Bureau relies on EC remedy in clearance of Thermo Fisher/Life Technologies transaction

Megan MacDonald and Anne MacIsaac -

On December 5, 2013, the Competition Bureau issued a No-Action Letter (NAL) clearing Thermo Fisher Scientific Inc.’s proposed acquisition of Life Technologies Corporation. The Bureau issued this clearance based, at least in part, on a remedy obtained by the European Commission (EC) in connection with the proposed acquisition in Europe.

Both Thermo Fisher and Life Technologies produce and supply life sciences products, including laboratory instruments and consumables, globally, including within Canada, the United States and Europe. Thermo Fisher’s proposed acquisition was subject to competition review in each of these jurisdictions.

As a condition of approving the merger in Europe, the EC required Thermo Fisher to divest businesses supplying a variety of products used in clinical and research applications in the life sciences sector. Stating that it “worked closely” with its foreign counterparts, the Bureau was satisfied that the divestiture of these businesses was sufficient to address concerns that the acquisition would substantially lessen or prevent competition in the sale of the relevant products in Canada.

The Bureau’s willingness to clear mergers in Canada based, at least in part, on remedies and divestitures obtained by foreign antitrust authorities, particularly those in the United States and Europe, has been demonstrated in connection with a number of recent mergers, including, among others, United Technology Corporation’s acquisition of Goodrich Corporation (2012), Nufarm Limited’s acquisition of AH Marks Holding Limited (2010), Schering-Plough’s acquisition of Organon BioSciences N.V. (2008) and Thomson Corporation’s acquisition of Reuters PLC (2008).

The Bureau’s consideration and reliance on remedies obtained in other jurisdictions to resolve competition concerns in Canada is but one aspect of the international collaboration taking place between the Bureau and other antitrust authorities. The Bureau states that it is increasingly “standard practice” to consult its foreign counterparts, particularly those in the United States and Europe, in addition to consulting a wide range of industry participants within Canada when reviewing a proposed acquisition with cross-border effects.

Termination of franchise agreements required in minority interest acquisition

Jeffrey Brown and Shannon Kack -

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

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

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

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

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

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

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

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

Supreme Court of Canada grants leave in wiretap disclosure cases

Paul Beaudry -

On October 3rd, the Canadian Bar Association held a panel on the disclosure of confidential information in competition cases as part of its Annual Competition Law Fall Conference. The panel was moderated by our own Louis P. Bélanger, who represents intervener Ultramar Ltd. in two high-profile cases involving the disclosure of wiretap evidence, Couche-Tard Inc v Jacques and Pétrolière Impériale v Jacques. The Supreme Court of Canada recently granted leave to appeal in both cases, which are contesting an interlocutory order of the Québec Superior Court that required the Competition Bureau and the Director of Public Prosecutions of Canada to disclose wiretap evidence to third parties in civil proceedings under the Competition Act in “follow-on” suits to the criminal prosecutions under the same Act.  Section 36 of the Competition Act allows a person to sue for loss or damage arising from a breach of the statute’s criminal provisions.

Between 2005 and 2006, the Competition Bureau had intercepted and recorded numerous telephone conversations as part of its “octane” criminal investigation, which involved a gasoline price-fixing cartel in the Estrie region of Québec. The Crown subsequently laid criminal charges against fifty-two individuals and companies for illegally conspiring to inflate gas prices. During the criminal proceedings, the Director of Public Prosecutions of Canada disclosed to the accused over 5000 recordings of conversations involving the accused parties intercepted during the investigation.

A number of gas consumers commenced a class action under section 36 of the Competition Act and section 1457 of the Civil Code of Québec  the against seventy-two defendants, including some individuals and companies who were already facing criminal charges under the Act. (Section 1457 of the Civil Code of Québec governs extra-contractual liability for breach of rules of conduct.)

