlights "other" market characteristics that can be important features of the sector and are relevant to the question of whether market power exists. In addition to market share and barriers to entry, the Draft Bulletin identifies "countervailing power, and technological change and innovation" as "particularly important to the assessment of telecommunications markets." Moreover, with respect to market share, the Draft Bulletin, noting that the provision of telecommunications services is "tied to a location and [that] the number of competitive alternatives that are available to consumers can differ depending on where they live or carry on business," suggests that capacity, rather than market shares, represents an important measure of market power in the telecommunications sector. The Draft Bulletin states: "When substantial excess capacity remains in a market, allowing firms to easily increase supply in response to an increase in price, the ability to raise price[s] above competitive levels may be considerably lower than what a simple concentration measure might suggest."

Practice of Anti-Competitive Acts

The Draft Bulletin notes that "[c]ertain types of anti-competitive acts may be more common in, or perhaps even unique to, the telecommunications industry." Actual or constructive denial of access to an "essential" facility, for example, may be anti-competitive, according to the Draft Bulletin, if (i) the firm that controls the facility is dominant in the upstream (wholesale) market for the facility and also the downstream (retail) market in which the facility is an input, and (ii) the denial of access is for the purpose of excluding competitors from entering or expanding in the downstream market (i.e., because it is "difficult or impossible" for the competitor to "practically or reasonably duplicate the facility").

The Draft Bulletin states that predatory pricing can also be an anti-competitive act if (i) "the alleged predatory price is below the average avoidable costs of the firm that is alleged being driven from the market", (ii) the alleged predatory price is below the alleged predator's avoidable costs, and (iii) the alleged predator will likely be able to recoup its losses by charging prices above competitive levels. That said, the Draft Bulletin states that "[a]s a general principle, where a dominant telecommunications service provider's response to competition consists only of reducing prices to levels which match, but do not undercut those of a competitor ("meeting the competition"), the Bureau will not take enforcement action when considering allegations of predation."

With respect to "targeted pricing" - the "practice of offering certain customers a significantly better price than charged previously, or that deviates from what it usually charges other customers in the market" - the Draft Bulletin notes "the inherent difficulty in establishing objective criteria that can distinguish between targeted pricing that is harmful and that which is beneficial competitive conduct." The Bureau will require "considerable ancillary evidence" in support of a claim where the targeted price exceeds avoidable costs. Bundling could constitute an anti-competitive act if it meets the Act's definition of tied selling or amounts to predation.

Substantial Lessening or Prevention of Competition

The Draft Bulletin confirms that the Bureau will apply its "but for" approach2 to assessing anti-competitive effects in the telecommunications industry. More particularly, the Bureau will ask: "'but for the practice in question, would there be substantially greater competition in the relevant market, in the past, present or future?"

In addition to being of special interest to those in the telecommunications industry, the Draft Bulletin will no doubt serve to stimulate continued discourse on the Act's abuse of dominance provisions more generally.

Canada issues Technical Bulletin on "Regulated" Conduct: Competition Bureau maintains a cautious approach

On June 29, 2006, the Competition Bureau (the Bureau) released the final version of its Technical Bulletin on "Regulated Conduct" (the Bulletin). The Bulletin outlines the Bureau's approach to enforcement of the Competition Act (the Act) in respect of conduct that is authorized or required by a federal, provincial or other law (i.e., the so-called "regulated conduct doctrine", or "RCD"). Given that the RCD operates to immunize certain conduct from the Act, and therefore narrows the Bureau's jurisdiction, it is perhaps not surprising that the Bulletin reflects a strict approach to the RCD's application. That said, the Bulletin notes that even if the RCD is not available in a given case, other defences, such as a lack of mens rea or official inducement of error, may apply to exempt conduct from the Act's application. In short, in cases where the RCD does not apply, the Bureau will still consider, using other tools of statutory interpretation, whether Parliament intended that the impugned conduct be exempt from the relevant provisions of the Act.

