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

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.

While it is reasonable to expect that most transactions will not involve strategic or political objectives that may raise issues under the Investment Canada Act, the Prime Minister's comments underline the importance of an early assessment of the potential for planned transactions to attract the heightened scrutiny of the Canadian government. This has been understood at least since the China Minmetals - Noranda transaction discussions in 2004 and was confirmed in the State Owned Enterprise Guidelines issued by Industry Canada in 2007. The SOE Guidelines make specific reference to the Canadian government's need to be satisfied that Canadian businesses that are acquired by non-Canadians will continue to operate on a commercial basis. The Prime Minister's comments in relation to BHP suggests that strategic actions by non-state owned enterprises may also attract government scrutiny, underlining the need for assessment and planning to satisfactorily resolve such issues and successfully complete acquisitions of significant Canadian businesses.
 

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

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

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

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

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

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

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

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

Foreign Investment Review – Investment Canada Act

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

• National Security - Overview

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

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

• National Security is Undefined

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

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

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

• No Process for Voluntary Pre-Clearance

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

• State-Owned Enterprises (SOEs)

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

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

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

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

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

Mitigating Considerations

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

• Experience with National Security Reviews to Date

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

• Canada has an Open Economy

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

Investment Canada Act Developments in Recent Months

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

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

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

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

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

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

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

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

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

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

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

Like the original, the revised bulletin sets out five essential components of any corporate compliance program:

1. senior management involvement and support;
2. corporate compliance policies and procedures;
3. training and education;
4. monitoring, auditing and reporting mechanisms; and
5. consistent disciplinary procedures and incentives.

The template compliance program framework contained in the revised bulletin, as well as the employee certification letter and the due diligence checklist for management may be used as illustrative guides, but they should not be viewed as prescriptive. These tools must be tailored to the user's particular situation and resources. Businesses are encouraged to obtain independent legal advice when developing a compliance program in order to ensure that it is effective and to address compliance issues specific to their business activities and industry.

As the revised bulletin notes, having a credible and effective corporate compliance program can reduce the risk of contravening the law and can also provide early warning of potentially anti-competitive conduct. In respect of certain offences, a business that has a credible and effective corporate compliance program in place may be able to demonstrate that it took reasonable steps to avoid non-compliance and to support a due diligence defence.

Interestingly, trade associations are singled out in the revised bulletin as being particularly able to benefit from the implementation of a compliance policy, as they may be exposed to greater risks of anti-competitive conduct by their members. The revised bulletin advises that more information regarding trade associations can be found in the Bureau's draft Information Bulletin on Trade Associations, which was released for public comment the same day.

In the Environmental Claims Guide, the Bureau states that although businesses are free to adopt any practice concerning self-declared environmental claims, as long as those claims are not false or misleading, the Bureau will use the Guide as a reference for evaluating environmental claims. The Bureau further indicates that while the examples provided in the Guide are not binding statements of how its discretion will be exercised in any particular situation, environmental claims made in compliance with the Guide are unlikely to raise any concerns under the statutes administered by the Bureau.

Scope of Guidance

The Environmental Claims Guide is meant to cover any statement or symbol that refers to or creates the general impression that it reflects the environmental aspects of any product or service, including any statements, symbols or graphics on a product or package labels, or in product literature, technical bulletins, advertising, publicity, telemarketing and digital or electronic media. The Guide is organized largely around the 18 specific requirements of CAN/CSA-ISO 14021, which include, among others, that self-declared environmental claims: shall be accurate and not misleading or exaggerated; shall be substantiated and verified; shall be relevant to the product and used in appropriate context; shall be specific; shall be made only if the environmental aspect to the claim exists or will be realized during the life of the product; and shall be presented in a manner that clearly indicates that any claim and explanatory statement(s) should be read together. For each of the 18 requirements, both an explanation and one or more examples are provided.

In addition, the Environmental Claims Guide explains the standards to be met and provides numerous examples regarding: vague or non-specific claims; claims of ". free"; sustainability claims; explanatory statements; symbols; evaluations and claim verification; comparative claims; and certain common claims (each of which receives detailed consideration) including "compostable", "designed for disassembly", "extended life product", "recovered energy", "recyclable", "recycled", "reduced resource use", "reusable and refillable" and "waste reduction".

Substantive Implications for Industry and Advertisers

The Environmental Claims Guide is intended by the Bureau to press industry and advertisers to observe higher standards and to increase the consistency of environmental claims in Canada. A few of the examples provided under the new guidance illustrate the point:

• Claims of "... free" are to be made only where both (i) the material in question is present in no more than trace contaminant levels, and (ii) previously, such products had commonly featured the material in question in greater than trace contaminant levels;
• Claims of sustainability are not to be made at all;
• Claims without explanatory statements are to be made only if the claim is valid in all foreseeable circumstances without qualifications;
• Claims must be verifiable, but will not be considered to be verifiable if verification cannot be made without access to confidential business information;
• Claims qualifiers such as "... where facilities exist", in connection with, for example, recyclable or compostable claims, are not adequate; more detailed information about availability is required. For an unqualified claim, the claim should be verified to apply to a majority of the purchasers, potential purchasers and users of the product.

Although many businesses may comply or believe that they comply with many of the standards set out in the Environmental Claims Guide, a key change is the Bureau's clear intention to now require that businesses be able to provide the Bureau and consumers with substantiation and verification in connection with any environmental claim. Indeed, the Bureau identifies "the core principle . to be that businesses should only make claims that are substantiated and verified."