In June 2012, counsel for the consumer plaintiffs filed a motion with the Québec Superior Court requesting disclosure of all of the wiretap evidence from the “octane” criminal investigation that had been disclosed to the accused – including the communications that had never been publicly disclosed. The Superior Court concluded that evidence gathered during the Competition Bureau’s criminal investigations may be used for any proceedings under the Competition Act, including civil actions for damages pursuant to section 36 of the Act, as well as section 1457 of the Civil Code of Québec. Thus, the Superior Court ordered the production of the wiretaps to the civil plaintiffs, albeit with a requirement for necessary redactions to protect the privacy of third parties.

Six months later, the Québec Court of Appeal refused leave to appeal the Superior Court’s decision. Relying on its ruling in Elitis Pharma inc c RX Job inc, the Court of Appeal concluded that an interlocutory judgment dismissing an objection to evidence cannot be appealed except under certain circumstances, which were not present in the case at bar. The Court of Appeal also found that the civil defendants still had the opportunity to object to the introduction of the wiretap recordings in the course of the proceedings because that evidence had not yet been introduced.

The Supreme Court of Canada is scheduled to hear the appeals of these decisions (and others) in April, 2014. It will have an opportunity to clarify the extent to which wiretap evidence disclosed to the accused in a criminal investigation under the Competition Act can be compelled to be produced in civil proceedings brought by third parties under that Act.

Divestitures required in Canadian Movie Theatre Merger

Susan M. Hutton and Shannon Kack -

On October 10, 2013 the Competition Bureau issued a no-action letter in respect of the acquisition by Cineplex Inc. (Cineplex) of 24 movie theatres in Atlantic Canada from its competitor, Empire Theatres Ltd. (Empire), indicating that the Commissioner does not, at this time, intend to challenge the proposed acquisition pursuant to section 92 of the Competition Act.

By way of background, Cineplex originally sought  to acquire two additional theatres in Ontario along with Empire’s 24 movie theatres in Atlantic Canada. Following a three-month review of the proposed transaction, the Bureau raised concerns over the competitive overlap of the parties in Ontario, determining that the proposed transaction would likely result in a substantial lessening of competition in that province. The Bureau had no concerns with respect to a lessening of competition in Atlantic Canada, as Cineplex currently has no theatres there.

In a "fix-it-first" solution, the proposed transaction was subsequently restructured so that an alternative buyer (Landmark Cinemas) would acquire the two Ontario theatres. Landmark Cinemas currently operates 31 theatres across Western Canada. The two theatres acquired from Cineplex, along with the additional purchase of 20 theatres from Empire (announced on June 27, 2013), will make Landmark Cinemas the second-largest cinema chain in Canada.  Cineplex will remain Canada's largest theatre chain,  operating a total of 161 theatres across the country.

Supreme Court of Canada will hear appeal in the Tervita (CCS) merger

Susan M. Hutton -

On July 11, 2013, the Supreme Court of Canada granted leave to appeal in Tervita Corporation et al v Commissioner of Competition. Five months earlier, the Federal Court of Appeal had upheld an order of the Competition Tribunal requiring Tervita Corporation (formerly known as CCS Corporation) to divest its acquisition of a hazardous waste landfill site on the grounds that it had likely substantially prevented competition in the market for the supply of hazardous waste landfill services in northeastern British Columbia.  The transaction had already closed, and was below the threshold for merger notification. At issue in the Federal Court were, among other things, the required time frame for poised entry in a “prevent” case, and the proper approach to the efficiencies defence. Please refer to our earlier blog posts to read more about the decisions of the Competition Tribunaland the Federal Court of Appeal.

Alberta Court of Appeal grants appeal in buyer-side cartel action

Susan M. Hutton and Justine Johnston -

The Alberta Court of Appeal issued a decision on June 14, 2013, in a private action for damages under section 36 of the Competition Act, reversing the trial court’s decision that Husky and ExxonMobil, co-owners of certain oil and gas properties near Rainbow Lake, Alberta, had illegally conspired to lessen competition for purchases of fluid hauling services, contrary to section 45 of the Act.

In 321665 Alberta Ltd. v ExxonMobil Canada Ltd., the trial judge had held that Husky and ExxonMobil’s decision to single-source their acquisition of fluid hauling services at Rainbow Lake unduly lessened competition and violated section 45 of the pre-2009 Act. The Act has since been amended and the Crown no longer has to prove the impugned agreement led to or was likely to lead to an undue lessening of competition. To read more about the Alberta Court of Queen’s Bench decision, please see our earlier blog post here.