The RCD has been the subject of litigation - and indeed considerable controversy - in recent years. This controversy arose in part from a series of cases that appeared to have expanded the doctrine beyond its traditional limits, in particular by applying the RCD to:

  • conduct not strictly mandated under other legislation, but which was authorized in general terms;
  • conduct authorized by other federal as well as provincial legislation; and
  • prevent the application of both the criminal and civil provisions of the Act.

Faced with what one expects the Bureau might perceive as the threat of encroachment on its jurisdiction, and armed with a Supreme Court of Canada decision (albeit with respect to the Criminal Code and not the Act - see Garland, discussed below) espousing a relatively restrictive view of the RCD's application, the Bulletin reflects the Bureau's assertion of jurisdiction to challenge anti-competitive conduct in all but the most clear cases of legislative desire to the contrary.

The Bulletin reflects stakeholder feedback received by the Bureau since its release of a draft version in November, 2005 (the Draft Bulletin). The Draft Bulletin itself constituted a substantial revision of an earlier attempt at setting out the Bureau's views on the RCD in the form of an Information Bulletin on the Regulated Conduct Defence issued in December 2002. The original attempt had met with significant criticism and was subsequently overtaken by the Supreme Court of Canada's statements, albeit in obiter, in Garland.

In setting out the Bureau's approach to the application of the RCD, the Bulletin (understandably) starts from the premise that the Bureau "is obliged to administer and enforce the Act, and that the Act is a framework law of general application". Consistent with the views espoused by the Supreme Court of Canada in Garland, the Bulletin goes on to state that Parliament "is not presumed to depart from the general system of law without expressing its intentions to do so with irresistible clearness." Characterizing the RCD case law as "underdeveloped" and as an "exception" to this rule (and to other rules of statutory interpretation, including the general rule of federal paramountcy), the Bulletin states the Bureau's view that "a cautious application of the RCD is warranted."

An example of the Bureau's "cautious" application of the RCD is its view that the RCD will apply only where a validly enacted provincial law conflicts with the Act in such a way that a party cannot comply with both laws (i.e., so-called "impossibility of dual compliance"). While the Bulletin recognizes that other courts, including the Supreme Court of Canada in Jabour, had previously applied the RCD to conduct that was simply authorized and not compelled by provincial law, and in circumstances in which compliance with both laws would have been possible, it confines Jabour to its facts. The result, it appears, is the recognition that the RCD may apply to allegations of anti-competitive conspiracy arising out of conduct generally authorized by provincial legislation, but the potential imposition - presumably - of liability (barring other defences) for other sections or in respect of federally authorized conduct which was clearly authorized and not required.

In contrast, the Bulletin highlights the Supreme Court of Canada's "most recent pronouncement on the RCD," notwithstanding the fact that Garland was not a competition law case and that its treatment of the RCD was obiter. In Garland, the Bulletin notes, the Supreme Court of Canada "held that the RCD can only immunize conduct from the Criminal Code where the Criminal Code clearly allows for application of the RCD, for example, by 'leeway language' such as "against the interests of the public' or 'unduly [limiting competition]' found in the competition law provisions at issue in previous RCD case law. The Bulletin, therefore, treats the RCD as frozen in time, pinning it to specific language addressed in "previous RCD case law" (i.e., "undueness" language in the Act's criminal conspiracy provisions, which continues to exist through section 45) and excluding similar language contained in more recently enacted provisions of the Act (such as the requirement of a "substantial prevention or lessening of competition" found in the Act's reviewable practices provisions). The Garland approach similarly excludes provisions without leeway language, even though conduct that was the subject of the earlier case law could be challenged as a contravention of the Act's price maintenance provision, which, unlike section 45, is a per se offence without the "leeway language" necessary to allow application of the RCD.

The effect of the Bulletin's approach is significant. In a nutshell, it limits the RCD's potential application to allegations of criminal anti-competitive conspiracy to a single provision of the Act (section 45). It also limits it to conduct that is provincially (not federally) regulated. Therefore, while the Bureau will refrain from investigating conduct as a criminal conspiracy under section 45 of the Act if it was "authorized" or required by valid provincial legislation, it considers itself to have retained jurisdiction to investigate such conduct as a potential violation of any other provision of the Act - even where a direct conflict between the laws exists, provided that it determines that Parliament intended for the Act to apply to the conduct.