With the foregoing in mind, the Bureau has also indicated that it expects that companies may wish to reassess their advertising and labelling in light of the Environmental Claims Guide. It is allowing a one-year transition period for businesses to move into full compliance (excluding particularly egregious cases of false or misleading environmental advertising), following which Canadian advertisers can presumably expect a crack-down on unsubstantiated or unverified environmental claims.

¹The Environmental Claims Guide represents a revision of a draft version that was issued for public review and comment in March, 2007.

Sentencing principles: economic harm, aggravating factors, mitigating factors

The economic harm associated with cartel and bid-rigging activities serves as a starting point for a recommended fine. It has a quantitative dimension (higher prices for consumers) as well as a qualitative dimension (the stifling of competition and innovation in the economy as a whole). Because economic harm is difficult to quantify, however, the Bureau uses a proxy: the "volume of commerce" related to the cartel activities multiplied by an "overcharge" factor. The "volume of commerce" is the aggregate value of sales of the product in question, in Canada, over the term of the offence. The overcharge is the amount of money paid by victims of the cartel above what they would have paid if the cartel was not in effect. To calculate the overcharge, the Bureau uses a proxy of 20 per cent of the volume of commerce. (While numerous studies estimate that the likely overcharge is closer to ten per cent of the volume of commerce, the Bulletin suggests that the lesser figure would not capture the qualitative effects of the harm caused, nor produce an adequate deterrent.)

Once the Bureau has established an estimate of the economic harm caused, it will adjust its recommended sentence to reflect the aggravating or mitigating circumstances of the case. Aggravating factors such as whether the party instigated or managed the cartel, or coerced others into furthering its activities will weigh in favour of a harsher sentence.

The Bulletin also highlights the Bureau's view that a significant deterrent in cartel cases is the exposure to criminal prosecution for the individuals involved. Individuals accused are liable to fines or imprisonment (to a maximum of five years) or both. The factors that may be weighed in the Bureau's sentencing recommendations with respect to individuals include the degree to which an individual has profited from the cartel's activities, whether that person has been involved in similar activities in the past, and whether he or she is being punished in other ways (for example, through loss of employment).

The Leniency Program

The overarching principle of the Leniency Program is that leniency in sentencing should be directly proportionate to the contribution a party makes to the Bureau's investigations. The following basic conditions apply:

• the DPP must not have filed charges against the party;
• the party must have terminated its participation in the illegal activity;
• the party must cooperate fully with the Bureau's investigation and any subsequent prosecution by the DPP; and
• the party must admit that it has engaged in anti-competitive conduct which may constitute an offence under the Act, and agrees, if charged, to plead guilty and to be sentenced for its participation in the illegal activity.

The Bureau prioritizes both the timeliness and value of cooperation. This is evaluated according to the utility of the evidence that a party can provide, and the quality of that cooperation including how quickly a party fully cooperates. A party seeking leniency must satisfy the Bureau that it has taken all appropriate steps to locate and produce relevant evidence, including full disclosure if it is suspected that individuals have hidden or destroyed evidence.

A party may also qualify for "Leniency Plus." That is, a party that is not "first in" with respect to a particular offence may still be granted immunity under the Bureau's Immunity Program if it provides evidence of a new offence of which the Bureau was not aware. In these circumstances, the party may qualify for immunity with respect to the new offence, as well as enhanced leniency with respect to the original offence.

The first leniency applicant who meets (and continues to meet) the Bureau's qualifications is eligible for a reduction of up to 50 per cent of the fine that would otherwise be recommended.Where the party is a business organization, the Bureau will also typically recommend that no separate charges be laid against the applicant's directors, officers and employees (subject to exceptions in extreme cases of wrongdoing). Subsequent leniency applicants may qualify for reductions in fines of up to 30 per cent, and up to 50 per cent where their evidence has exceptional value (or in cases where the first leniency applicant fails to satisfy the requirements).

The Bulletin describes five steps for leniency applications, similar to those applicable to immunity:

• contacting the Bureau;
• proffering evidence;
• qualifying for a conditional lenient treatment recommendation;
• full and frank disclosure; and finally;
• qualification for a final sentencing recommendation to the DPP.

Contact with the Bureau is usually made by the party's legal representative. The proffer should follow as soon as possible, typically within thirty days. The proffer is usually made on a "without prejudice" basis, and must include a detailed description of the illegal activity and sufficient information for the Bureau to determine whether the party qualifies for the leniency. The Bureau may request (again, on a without prejudice basis) the opportunity to review the documentary evidence and to interview witnesses. If the Bureau is satisfied with the proffer, it will recommend lenient treatment, conditional on the party's ongoing cooperation with its investigation, which will include full and frank disclosure of the party's evidence.

Finally, the Bureau will treat as confidential the identity of the party requesting leniency (and the information provided by the party in furtherance of that request) except where that information is already public, or where disclosure is required by law to a Canadian law enforcement agency for the purposes of the administration of enforcement of the Act, is necessary to prevent the commission of a serious criminal offence, or is authorized by the party.

¹Online: Competition Bureau; Stikeman Elliott LLP is participating in the Canadian Bar Association's commentary on the draft Information Bulletin on Sentencing and Leniency in Cartel Cases.

²For the purpose of the Bulletin, cartel offences include conspiracy (set out in section 45 of the Act as well as parts of sections 48 and 49), foreign directives (section 46) and bid-rigging (section 47).

The Search Warrant Provisions

Section 15 of the Act allows the Bureau to apply to a judge for a search warrant authorizing a search of identified premises, and to copy or seize certain records or other things.  The Bureau indicates that it will make such an application ex parte, that is, without notice to the persons subject to the order. The Bulletin confirms that a section 15 search warrant is the Bureau's "tool of choice" for investigations such as cartels and mass marketing fraud, where the element of surprise is deemed important.