While Husky and ExxonMobil appealed the trial judge’s order to pay some $6 million in damages, including $1 million in punitive damages, the plaintiff cross-appealed the judge’s decision not to award additional damages and costs pursuant to section 36 of the Act. Section 36 provides a statutory cause of action to any person who has suffered loss or damage arising from the breach of any of the criminal provisions in Part VI of the Act.

Deciding on the merits, the Court of Appeal held the trial judge made a reversible error by finding Husky and ExxonMobil’s agreement to single-source their fluid hauling services had unduly lessened competition. The Court of Appeal held that the agreement between Husky and ExxonMobil was not a conspiracy and it had not unduly lessened competition.

The Court found the trial judge focused too much on the consequences of the agreement, and overlooked the fact that the plaintiff had also had the opportunity to become the sole service provider for Husky and ExxonMobil. In fact, once the decision had been made to single-source for their fluid hauling needs, Husky and ExxonMobil provided both the plaintiff and the ultimate supplier with a “fair and equal” opportunity to be chosen as the exclusive supplier.

The Court of Appeal disagreed that the co-owners of certain properties were obliged to continue their previous practice of dividing up their fluid hauling needs. Single-sourcing was a legitimate business decision by the co-owners that would increase Husky and ExxonMobil’s efficiencies and reduce unnecessary costs in the highly competitive oil and gas field even though not all affected properties were jointly-owned.

At both the Court of Queen’s Bench and the Court of Appeal, Husky and ExxonMobil argued a finding of conspiracy was precluded because their co-ownership of oil and gas facilities and assets in the Rainbow Lake region constituted a single economic entity. Although the Court of Appeal did not consider the structure of Husky and ExxonMobil’s ownership over their joint assets decisive on the issue of whether the two companies acted as one, it did consider the role co-ownership plays in the oil and gas field.

In particular, the Court acknowledged that co-owners of any assets must be able to agree as to how to properly manage their operations. As the appointed operator, Husky had a responsibility to consult with ExxonMobil in carrying out joint operations. As part of the consultation process, Husky and ExxonMobil legitimately decided to adopt a more strategic approach by drawing on both companies’ expertise and experiences. The Court of Appeal ultimately held the Memorandum of Agreement between Husky and ExxonMobil intended the companies to remain legally separate entities, and the trial judge had correctly proceeded on this basis. Since the Court of Appeal concluded the agreement was competitive, it was not contrary to the Act, even though the agreement applied to separately owned and operated properties.

Federal Court of Appeal Upholds Competition Tribunal's Decision in the Tervita (CCS) Merger

Susan M. Hutton, Paul Beaudry and Solene Murphy -

On February 25, 2013, the Federal Court of Appeal (FCA) released its decision upholding the Competition Tribunal’s Order requiring that Tervita Corporation (formerly known as CCS Corporation) divest the Babkirk hazardous waste landfill site in northeastern British Columbia following its acquisition of Complete Environmental Inc. The decision provides guidelines for determining a reasonable period of time for likely market entry in a “prevent” case, as well as clearer guidance on what is “in” and what is “out” for a section 96 efficiencies defense.  It also marks a rare challenge to a closed, and non-notifiable transaction.

Background

In February 2010, Complete received regulatory approval to open the Babkirk landfill. Construction had not yet commenced when Tervita acquired the site from Complete. At the time of the transaction, Tervita operated the only two operational secure landfills for hazardous waste in British Columbia.  The Commissioner of Competition therefore alleged that the transaction substantially prevented competition in hazardous waste landfill in northeastern B.C.

The $6 million acquisition closed in January 2011. Both the assets and the revenues of the target were well below the pre-merger notification thresholds in the Competition Act; however, in Canada the Commissioner has jurisdiction to challenge even non-notifiable transactions within one year of closing. On January 4, 2011, the Commissioner applied to the Tribunal for an order either to dissolve (i.e., unwind) the transaction between Tervita and Complete’s shareholders, or for Tervita to divest itself of Complete or Complete’s wholly–owned subsidiary, Babkirk Land Services on the grounds that it had substantially prevented competition.