Although the Bulletin contains no practical examples, the analytical framework it describes leads logically to the conclusion that even provincial marketing boards (the source of most of the early RCD cases and long thought to lie outside the scope of the Act) could potentially be subject to investigation under the abuse of dominance provisions, or even the criminal prohibition against price maintenance. It is doubtful that the Bureau would actually seek to enforce its jurisdiction in this manner, but, as the Bulletin points out, the case law in the area is underdeveloped and the potential for such enforcement flows from the Bureau's strict reading of (or, in any event, some of) the RCD case law.

While there is no principled reason why the RCD could not extend to conflicts between the Act and other federal laws, the Bulletin points to a relative absence of jurisprudential support for such application of the RCD. It does not follow that the Bureau would necessarily seek to apply the Act in such a case, since the Bulletin makes it clear that other defences or doctrines might apply to achieve the same result. Consistent with the "impossibility of dual compliance" approach to statutory conflict, however, when faced with potentially conflicting federal laws, the Bureau will first determine whether a party may reasonably comply with both laws. If there is a conflict between the Act and another federal law, the Bureau will seek to determine whether Parliament intended that the Act apply to the impugned conduct. If it determines that Parliament has expressly or impliedly articulated an intention to displace competition law enforcement, the Bureau will not pursue the matter further. The Bulletin clarifies the Bureau's position on implied intention, stating that the other federal law is intended to take precedence over the Act where Parliament has enacted specific "provisions to address the conduct in question," or has provided an exhaustive statement of law concerning the matter.

Despite acknowledgement in the Bulletin that the case law does not expressly distinguish between regulators (such as provincial marketing boards) and those they regulate (so-called "regulates"), and despite strong submissions made in response to the Draft Bulletin against drawing such a distinction, the Bulletin maintains the Bureau's position that regulatees (including self-regulatory bodies such as medical associations or law societies) may be subjected to greater scrutiny than regulators.

There can be no doubt that the Bulletin adopts, as the Bureau puts it, a "cautious approach" to the application of the RCD. However, the Bulletin also leaves the door open for a pragmatic, flexible approach toward actual enforcement activity. While stating that the RCD will not often operate to deprive the Bureau of jurisdiction, Bulletin also states that the Bureau will not necessarily proceed simply because it has the jurisdiction to do so. In each case, the Bureau will consider whether it is "in the public interest to pursue the conduct under the Act in the circumstances." Members of provincial marketing boards presumably need not fear the competition police at their doors just yet.

Recent Group Activities

Members of the Group are participating in the Canadian Bar Association Annual Fall Conference on Competition Law on September 28-29, 2006. Susan Hutton is Chair of this year's conference. Katherine Kay is to speak on "The Real Criminal Procedure: The Art of Obtaining Immunity"; Paul Collins to moderate session on "Multinational Hostile Takeovers in Action"; Jeffrey Brown to moderate session on "Foreign Investment Review in a Globalizing World - U.S. and Canadian Perspectives"; and Shawn Neylan to moderate session on "Swimming in a Sea of Production - Responding to Section 11 Orders, Second Requests, Search Warrants and Inventive Class Action Plaintiffs."


Susan Hutton and Kevin Rushton acted for Bregal-Birchill in Birchill Energy Limited's $440-million acquisition by Harvest Energy Trust.

Paul Collins acted for ING Real Estate in its $3.3-billion bid for Summit REIT.

Susan Hutton and Kevin Rushton acted for Anadarko Petroleum Corporation in the US$4.24-billion sale of Anadarko Canada Corporation to Canadian Natural Resources Limited.