Section 16 of the Act provides that a person authorized to search premises pursuant to section 15 may use any computer system on the premises to search any data contained in or available to the computer system in order to search for records described in the search warrant. Notably, data obtained via the computer system can be searched even if it is not located on the premises or, for that matter, in Canada.

Obtaining the Search Warrant

In order to grant a search warrant, a judge must be satisfied that there are reasonable grounds to believe: (1) that a person has contravened an order made pursuant to the Act, an offence has been or is about to be committed, or grounds exist for the making of an order under the reviewable practice provisions of the Act; and (2) that there are, on the premises to be searched, records that will afford evidence relating to one of the situations denoted in (1).

Warrantless searches are also possible where exigent circumstances, such as a risk that evidence will be destroyed, would make obtaining a search warrant impracticable; these are, in the competition law context, rare events.

Executing Search Warrants

The Bulletin explains that, generally, a minimum of two staff members will execute a search. The "team leader" will generally present the warrant, communicate with corporate representatives and/or counsel, and manage the operation. All questions regarding conduct of the search should be directed to the team leader.

According to the Bulletin, searches will typically be conducted during normal business hours, although the Act does permit warrants to be executed between 6am and 9pm, and outside of those times with judicial authorization. Circumstances will exist, for example, where databases are being imaged or downloaded, when searches will extend beyond business hours.

The Bulletin indicates that most searches will proceed as follows: the search team will arrive; the team leader will enter the premises and present the warrant to the person in control; an explanation of the search will be provided and the team leader will advise the person that they may contact legal counsel; the team leader will outline the search before beginning; a tour may be requested and arrangements may be made for a work area for the search team. While the Bulletin states that searching may occur immediately, it also suggests that requests for a delay may be granted in order to allow for the arrival of senior corporate officials and/or counsel.

The Bulletin describes some of the steps that a search team will undertake to secure the premises, including sealing filing cabinets and shredders with tamper-proof seals and restricting access to computer systems. The Bulletin states, however, that the Bureau will attempt to interfere as little as possible with business functions.

The Bulletin also outlines how the review of records will be undertaken: the search team will conduct the initial selection of paper records, and subsequent review and culling will be performed by the team leader, who may then return some of the records. Copies of seized documents may be requested by the person or business being searched, and depending on the time required to do so and the facilities available, such requests may be granted. Requests for copies of essential working records will normally be granted.

Electronic records may be searched by electronic evidence officers.These officers may obtain evidence through a variety of means, including the production of an image of a computer hard-drive for examination off-site and even the seizure of a computer system for examination off-site (although, experience indicates that seizure of entire computer systems very rarely, if ever, occurs).

Photographs and videos may be taken as a form of note-taking or as a means of gathering evidence.

Solicitor-Client Privilege

Where there is a claim or potential claim of solicitor-client privilege relating to records, the records will be packaged and sealed and put in the custody of a specified individual. Legal counsel for the target of the search will also generally be provided with a reasonable opportunity to review the documents and assert any claim of privilege, although such claims should be asserted at the earliest opportunity. While the "privileged" status may ultimately be decided by a judge, the Bulletin indicates that most often the determination will be made informally through negotiation. The Bulletin repeatedly refers to determinations with respect to privileged documents being made under a "mutually agreeable process"; while this is consistent with experience, it is only "mutually agreeable" to a point.

According to the Bulletin, privilege claims in relation to electronic records may take place following seizure due to the potential volume of such records.

Questioning Individuals

Individuals may be questioned during a search for purposes of facilitating the search or gathering evidence. Where a person is considered a target of an inquiry, that person will be informed by the search team of his or her rights, including the right not to answer, and will be informed that any answers may be used as evidence.  Experience indicates, however, that employees will not - without legal advice -appreciate their right not to speak with Bureau officers on matters unrelated to the facilitation of the search.

Plain View

If records indicating evidence of a new violation of the law are found in plain view during a search, the Bulletin states that Bureau staff will seize those records.

Failure to Comply with a Search Warrant

A peace officer may accompany the Bureau on a search where the Bureau believes, on reasonable grounds, that access may be denied. Any attempt to impede or prevent the execution of a search warrant or to remove or destroy records constitutes a criminal offence and carries with it significant penalties, as detailed in the Act. The Bulletin outlines several of these offences and concomitant punishments as well as the possibility that obstruction of justice charges under the Criminal Code may be laid.

Confidentiality and Retention of Records

In accordance with statutory requirements, the Bulletin states that the Bureau will generally not comment publicly on the existence of an inquiry, or communicate information obtained through a search warrant, unless such information has been made public by other means.

The stated purpose of the new policies is to preserve the "diversity of voices" in the Canadian broadcasting system, including the diversity of editorial voices at the local level and the diversity of programming at the local, regional and national levels.  According to the CRTC, the new policies were driven by public concerns raised by recent consolidation in the media sector. Although stating that a diversity of voices continues to exist in the current Canadian broadcasting system, the CRTC justified the new policies as necessary to address the potential effects of the further consolidation that is expected to occur in response to audience fragmentation.

At the same time as it adopted the new policies, the CRTC reaffirmed its existing policies respecting conventional television and commercial radio ownership ².

The new policies raise a number of questions.  Are they actually necessary? What impact will they have on the interface between the CRTC's regulation of the Canadian broadcasting system and the application of the Competition Act to the sector, in particular in relation to broadcasting mergers?  Will they lead the CRTC to block potentially beneficial licence applications or mergers?

Are the new policies necessary?