Tervita argued that Complete had originally intended to run the site as a bioremediation business for neighbouring oil and gas companies, and not as a hazardous waste landfill, such that the required likely competition with Tervita was not made out. It also argued that expected efficiencies would be greater than and would offset any likely anti-competitive effects.

On May 29, 2012, the Tribunal ruled in favour of the Commissioner, finding that Tervita’s acquisition of Complete had likely substantially prevented competition in the market for the supply of landfill services for solid hazardous oil and gas waste in northeastern British Columbia.

To make this determination, the Tribunal questioned the viability of Complete’s bioremediation business, finding it likely that, within one year, the business would have failed and Complete would have either sold the site to a Tervita competitor or continued to operate it as a hazardous waste landfill site - in competition with Tervita. Either outcome would have resulted in direct competition with Tervita. As such, the Tribunal held that the merger had prevented the likely entry of a competitor. The Tribunal ordered that Tervita divest the shares or assets of Complete or of its subsidiary that held the landfill permits, Babkirk.

As noted in our previous blog post, CCS, Complete, and Babkirk filed a notice of appeal at the FCA on June 26, 2012.

They argued that the Tribunal had erred by looking beyond the date of the merger in its assessment of likely entry, and that it had speculated as to future events. They also argued that the Tribunal had erred in its analysis of the section 96 efficiencies defense.

Decision

Reasonable time period for market entry

The FCA affirmed that the likelihood of entry should be determined within a reasonable period of time following the merger. Entry need not necessarily have been poised to occur as of the date of the merger. The FCA held that the reasonable time period for assessing the likelihood of entry will vary from case to case and will depend on the nature of the business under consideration, but provided the following guidelines:

  1. there must be a clear and discernible timeframe for market entry; and
     
  2. market entry should normally occur within the temporal dimension of barriers to entry for that business.

The FCA also affirmed that the burden of proving that the target was a poised entrant, such that its acquisition substantially prevented competition, rested solely with the Commissioner.

“Efficiencies” defense clarified

Section 96 of the Act provides that where a merger otherwise results in a prevention or lessening of competition, the Tribunal may not make an order if the respondents can establish that the gains in efficiency resulting from the merger are greater than and offset its anti-competitive effects.

The FCA agreed with the Tribunal that section 96 of the Act requires a balancing of both quantitative and qualitative gains in efficiency against both quantitative and qualitative effects of any prevention or lessening of competition resulting or likely to result from a merger. However, it clarified that when quantifying efficiency gains and anti-competitive effects of a merger, the analysis must be as “objective as is reasonably possible, and where an objective determination cannot be made, it must be reasonable.” An objective analysis entails that a quantification of both gains in efficiency and anti-competitive effects must be carried out whenever it is reasonably possible to do so.

The FCA’s approach to quantification is in contrast to the Tribunal’s “subjective balancing” methodology, rejected by the FCA, which allowed for quantitative effects that had not been quantified to be given qualitative weight in certain circumstances.

Having disagreed with the Tribunal’s efficiency analysis, the FCA then conducted its own analysis using the evidence presented at trial. Although the FCA was unable to objectively weigh the quantifiable efficiency gains against anti-competitive effects because the Commissioner had not quantified such anti-competitive effects, it found that the gains in efficiencies resulting from the merger were “marginal to the point of being negligible” and could not reasonably have been considered to outweigh its anti-competitive effects. The FCA therefore dismissed the appeal and upheld the Tribunal’s Order.

Conclusion

The Tervita case is significant, as it demonstrates that the Commissioner is willing to challenge small, non-notifiable transactions when necessary. Furthermore, the FCA’s decision provides guidance regarding the analysis of “prevent” cases under Canadian law, and underscores the importance of properly assessing both the anti-competitive effects and the efficiency gains in contested merger cases.

CCS appeals Competition Tribunal's landfill decision; stay granted

 Susan M. Hutton & Edwin Mok -

The Canadian landfill company that lost a merger challenge at the Competition Tribunal in Canada’s first pure prevention of competition case has appealed to the Federal Court of Appeal.