Uncertainty Continues in Application of Regulated Conduct Defense

Danielle K. Royal

The Competition Bureau (the Bureau) recently released for consultation a revised draft Technical Bulletin on "Regulated" Conduct (the Draft Bulletin) setting out the Commissioner of Competition's approach to enforcement of the Competition Act where the impugned conduct may be regulated by another federal, provincial or municipal law or legislative regime.1A review of the Draft Bulletin indicates that the Bureau has considerably narrowed the scope of the defence - subject to further clarification by the courts. Comments are requested by February 3, 2006.

The Draft Bulletin draws an important distinction between conduct regulated by federal laws as opposed to conduct regulated by provincial laws. With respect to federal laws, it states that in circumstances where a party is unable to reasonably comply with both the Competition Act and another federal law, the Bureau will not pursue a matter under the Competition Act if Parliament has articulated an intention to displace competition law enforcement either explicitly through legislation or implicitly by establishing a comprehensive regulatory regime that authorizes a regulator to act inconsistently with the Competition Act.2 Moreover, the Bureau appears to recognize that in the context of conflicting federal laws, the regulated conduct defence is applicable both to the criminal provisions and the reviewable practice provisions of the Competition Act. However, the Bureau's approach to impugned conduct authorized by provincial regulatory laws is more restrictive and uncertain.

In the context of provincial regulatory laws, while the Bureau recognizes that the regulated conduct defence is a common-law exception to the doctrine of federal paramountcy, it only definitively acknowledges the application of the defence in the context of section 45 conspiracy offences. With respect to other criminal provisions of the Competition Act, the Bureau, citing the Supreme Court's decision in Garland v. Consumers Gas Co.3, suggests that reliance on the regulated conduct defence requires evidence that Parliament intended the application of such a defence. 4 Moreover, the Bureau seriously questions the applicability of the regulated conduct defence to the (civil) reviewable practice provisions when they conflict with provincial statutes, based upon its claim that the "leeway language" referenced in Garland and contained in section 45 of the Competition Act ("undue" lessening) does not appear in the civil provisions (which are largely subject to the "substantial" lessening standard). While the Bureau does not go so far as to reject the applicability of the defence to reviewable practices, it says that in the context of provincial laws the Bureau's approach will merely be informed, but not governed, by the regulated conduct defence jurisprudence.

Finally, the Draft Bulletin openly states the Bureau's intention to develop the case law in this area and suggests that the Bureau will also explore a legislative resolution to the ambiguity surrounding the regulated conduct defence. The Bulletin - even when finalized - will not be the final word on these issues.


[1] The Draft Bulletin is intended to replace the Bureau's 2002 Information Bulletin on regulated conduct, which was withdrawn in August, 2005 following extensive criticism that the Bureau had failed to seek stakeholder input before publication and therefore the Bulletin did not accurately reflect the jurisprudence relating to the regulated conduct defence.

[2] The Bulletin provides no examples, however, of any such alternative regimes. Whether it now considers review of the proposed acquisition of a radio or TV broadcaster by the CRTC on public interest grounds to qualify, as was the subject of recent litigation (see Astral Média Inc. v. Le Commissaire de la concurrence et al. and Télémedia Radio Inc. v. Le Commissaire de la concurrence, Federal Court - Trial Division, Court File Nos. T-2256-01 and T-2256-02), is not clear.

[3] [2004] 1 S.C.R. 629 ( "Garland").

[4] If such Parliamentary intent is absent, the Bureau states that it may nevertheless exercise its discretion not to pursue an inquiry if it is not in the public interest to do so.

Revised Merger Enforcement Guidelines Issued by the Competition Bureau

Susan M. Hutton and Patricia Martino

On September 21, 2004, the Competition Bureau issued the highly anticipated revised Merger Enforcement Guidelines (MEGs). The revised MEGs replace the Merger Enforcement Guidelines first published in 1991 as a comprehensive explanation of the Competition Bureau's (the Bureau) merger enforcement policy under the Competition Act. The Bureau released a draft version of the revised MEGs for public comment on March 25, 2004, which closely resembled the final document. As noted in the April 2004 edition of The Competitor, the new MEGs reflect a refinement of analytical approach rather than a wholesale change. Notably, the "safe harbour" market share thresholds are unchanged. That said, the new MEGs reveal important refinements of the Bureau's approach to, among other things:

  • Definition of a "merger": The MEGs expand the discussion of when a minority interest can constitute a "significant interest" for merger review purposes, and of when a transaction other than an acquisition can also be viewed as a merger.
  • Anti-Competitive Threshold:
    Substantial lessening or prevention of competition: The new MEGs include an expanded discussion of the circumstances under which a transaction is likely to substantially "prevent" competition.
    Substantial lessening or prevention of competition: The Bureau will evaluate whether the merger is likely to provide the merged entity (alone or with others) with the ability to materially influence price in a substantial part of a market, regardless of whether the firm will be dominant, and regardless of the size of the price increase in question, so long as it will be sustainable profitably for two years or more.
  • Market definition: Product and geographic markets are defined having regard only to demand-side substitution. Supply-side responses are relevant only in determining the participants in, or potential entrants into, a market.
  • Coordinated effects: There is a significantly expanded discussion of the issue of coordinated effects (formerly, "interdependence": that is, the exercise of market power that depends upon coordination with rivals for its success). High market concentration and barriers to entry are recognized as two necessary conditions for coordinated anti-competitive effects, but the MEGs list other factors that may, in the Bureau's view, facilitate coordination. The Bureau will analyze the impact of the merger on these factors where the pre-conditions so warrant.
  • The Efficiency Defence: In light of the Federal Court rulings in Superior Propane, the MEGs encourage parties relying on the efficiency defence to make submissions as to how the different qualitative and quantitative anti-competitive effects of the transaction (in addition to the dead-weight loss) ought to be balanced against the efficiencies expected to flow from the transaction. Interestingly, the new MEGs contain detailed provisions regarding efficiencies, even as legislative reform is actively being considered.


Canadian Merger Review:New MEGs Released in Draft for Public Comment

Susan M. Hutton and Catherine Mckenna

On March 25, 2004, the Canadian Competition Bureau released its highly anticipated draft revised Merger Enforcement Guidelines (Draft MEGs) for public comment. Once finalised this summer, they will replace the Merger Enforcement Guidelines first published in 1991 (1991 MEGs) as a comprehensive explanation of the Competition Bureau's merger enforcement policy under the Competition Act (the Act).

The revised MEGs are not intended to "reflect a shift in policy or direction" but rather to "clarify and explain the Bureau's current practice." Notably, the "safe harbour" market share thresholds established in the 1991 MEGs have not changed. Since 1991, however, there have been significant new developments in Canadian merger review, including a number of important Competition Tribunal and court decisions, as well as developments in the underlying economics. The Draft MEGs are intended to reflect these developments, and are replete with references not only to contested cases, but also to numerous uncontested cases decided - effectively - by the Commissioner.

The format of the MEGs has also changed. Gone is the step-by-step analysis of the statutorily identified "section 93 factors" relevant to the analysis of the competitive impact of a transaction. Rather, the Draft MEGs are now organized thematically. Following chapters on "Definition of Merger", "The Anti-Competitive Threshold", and "Market Definition", the factors relevant to competition are part of the discussion of "Market Share and Concentration", "Anti-Competitive Effects", "Entry", "Countervailing Power", "The Efficiency Exception", "Failing Firm", "Vertical Mergers" and "Conglomerate Mergers".

Comments on the Draft MEGs are due by May 25, 2004, and the final document will be issued in the summer of 2004.