Despite what the CRTC described as a "wave of consolidation in the Canadian broadcasting industry," the CRTC acknowledged that a diversity of voices continues to exist in the Canadian broadcasting system.  Rather than addressing an existing problem, therefore, the CRTC based its new policies on the potential impact of future consolidation, which it expects in response to audience fragmentation. Indeed, the CRTC expressly recognized that none of the transactions reviewed by it during the recent "wave" would have raised concerns under its new policies.

Setting aside the question of whether concerns about this potential future impact are justified, there is nothing in the new policies that the CRTC could not have done pursuant to its broad regulatory powers. The CRTC's powers to issue licences, approve licence transfers and set licence terms (including in the context of renewal proceedings) provide it with ample tools to preserve a diversity of voices in Canada's broadcasting system.  By formally extending the CRTC's consideration to newspapers, the new policies also raise questions about whether the CRTC may be exceeding its jurisdiction, which is limited to the broadcasting system.

Even if the new policies do not add to the CRTC's powers, they do arguably promote transparency and predictability, both of which are widely accepted as highly desirable regulatory objectives. There is a risk, however, that these objectives could be achieved at the expense of the CRTC's flexibility to make appropriate licensing determinations on a case-by-case basis. The CRTC could avoid this risk by allowing exceptions where their application is either not necessary to achieve a diversity of voices or would otherwise not be in the best interests of the Canadian broadcasting system. Whether the CRTC will take such an approach is unclear, given the rigid language used to describe the policies, including a statement that "[a]s a result [of the new cross-media ownership policy], a person or entity will only be permitted to control two of the following types of media that serve the same market: a local radio station, a local television station or a local newspaper." ³

How will the new policies affect the interface between the CRTC's regulation of the Canadian broadcasting system and the application of the Competition Act?

While the CRTC's new policies with respect to diversity of voices apply only to the CRTC, their effects may extend to the relationship between the CRTC and other regulatory regimes, such as the Competition Act. 

The Competition Act requires prior notification of mergers that exceed certain monetary and shareholding thresholds and also allows the Commissioner of Competition, who heads the Competition Bureau and is Canada's primary competition enforcement official, to challenge mergers that substantially prevent or lessen competition, whether or not they exceed the thresholds for pre-merger notification.(For ease of reference, the Commissioner of Competition and the Competition Bureau are referred to simply as "the Bureau.") To the extent that the CRTC reviews and approves a broadcasting merger, however, parties may challenge the Bureau's jurisdiction pursuant to the so-called "regulated conduct doctrine," which has been used by courts in certain cases to oust the Competition Act's application to conduct that was required or authorized pursuant to other legislation.

The stated position of both the CRTC and the Bureau is that they have concurrent jurisdiction over broadcasting mergers.⁴ However, as the body charged with the regulation and supervision of "all aspects" of the Canadian broadcasting system, the CRTC enjoys a broad jurisdiction over broadcasting matters, including mergers.  Indeed, the broad scope of the CRTC's jurisdiction has prompted litigation as to whether its jurisdiction over broadcasting mergers is exclusive, thereby precluding the application of the Competition Act.⁵ Owing to a settlement between the parties, no decision was rendered by the court in that case, leaving unanswered the question of the whether the CRTC's jurisdiction over broadcasting mergers is exclusive.  The CRTC has recently called for a clarification of its role and the role of the Bureau in "communications" mergers, and advocated that it have "ultimate responsibility" for approving such mergers.⁶

The jurisdictional question is important, owing to the different analytical approaches followed by the CRTC and the Bureau.  In contrast to the CRTC, the Bureau's reviews of media mergers focus on their economic aspects, such as advertising.  However, as the CRTC itself has recognized, ⁷ concentration of economic aspects is not wholly divorced from the question of diversity of voices, insofar as common to each is the question of who ultimately controls the media undertakings. Thus there would appear to be some potential for overlap (possibly significant overlap) between the CRTC's and the Bureau's reviews of a broadcasting merger.

At the same time, there are important differences in the methods used by the CRTC and the Bureau in their analysis of diversity of voices and the economic effects of mergers, respectively. The Bureau carries out a detailed analysis of relevant product and geographic markets in order to assess the likely economic impact of a merger in those defined markets. As compared to the Bureau's approach, the CRTC's approach to assessing "diversity of voices" appears simplistic, as evidenced, for example, by the cross-media ownership policy's focus on mere ownership of particular kinds of media and the television policy's focus on national television audience shares (without, for example, distinguishing between "news and information programming," which the CRTC identified as its primary area of concern, and other programming). The CRTC does purport to borrow aspects of the Bureau's analytical approach (e.g., the "market share" thresholds used to assess concentration under the new television ownership policy, which are adapted from those the Bureau used to preliminarily assess the proposed bank mergers in the late 1990s), although without undertaking the Bureau's detailed market-definition analysis prior to calculating such shares. Given a merger transaction that is reviewed by both the CRTC and the Bureau, therefore, the CRTC's policies would seem to promote rather than discourage a repeat of the 2002 dispute over the Bureau's jurisdiction to review broadcasting mergers.

Will the new policies lead the CRTC to block potentially pro-competitive licence applications or mergers?

Another potential consequence of the blunt nature of the CRTC's approach to diversity of voices is that it could lead the CRTC to block potentially pro-competitive licence applications or mergers. Applying its cross-media policy, for example, the CRTC might block expansion of an entity owning a local television station and a local newspaper into the local radio business, even though such expansion could, in certain circumstances, stimulate greater competition in the local radio market and provide benefits to advertisers and consumers in the process. Similarly, in considering a merger involving BDUs, the CRTC's policy seems to preclude consideration of potential efficiencies, and more specifically the possibility that efficiencies could outweigh any negative effects caused by a reduction in competition by such a merger.  The Competition Act, in contrast, recognizes these potential benefits by allowing otherwise potentially anti-competitive mergers if they are "likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition."