On January 4, 2011, the Commissioner of Competition applied to the Tribunal for an order to dissolve a merger between CCS Corporation and Complete Environmental Inc. In the alternative, the Commissioner sought an order for CCS to divest itself of Complete or Complete’s wholly–owned subsidiary, Babkirk Land Services. Babkirk had obtained approval to operate a secure landfill site in northeastern British Columbia. As such, Babkirk had been poised to compete directly with CCS. The Commissioner alleged that the merger between CCS and Complete would result in a substantial prevention of competition in the market for hazardous waste disposal in northeastern British Columbia.

On May 29, 2012, the Tribunal ruled in favour of the Commissioner, finding that CCS’s acquisition of Complete would likely prevent competition substantially in the market for the supply of landfill services for solid hazardous oil and gas waste. The Tribunal ordered that CCS divest its shares or assets of Babkirk by December 28, 2012. On July 17, 2012, the Tribunal further issued a divestiture procedure order.

CCS (now renamed Tervita Corporation), Complete, and Babkirk filed a notice of appeal at the Federal Court of Appeal on June 26, 2012. They have appealed the May 29, 2012 order, and are seeking to stay that order and the divestiture procedure order pending the appeal.

In a decision dated August 22, 2012, the Federal Court of Appeal granted the stay of those orders, subject to the condition that the appellants preserve the assets pending the outcome of the appeal. The Court applied the test in RJR – MacDonald Inc v Canada (AG):

  • First, there was at least one serious issue raised by the appellants: the question of the proper legal framework that applies in a prevention of competition case. The appellants allege that the Tribunal failed to apply or misapplied the test for a substantial prevention of competition and engaged in impermissible and unsupportable speculation. The Court found these to be serious and important issues.
  • Second, the Court found that the divestiture procedure order would irreparably harm CCS while the appeal was ongoing, since the order mandated that CCS divest itself of Babkirk at the earliest opportunity.
  • Third, the Court balanced the public interest in having competition in the market against the public interest in ensuring due process. The Court ruled that the balance of convenience favoured the appellants.

The outcome of this case is significant in several respects. First, the Tribunal’s decision addressed the test for substantial prevention of competition, an area where the Canadian jurisprudence is very sparse. Second, the case is also notable because the value of the CCS-Complete merger was only about Cdn$6 million, far below the merger notification threshold of Cdn$78 million, yet it was still reviewed and challenged by the Commissioner.

Canada's Commissioner wins prevent case - Tribunal orders divestiture of hazardous waste landfill

Ashley Weber -

On May 29, 2012, the Competition Tribunal ruled in favour of the Commissioner of Competition, and ordered CCS Corporation to divest a hazardous waste landfill site, the acquisition of which the Commissioner had alleged would result in a substantial prevention of competition in the market for hazardous waste disposal in northeastern British Columbia. This was the first contested challenge to a merger by the Commissioner since 2005. 

Complete Environmental had received regulatory approval to open the Babkirk landfill in February 2010, and had not yet started construction when CCS Corporation acquired the site. CCS already operates the only two operational secure landfills for hazardous waste in British Columbia. The Commissioner alleged that, through the acquisition of the Babkirk landfill, CCS had prevented the entry of a potential competitor, thereby substantially preventing competition.

While the transaction was not subject to pre-merger notification under the Competition Act, in Canada the Commissioner has jurisdiction to challenge even non-notifiable transactions. Such challenges can be launched for up to one year after closing. Despite not being notified, the Commissioner learned of the transaction prior to closing, and informed the parties of her objection to the transaction.   

Of note, in her application, the Commissioner had sought dissolution as a possible remedy, which the respondents moved to challenge in November 2011 on the basis that dissolution was an overly broad and punitive measure. In the hearing on that motion Justice Simpson refused to grant summary disposition, and confirmed the possibility of dissolution as an effective remedy, concluding that it would be for the Tribunal to weigh the evidence for and against divestiture versus dissolution as potential remedies. 