Of particular note, the Draft MEGs contain important new insight into the Bureau's approach to, among other things:

  • the definition of a "merger": significantly expanded discussion of when a minority interest can constitute a "significant interest" for merger review purposes, and of when a transaction other than an acquisition can also be viewed as a merger. While the 1991 MEGs focused on the influence of the acquirer over the acquiree through voting shares, the Draft MEGs provide additional guidance on the ways in which influence could be exercised. For example, the guidelines provide that financing arrangements and terms of default relating to such arrangements, long-term contractual arrangements or pre-existing long-term business relationships are examples of arrangements that could enable a party to materially influence management decisions of another business and may constitute a "merger" under section 91.
  • the anti-competitive threshold: expanded discussion of the circumstances under which the Bureau would determine that a transaction is likely to substantially "prevent" competition. Referencing recent Competition Tribunal decisions, the Draft MEGs gives examples of mergers that may result in the prevention of competition, such as: an acquisition that prevents a rival's expansion into a new geographic market; an acquisition that precludes the pro-competitive effects of new capacity; and an acquisition that prevents a rival's expansion into new product areas.
  • clarification of the test for a substantial lessening of competition: the Bureau evaluates whether the merger is likely to provide the merged entity (alone or in concert with others) with an ability to profitably sustain a material price increase in a substantial part of a market, regardless of whether the firm will be dominant, and even if the price increase in question is less than 5% (so long as it will be sustainable profitably for two years).
  • recognition that increased buyer power will result in below-competitive prices when the buyer is prepared to reduce the purchase of inputs.
  • market definition: clarification that markets are defined having regard only to demand-side substitution - supply side responses are relevant only to determining the participants in, or potential entrants into, a market.
  • product market definition: expanded discussion of differentiated product markets, and possibility that suppliers of non-substitutable products might be in the same product market where buyers value a single source of supply.
  • geographic market definition: discussion of spatial competition analysis and the process by which the Bureau delineates the boundaries of local or regional markets, where necessary for its analysis.
  • anti-competitive effects: expanded discussion of the issue of coordinated effects (formerly, "interdependence"), a topic of significant interest and debate among competition lawyers and economists. The Draft MEGs include a list of factors that the Bureau will consider in its analysis of coordinated effects. These factors include: product and cost homogeneity; stability of underlying costs; market transparency; many small buyers making frequent purchases; multi-market exposure; inelasticity of demand; limited excess capacity; and a history of collusion/cooperation.
  • new chapter on countervailing power, with application to both supplier and buyer power cases.
  • of necessity, given the Federal Court rulings in Superior Propane, the Bureau's approach to the efficiencies defence has been substantially revised. In particular, the 1991 MEGs looked only at the deadweight loss to society when evaluating the anti-competitive harm, whereas the Court directed the Bureau to evaluate the anti-competitive effect of the transaction from the perspective of all of the objectives of the Act (not merely allocative efficiency). The result is a multi-faceted, and admittedly subjective, balancing that will be highly case specific. In recognition of this, the Draft MEGs encourage parties relying on the efficiencies defence to make submissions as to how the different qualitative and quantitative effects of the transaction ought to be balanced against the efficiencies expected to flow from the transaction.


Canadian Bank Merger Enforcement Guidelines to be Reviewed

Canada's Competition Bureau is seeking comments on its Bank Merger Enforcement Guidelines (BMEGs). The BMEGs were first published in 1998, in the course of the Bureau's review of the so-far-not-consummated bank mergers (the Minister of Finance ultimately nixed the merger of 4 of Canada's top banks into 2, even though the Bureau had conditionally approved both deals). Even as then-Finance Minister Paul Martin is set to become the next Prime Minister of Canada, speculation renews perennially that the banks will eventually consolidate. The review of the BMEGs is in response to the recommendation of a Parliamentary Committee that recently examined the prospect of bank mergers, but also coincides with a general overhaul of the Merger Enforcement Guidelines (the MEGs) by the Competition Bureau. Comments on the BMEGs have been requested by February 4, 2004. Details can be found on the Bureau's web-site:

MEGs Review Process

In addition to preparing for the next round of amendments, the Competition Bureau is also in the early stages of reviewing the Merger Enforcement Guidelines (the MEGs), which were originally issued in 1992. The Bureau's objective is to modernize the MEGs to bring them into line with recent jurisprudence and economic thinking. At this stage, the Bureau is engaging in an informal consultation process with law firms and academics. The Bureau anticipates releasing revised draft MEGs in early spring 2004, at which time there will be broader public consultation.