Conclusion

While helpful to business in terms of shedding light on the CRTC's approach to broadcasting ownership issues, the new policies have also raised new questions that highlight the jurisdictional divide between the CRTC and the Bureau.

¹ Broadcasting Public Notice CRTC 2008-4 (BPN CRTC 2008-4), available at http://www.crtc.gc.ca/archive/ENG/Notices/2008/pb2008-4.htm. ² The CRTC's existing conventional television ownership policy prohibits one person from owning more than one conventional television station of the same language in a given (local) market. Common ownership of commercial radio stations is limited to two AM and two FM stations of the same language for markets with more than eight commercial radio stations of that language and to three stations of the same language, with a maximum of two stations in any one frequency band, for smaller markets. ³CRTC News Release, "CRTC establishes a new approach to media ownership" (15 January 2008). ⁴CRTC and Competition Bureau, "CRTC/Competition Bureau Interface" (8 October 1999), available at http://www.crtc.gc.ca/eng/publications/reports/crtc_com.htm.
⁵ In 2002, parties to a radio merger challenged the Bureau's jurisdiction to review the transaction. See Astral Media Inc. v. Le Commissaire de la concurrence et al. and Télémédia Radio inc. v. Le Commissaire de la concurrence et al., Federal Court - Trial Division, Court File Nos. T-2256-01 and T-2256-02.  The CRTC had reviewed and approved the transaction, however the Bureau alleged that the transaction would substantially lessen competition in certain local markets in the province of Quebec.  The parties and the Bureau subsequently entered into a consent agreement resolving the Bureau's concerns with respect to the merger, therefore no decision in the application contesting the Bureau's jurisdiction over the merger was rendered.  Stikeman Elliott LLP acted as counsel to Astral in that case. ⁶ See, CRTC, "A Competitive Balance for the Communications Industry:  Submission of The Canadian Radio-television and Telecommunications Commission to The Competition Policy Review Panel" (11 January 2008). ⁷ See BPN CRTC 2008-4, at para. 37 ("With respect to market dominance, . while this concern is largely an economic issue relating to questions of competition, issues of dominance also have social and cultural dimensions.").

After summarizing the provisions of the Competition Act that are of greatest concern in the context of trade associations (anti-competitive conspiracies and bid-rigging, price maintenance, restrictive trade practices that exclude or reduce competition, and misleading advertising), the draft Bulletin highlights the following trade association activities as deserving of particular attention:

• information collection and sharing
• recording of meetings (agendas and minutes)
• membership criteria or restrictions
• discipline of association members
• fee guidelines
• advertising restrictions
• self-regulation, voluntary codes and standard setting.

The draft Bulletin discusses the Bureau's concerns in these areas and its recommendations for conduct by associations. These recommendations range from the straightforward (e.g., establishing clear and appropriate agendas and recording minutes of meetings) to the more complicated (e.g., six guiding principles for a trade association's development of any regulation, the primary objective of which, according to the Bulletin, "should be to promote open and effective competitive markets").

The draft Bulletin concludes with a list of "Best Practices" for trade associations. The Bureau suggests that associations establish a competition law compliance program for the purposes of informing members about competition law, setting boundaries for permissible conduct, identifying situations where legal advice or the presence of a lawyer is advisable, and encouraging pro-competitive association activities. Detailed guidelines for association conduct, both general in nature and specific to each of the issues listed above, are provided. These include the more obvious Don'ts, such as:

• discussing current or future prices, costs, output levels, market allocations, business plans or bids; and
• imposing sanctions aimed at inducing members to follow association recommendations that, if carried out, would have an anti-competitive effect.

Do's include such things as:

• having clear membership criteria that are not arbitrary and are based on the legitimate objectives of the association; and
• adhering to clear agendas and record the minutes of the meetings.

The guidelines also include recommendations that may be characterized as either a "gold standard" or as "over the top," depending on your point of view. For example, the guidelines state that associations should not only ensure that legal counsel approve the agenda and minutes of any association meeting, but that legal counsel should actively participate in all association meetings.Generally, however, the guidelines provide workable suggestions for the conduct of trade associations that will go a long way to limit the risk of association activity being off-side competition law and, if an investigation is ever launched, to decrease the likelihood that the Bureau will pursue the prosecution of an association or its executives even if such activities are seen, by the Bureau, to be on the 'margins' of anti-competitive conduct.

The draft Bulletin is a useful addition to the Competition Bureau's many publications, and will serve as an important tool for all Canadian trade associations and their members. Comments on the draft Bulletin are welcomed by the Bureau until January 23, 2009.

Canadian treatment of SOEs

In July 2007, following foreign takeovers of Canadian icons such as Alcan and Inco, as well as a few highly controversial acquisitions involving foreign state-owned enterprises (including a 2004 bid for Noranda by China Minmetals Corp., which was abandoned in the face of controversy in the media and Parliament), the Government appointed the Competition Policy Review Panel to review the Competition Act and the ICA, including the treatment of state-owned enterprises and the possibility of a "national security" review clause.  However, on October 9, 2007, the Panel's mandate on the latter two issues was pre-empted by the announcement of imminent guidelines on the scrutiny of SOEs under the ICA (just released) and a proposed national security test (still to come).