The release of the Tribunal’s decision in this case is still pending.

Novel costs award in trial of first buyer-side conspiracy claim for damages in Canada

Michael Kilby and Kim Lawton -

The Court of Queen’s Bench in Alberta has recently ruled in 321665 Alberta Ltd. v. ExxonMobil Canada Ltd,  on several issues relating to costs under section 36 of the Competition Act. The ruling follows an award of damages in a civil case involving a rare buyer-side conspiracy, brought under the pre-2009 section 45 of the Act.

By way of background, section 36 of the Competition Act provides a statutory cause of action to any person who has suffered loss or damage arising from the breach of any of the criminal provisions in Part VI of the Act. These criminal provisions include conspiracy, bid-rigging, misleading advertising, and deceptive telemarketing.

In its decision on the merits, released in May, 2011 (321665 Alberta Ltd. v. ExxonMobil Canada Ltd.,), the Court had ruled that Husky and Mobil violated section 45 of the Competition Act (the conspiracy provision) when they had decided in 1996 to single-source their acquisition of fluid hauling services for their properties in the remote Rainbow Lake region of Alberta, thereby depriving the plaintiff of the ability to compete for their business and – given their dominant position in the marketplace – unduly lessening competition among the two fleet fluid haulers in the region by putting one of them out of business.  The court awarded general damages of $5 million and punitive damages against each defendant of $500,000, but reserved the question of costs for a later date.

Private actions for damages under section 36 are not new, but the recent ruling touches on an important issue closely related to the bringing of such an action – costs. In particular, the ruling addresses five separate issues: entitlement to compound interest, the relevant interest period, investigation costs, the appropriate costs scale, and costs incurred because of a litigation loan.

Compound Interest: The plaintiff argued that the wording of section 36 justified an award of compound interest, but the judge found there was insufficient evidence to support this claim. He reasoned that there is limited jurisdiction to award compound interest in both common law and equity, and the plaintiff failed to meet both relevant tests. As well, the request was barred because the plaintiff failed to seek compound interest relief in its pleadings.

Interest Period: The judge also held that while the obligation to pay pre-judgment interest arises when the loss actually occurs, that period can be reduced if the plaintiff delays in prosecuting its claim. After a detailed review of the significant steps in the litigation, the judge deducted two years of pre-judgment interest from the plaintiff’s award of damages at large.

Investigation Costs: Typically, a successful plaintiff may not claim pre-action investigation costs, however according to the Competition Act a party advancing a claim pursuant to section 36 may claim “the full cost to him of any investigation in connection with the matter.” The court awarded investigation costs at $75,000, which was a fraction of the near million dollar sum claimed because the plaintiff’s costs were insufficiently supported by evidence.

Costs Scale: The plaintiff’s claim that the use of the term “full cost” in the statute should be interpreted to mean that the plaintiff can recover on a solicitor-client basis rather than the usual party and party basis was flatly rejected. The court stated that solicitor-client costs are reserved for exceptional circumstances and if Parliament wanted section 36 to be one of those cases, then it could have said so.

Litigation Loans: A claim for the cost of money borrowed to finance the litigation was denied.  The court relied on earlier Court of Queen’s Bench of Alberta jurisprudence that held litigation loans were not recoverable.
 

Rogers Communications claims misleading advertising case, AMPs violate Canadian Constitution

Susan M. Hutton and Marisa Berswick -

Rogers Communications Inc. will appear before the Ontario Superior Court in June, claiming that two aspects of the Competition Act dealing with civilly reviewable misleading advertising are unconstitutional: AMPs (administrative monetary penalties) in the millions of dollars, and the “adequate and proper” testing requirements. If they are ruled unconstitutional, the case stands to gut the Competition Bureau’s ability to seek multi-million dollar penalties under the civil misleading advertising provisions of the Competition Act, and may have implications for its ability to do so in abuse of dominance provisions as well.

The Competition Bureau’s legal proceedings against Rogers began in September, 2010 when Wind Mobile filed a formal complaint with the Competition Bureau regarding Roger’s new discount cell phone service, Chatr Wireless. In November 2010, the Commissioner started legal proceedings against Rogers to stop the allegedly misleading advertising of Chatr, based on claims that it had fewer dropped calls than competitors.