New guidelines

The ICA requires that acquisitions of control of Canadian businesses exceeding certain monetary thresholds be reviewed and approved by the Minister of Industry (and/or the Minister of Canadian Heritage, for "cultural" businesses) prior to closing or, in some cases, post-closing. The test for review is whether the transaction will yield, on balance, a "net benefit to Canada." The ICA sets out the factors the Minister will consider in determining whether a reviewable investment will be approved. The new Guidelines focus on factors unique to investments by SOEs.

The Guidelines define an SOE as an "enterprise that is owned or controlled directly or indirectly by a foreign government." Relevant to the review of a proposed SOE investment is the SOE's "governance and commercial orientation."

The Guidelines state that adherence to Canadian standards of corporate governance will be examined, with particular regard to commitments to transparency and disclosure, independent directors, audit committees and equitable treatment of shareholders, as well as to compliance with Canadian laws and practices.  In addition, the Government will consider how and the extent to which the investor is owned or controlled by the state in question.

The SOE's commercial orientation will also be evaluated in relation to the operation of the Canadian business, in particular respecting:

• where to export;
• where to process;
• the participation of Canadians in its operations in Canada and elsewhere;
• the support of ongoing innovation, research and development; and
• the appropriate level of capital expenditures to maintain the Canadian business in a globally competitive position.

Finally, the Guidelines outline the types of binding commitments or undertakings that may be required to ensure that SOE investments result in a net benefit to Canada. These include:

• commitments to appoint Canadians as independent directors;
• the employment of Canadians in senior management;
• the incorporation of the target business in Canada; and
• the listing of shares of the acquiring company or the target Canadian business on a Canadian stock exchange.

Assessment of the SOE Guidelines

While the Guidelines offer insight into the Government's concerns about SOEs, some questions do remain. For instance, how does the Government define a "state"? Is de facto state control sufficient and if so, what criteria would be examined? What if a state holds a "golden share" in the SOE, permitting it to veto certain actions?

Non-commercial objectives

The Guidelines indirectly address possible non-commercial objectives of an SOE by considering such factors as the destination of exports and the location for processing. The first factor highlights a potential concern (voiced in the debate over Noranda) that the SOE may simply wish to funnel Canadian natural resources to its home state, rather than supplying market-based customers. With respect to processing, the Government is likely worried that processing will be moved offshore to increase employment and economic activity in the home state of the SOE.

Lack of transparency

Many commentators have expressed concerns that the lack of transparency and unclear governance of SOEs can lead to volatility in financial or other markets. For example, because of the lack of public disclosure surrounding certain SOEs' investment policies or risk-management strategies, minor comments or rumours could result in instability in the markets.

The Guidelines use Canadian standards for governance as the litmus test for appropriate governance of the SOE.  For example, the requirement for independent directors may be an attempt to ensure that the Canadian business is governed by an entity with directors at arm's length from the SOE's home country.  It is not clear whether this factor is to apply to the SOE itself or merely to the entity directly holding the target business. If the Government is concerned about the former, and the SOE is a vehicle with a large portfolio of investments, a requirement for an independent director would signal a significant departure from existing requirements and could result in a decision by some SOEs not to invest in Canada.

The "equitable treatment of shareholders" factor appears to indicate that the Government will want assurances that private investors in SOEs will be treated equally, relative to the state shareholder. The Guidelines do not provide guidance as to what exactly is being asked of SOEs, although equal disclosure of information about the SOE to all shareholders may be one concern.

Sample undertakings

While the Guidelines' sample undertakings are similar to those applicable to private investors, of particular interest in the SOE context is the undertaking that the target business be listed on a Canadian exchange.  Does this indicate that the Government might require a minority Canadian shareholding in certain instances?  Such a step would again be a material departure from past practice but would ensure that the SOE meets the disclosure requirements of Canadian securities laws, while at the same time giving Canadians the opportunity to remain or become part-owners of the target Canadian business.

Unanswered questions

In summary, while the Guidelines are a start, they leave a number of questions unanswered. Whether the Government will exercise its power to curtail foreign state investment in Canada or merely use it as a lever to extract concessions is a question which only time and experience with the SOE Guidelines can answer.

The Immunity Program is an important enforcement tool, which encourages disclosure of criminal offences under the Competition Act. It is especially important in cases where the prohibited activity may be difficult to detect, such as participation in cartels. Like immunity programs in other jurisdictions, Canada's Immunity Program provides protection against Competition Act prosecution for the first person to disclose or provide information relating to an offence where the Bureau has been unaware of the offence or where there has been insufficient evidence to refer the matter to the Director of Public Prosecutions.

The Bulletin differs from the original published in 2000 in several respects. Procedurally, the most notable change is the elimination of the provisional guarantee of immunity (the PGI), which reduces the process to a single immunity agreement. Previously, the immunity program involved two agreements: 1) a PGI that would require the applicant to provide full disclosure of information and continuous cooperation, and 2) a final immunity agreement to be entered into when the Bureau was satisfied with the extent of the applicant's cooperation. In practice, however, a PGI was typically the only document issued and was effectively the final agreement. Although the Bulletin eliminates the PGI, the new single immunity agreement is conditional on the applicant's compliance. The single-agreement approach is consistent with immunity programs in other jurisdictions, such as the European Union and the United States.

The most notable substantive change is in respect of eligibility. Under the old program, "the instigator or leader of the illegal activity, [or] the sole beneficiary of the activity in Canada" was ineligible to receive immunity. The Bulletin now replaces the former "instigator/leader" test with a "coercion" test. Under the new coercion test, the Bureau will only disqualify an applicant where there is evidence that the applicant clearly coerced others to be party to the illegal activity. The Bulletin also limits the disqualification of a sole beneficiary to cases where the applicant is the only party involved in the offence (e.g., price maintenance). Thus, in a cartel case, the sole beneficiary test does not apply.

The Bulletin also clarifies confidentiality protection for applicants. While indicating that the Bureau will in most cases keep the identity of the applicant confidential, the Bulletin makes clear that there are circumstances in which the Bureau will disclose the identity of the party. An example of such a circumstance is where it is necessary in order to obtain or maintain the validity of a judicial authorization for the exercise of investigative powers (e.g., in obtaining a search warrant or production order).

Other changes introduced in the new Bulletin and FAQs include, among other things:

• improved guidance on the Immunity Program process;
• elimination of the requirement to make restitution;  indication that the failure to disclose other offences will only result in revocation of immunity if the non-disclosure was intentional; and
• creation of a formal leniency program to provide incentives for other parties to the offence to cooperate with the investigation and prosecution, even if they are not eligible for immunity.

Overall, the Bulletin introduces welcome changes and brings Canada's immunity program into better alignment with similar programs in other jurisdictions.

According to the revised Bulletin, the Bureau's discretion to communicate confidential information is limited to four circumstances: (i) communication to a Canadian law enforcement agency (which the Bureau states is relatively rare and only happens where the receiving agency will respect the confidentiality of the information); (ii) communication for the purposes of administering or enforcing the Act; (iii) communication where the information has otherwise been made public; or (iv) communication authorized by the person who provided the information.

In order to administer and enforce the Act, the Bureau may share information with: international enforcement agencies; market participants such as customers, suppliers and competitors (although care will be taken to refrain from or to minimize the communication of confidential information when framing questions); industry, economic or legal experts retained by the Bureau; courts, when seeking authorization to use formal investigative powers or for the use of wiretaps; and the courts and the Competition Tribunal, when initiating and conducting formal enforcement proceedings.

The New Bulletin emphasizes that if it is necessary to use confidential information before the courts or the Competition Tribunal, efforts will be taken to prevent public disclosure of the information (such as sealing orders, confidentiality orders, confidential schedules and in camera proceedings), so long as this can be done without hindering the enforcement or administration of the Act.

With respect to the communication of confidential information to foreign competition authorities, the New Bulletin notes that the Bureau may initiate communications with a foreign authority or it may be contacted by a foreign authority. The Bureau will seek to maintain the confidentiality of information through formal international instruments (such as cooperation agreements or inter-agency arrangements) or assurances from the foreign authority. The New Bulletin also refers to Mutual Legal Assistance Treaties, which are administered through Canada's Department of Justice, and which allow foreign states to request assistance in obtaining evidence located in Canada.

Most notable in the New Bulletin is the Bureau's emphasis on its policy of resisting legal actions by third parties to obtain access to confidential information in the Bureau's possession. The Bureau will oppose subpoenas for the production of information if compliance with them would potentially interfere with an ongoing examination or inquiry, or would otherwise adversely affect the administration or enforcement of the Act.The Bureau will also notify the parties who have provided information that an application for access to the information has been made.

The New Bulletin also refers to the Bureau's recently issued revised bulletin on the "Immunity Program." A summary of this program is contained elsewhere in this newsletter. In short, the Bureau will not disclose the identity of an immunity applicant unless disclosure is: necessary by law; required to obtain or maintain judicial authorization for the exercise of investigative powers; for the purpose of securing the assistance of a Canadian law enforcement agency; agreed to by the applicant or if the applicant has already made public disclosure; or necessary to prevent the commission of a serious criminal offence. In particular, the New Bulletin states that the Bureau will not disclose the identity of an immunity applicant or any information obtained from the applicant to any foreign law enforcement agency without the consent of the applicant.

Finally, the New Bulletin clarifies that before releasing "technical backgrounders" (which often disclose the Bureau's analysis of a merger in summary format), the Bureau will allow the affected parties to review the document in order to identify any confidential information (and suggest its removal). It also refers to the "whistleblowing" provision of the Act, stating that the Bureau will make "every effort" to protect the confidentiality of the identity of a whistleblower. Lastly, the New Bulletin addresses the circumstances under which confidential information can be shared with the Minister of Finance or the Minister of Transport in furtherance of their sector-specific merger review obligations for the financial service and transportation sectors, respectively (see sections 29.1 and 29.2 of the Act).

Generally, the revised rules accomplish the Tribunal's stated objectives. Notably, the revised rules settle a long-standing bone of contention for the practising bar by requiring the Commissioner (or other party) to disclose (subject to privilege claims and confidentiality protections) all documents in the possession, power or control of the Bureau (or other party) that are relevant to the application before the Tribunal. This amends the prior rule that only required parties to disclose documents to be relied upon. This permitted the Commissioner, opponents argued, to ignore possibly exculpatory information in her possession. A return to the "relevance" standard for disclosure, coupled with an express obligation to disclose all relevant documents until the hearing and the requirement, shortly before a hearing, to precisely identify all documents (from those disclosed) upon which each party intends to rely is designed to improve the fairness and efficiency of the Tribunal process, albeit at the cost of increased disclosure for both sides.

Of further note, the revised rules provide for expedited processes and timelines (such as informal motion procedures), for access to and presentation of confidential information in the hearing, for the filing of detailed witness statements and documents to be relied upon for such statements, and, perhaps most importantly, for mandatory case management by a judicial member of the Tribunal.

Among the more novel amendments are the Tribunal's proposals to expressly provide for Tribunal-appointed experts (payment of whom will be determined by the Tribunal) as well as to empower the Tribunal to order witnesses (most likely experts) to testify as panels. While not unheard of, it is rare for federal administrative tribunals to appoint their own experts, and uncommon for such tribunals to direct witnesses to appear as a panel.