Section 74.01(1)(b) of the Competition Act makes it civilly reviewable conduct, among other things, to make a representation to the public in the form of a statement regarding the performance a product or service that is not based on an “adequate and proper test thereof”, the proof of which lies on the person making the representation. Under section 74.1(1)(c) of the Act, the Competition Tribunal or the courts may make orders prohibiting the conduct in question, requiring the issuance of corrective notices, requiring the payment of restitution to affected customers, and/or requiring the payment of up to $10 million in an “administrative monetary penalty” or “AMP” (for a first such “offence”, and up to $15 million thereafter). The Commissioner sought orders against Rogers seeking all four remedies, including an order to pay the maximum AMP of $10 million.

Rogers argues that a $10 million AMP is unconstitutional because penalties of that magnitude are essentially criminal fines, but under section 74.1 of the Competition Act they are awarded after a civil trial. The various aspects of criminal procedure that protect defendants, such as requiring the Crown to prove its case beyond a reasonable doubt, are lacking under section 74.1 proceedings. 

In addition, Rogers is also asking the court to strike down section 74.01(1)(b) of the Competition Act which requires companies to make “adequate and proper” tests of a product’s performance before making advertising claims, arguing that the provision violates its right to freedom of expression under s. 2(b) of the Canadian Charter of Rights and Freedoms.

Interestingly, these same questions were previously addressed by the Competition Tribunal in its 2006 decision in the case of Commissioner of Competition v. Gestion Lebski Inc. et al (CT-2005/007). The Tribunal held that the “adequate and proper test” provision infringed the respondents’ rights to freedom of expression under section 2(b) of the Charterin that it penalized representations that could be true, on the ground that they were not based on a prior adequate and proper test. Turning to the question of whether the infringement was justified in a free and democratic society under section 1 of the Charter, the Tribunal held that no evidence had been led on the basis of which it could find that paragraph 74.01(l)(b) constituted minimal impairment of the right to freedom of expression. The provision therefore failed the Oakes test for justification of Charter infringements in that case and was found to be of no force or effect. 

The AMP (which at the time was limited to a maximum of $200,000), on the other hand, was found by the Tribunal to be of a magnitude that was not penal in nature, and which was consistent with the stated aims of civil penalties to encourage compliance and to deter prohibited conduct. The Tribunal also found that since the proceedings were civil in nature, and the AMP is not a “true penal consequence” (if unpaid, AMPs are collected by civil means as a debt due to the Crown; failure to pay the AMPs is not a criminal offence). The AMPs in question in that case were found to violate neither section 11 nor section 7 of the Charter.

The Tribunal’s constitutional rulings expressly applied to that case alone, however, since under Supreme Court of Canada precedent (Nova Scotia (Workers’ Compensation Board) v. Martin), only the courts can rule definitively on constitutional questions while administrative tribunal rulings on such issues have effect only in the case at hand.

Moreover, the maximum AMP in question in the Rogers case increased in 2009 from $200,000 to $10 million. In addition, the views of the courts on constitutional questions can have precedential value. The courts’ views of Rogers’ constitutional claims stands, accordingly, to have important ramifications for the ability of the Commissioner to seek multi-million dollar AMPs in respect of non-criminal conduct, as well as for the Competition Act requirement that advertisers conduct “adequate and proper” tests prior to making performance claims. Although not at issue in this case, depending on its outcome, the ability of the Commissioner to seek AMPs of up to $10 million for “abuse of dominance” (also a civilly reviewable practice under the Competition Act) may also come into question.

Competition Tribunal confirms possibility of dissolution as remedy in CCS case

Susan Hutton & Lindsay Gwyer -

On November 3, 2011, the Competition Tribunal issued a decision refusing to grant summary disposition to the vendor respondents in Commissioner of Competition v. CCS Corporation, thus confirming dissolution as a possible remedy in the case. The proceedings centre on the Commissioner’s application challenging CCS Corporation’s completed acquisition of Complete Environmental Inc., which owns the Babkirk Secure Landfill located in northeastern British Columbia, on the basis that the transaction is likely to substantially prevent competition for the disposal of hazardous waste in northeastern British Columbia (for more on the case, see our earlier post).