On balance, these are seen to be welcome developments that will serve the parties', and the public's, interest in efficient and equitable Tribunal proceedings. More details of the revisions can be found at the Tribunal's web-site at www.ct-tc.gc.ca.

Over the course of its lengthy review, the Competition Bureau analysed the transaction's impact on competition in the fine paper industry and consulted with printers, distributors, and office paper users such as businesses, governments and institutions. After the Bureau completed its review, the Commissioner concluded that the transaction would likely result in a substantial lessening and/or prevention of competition in the fine paper industry in British Columbia, Alberta and Saskatchewan.

PaperlinX did not admit to any impact on competition, but chose not to contest the Commissioner's conclusions. In order to address the Commissioner's concerns regarding the impact of the transaction on the fine paper market in Western Canada, PaperlinX agreed to divest the Cascades fine paper merchant business in Alberta (Calgary and Edmonton) and British Columbia (Vancouver) (the "Cascades Resources West business"), while retaining all other locations. The Commissioner is satisfied that this divestiture is sufficient to ensure that no substantial lessening or prevention of competition will result from the transaction. The consent agreement provides that PaperlinX will retain the parts of the Cascades Resources West business that are not involved in fine paper sales such as the graphic arts supply business.

The consent agreement includes standard provisions such as terms requiring that the Cascades Resources West business will be held separate from the other PaperlinX and Cascades Resources businesses, that an independent manager and a monitor will be appointed with respect to the business to be divested, that PaperlinX will have conduct of sale during the initial sale period and that the sale of the business is subject to the approval of the Commissioner. The consent agreement also provides that PaperlinX will continue to arrange for the supply of fine paper to the Cascades Resources West business until divestiture and may provide other managerial, administrative and operational resources. Also, the consent agreement provides that PaperlinX shall not, as a condition of selling graphic arts supplies to customers of the Cascades Resources West business, also require such customers to buy fine paper from PaperlinX or object to or obstruct the supply of fine paper by any fine paper mill to the purchaser of the Cascades Resources West business in BC, Alberta or Saskatchewan.

Stikeman Elliott provided corporate and competition advice to PaperlinX on this matter.

In Rogers-Microcell, the Bureau concluded that the relevant product market is mobile wireless (voice and data) telecommunications services, and that the relevant geographic market is provincial in scope. When analyzing the relevant product market, while recognizing that the ability to "bundle" wireless with other telecommunications and broadcasting services provides a competitive advantage, the Bureau found little current substitutability between mobile wireless and other telecommunications services, including wireline. It also found that the different technological platforms in use do not discourage customer switching and that "mobile wireless" forms a single product market, regardless of technology. Variations in provincial prices and competitors, and the lack of demand-side substitution to service providers located elsewhere, meant that geographic markets were no broader than provincial.

The Bureau found that there are very high barriers to facilities-based entry, including high capital costs to construct and run a network, regulatory requirements and foreign ownership restrictions. Barriers to entry for resellers are much lower,4 but the Bureau concluded that their impact on competition would be limited.

The Bureau found that the combined firm would create Canada's largest competitor nationally by subscriber base (#1 in Ontario and #2 elsewhere), but that its major competitors (Bell Mobility and Telus) were mounting aggressive attacks on that subscriber base, and that subscriber retention would continue to be a serious issue post-merger. Moreover, given the history of intense, multi-market competition between Bell, Telus and Rogers - and the fact that Rogers does not compete with Telus or Bell in wireline - vigorous and effective competition would continue to exist in all markets after the merger.

The Bureau also examined the likelihood of coordinated behaviour among the remaining major service providers. It noted that some important and necessary conditions for coordinated behaviour exist, including market concentration among Bell Mobility, Telus and Rogers Wireless, and the high barriers to entry discussed above. However, the Bureau observed that certain market conditions that effectively constrain coordinated behaviour would not be diminished by the merger. These factors include the expected continued rapid growth in mobile wireless penetration in Canada, continuing rapid technological change, and fierce competition among the three remaining principal rivals.

A key factor in the Bureau's decision appears to be its view that Microcell could not have continued in its role as a "maverick" in the mobile telecommunications market. As noted by the Bureau, "a maverick is a firm that may have less to gain from coordination or be less threatened by punishments from rivals because of the kinds of products it sells or its cost structure." Microcell had been considered an industry maverick, largely due to its innovative flat-rate price plans, per-second billing and its City Fido plan in Toronto and Vancouver. However, the Bureau noted that Bell, Telus and Rogers were able to offer service bundles to consumers based on product offerings from other markets that Microcell could not match. Ultimately, the Bureau found that Microcell would have had great difficulty playing the role of maverick in the future, due to its relatively small coverage area, its inability to offer bundled services, and its absence from market segments that would have provided revenue to fund the capital investment required for next-generation mobile service offerings.

Assessing the competitive impact of a merger on a dynamic basis, taking into account likely changes in the competitive landscape is always a challenge for regulators, but this difficulty is perhaps extenuated in telecoms mergers. The Bureau appears to have met the challenge in this case.

FOOTNOTES

[1] In acting for Microcell in connection with this transaction, Stikeman Elliott LLP also provided competition advice.  The Backgrounder is available on-line at www.competitionbureau.gc.ca (see "News Room" under "Technical Backgrounders" (and not under "Backgrounders").

[2] The MEGs were issued by the Bureau in September 2004.

[3] Information Bulletin: "Competition Bureau Implements Policy for Greater Transparency" (April 28, 2005), available at: www.competitionbureau.gc.ca.

[4] The Bureau noted that Virgin Mobile, an established player in several other countries, recently launched a mobile wireless service offering