Because the proceedings deal with a completed transaction, the vendor respondents maintain that they are only implicated to the extent that the Tribunal would order dissolution as a remedy.  Consequently, the vendor respondents moved to have the Commissioner’s application dismissed against them on the ground that there was no genuine basis for the Tribunal to order dissolution. They argued that dissolution was an overly broad and punitive measure, and that divesture would be an effective and more appropriate remedy (assuming that the Commissioner is able to prove that the acquisition would substantially prevent competition). On the other hand, the Commissioner maintained that dissolution might be a necessary remedy, and argued that the application should be allowed to proceed to a hearing in order to determine several factual issues that would impact on the viability of either divesture or dissolution as an appropriate remedy.

Justice Simpson stated that in order for the Tribunal to grant the respondents’ motion, the respondents would have to have demonstrated that there was no genuine basis for the Commissioner to seek dissolution as a remedy. This required them to show that divesture was an effective and realistic remedy. While divesture is theoretically an effective remedy, Justice Simpson found that the lack of any identified buyer in this case made it potentially unrealistic. Moreover, she accepted the Commissioner’s argument that evidence might be adduced at the hearing which would speak to the relative effectiveness and intrusiveness of dissolution and divesture.

Justice Simpson was also unconvinced by the Respondent’s contention that the Commissioner had failed to explicitly allege dissolution as the only effective remedy. It was sufficient that the Commissioner had claimed dissolution as an alternative remedy, to be used if it was the only remedy available to adequately address the substantial prevention of competition. Consequently, Justice Simpson kept the door open to the possibility of dissolution, concluding that if the Commissioner was successful on the merits it would be for the Tribunal to weigh the evidence for and against the two remedies.

Competition Bureau requires divestiture in Novartis / Alcon Transaction

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

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

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

Competition Bureau reaches agreement in Teva/ratiopharm merger

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

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

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

Post-Closing herbicide merger remedy

Shawn Neylan and Michael Kilby

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

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

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

Commissioner obtains waste divestitures in BFI - WSI transaction

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

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

Waste firm divests Alberta landfill

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

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

Merger remedy in Danaher acquisition of MDS

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

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

Commissioner swallows defeat in beer battle

Shawn Neylan and Michael Kilby

On January 22, 2008, the Federal Court of Appeal dismissed the appeal by the Commissioner of Competition in the Labatt/Lakeport merger, delivering its judgment from the bench, after having heard arguments only from the Commissioner's counsel.
 

The Tribunal decision

The appeal was from an order of the Competition Tribunal made on March 28, 2007, dismissing the Commissioner's application under s.100 of the Competition Act to delay closing of the acquisition of Lakeport Brewing Income Fund (Lakeport) by Labatt Brewing Company Limited (Labatt). This transaction closed on March 29, 2007. Shawn Neylan of Stikeman Elliott LLP led the competition team for Lakeport, supported by Michael Kilby. Litigation partner Katherine Kayargued the case for Lakeport at the Tribunal.

The determinative issue in the Tribunal's decision was whether the potential post-closing remedies of dissolution and divestiture could effectively remedy a substantial lessening of competition (SLC) assuming an SLC were later established, since at the time of the hearing the Commissioner had not concluded that there would be a SLC as a result of the transaction, but was requesting more time to complete her review. The Tribunal found that the Commissioner had not met the burden of establishing that closing would substantially impair the Tribunal's ability to remedy an SLC, and accordingly dismissed the Commissioner's application. The Tribunal pointed out that Canadian merger remedies need not restore the pre-merger situation (as in the U.S.), but need only restore competition to the point that there is no substantial lessening of competition, a point which the Tribunal's decision indicated that the Commissioner's evidence had not addressed.

Background

Many of the circumstances of the case were relevant to whether post-closing remedies would be inadequate to remedy an SLC: (i) Lakeport units were publicly traded and there was therefore a public interest in the orderly functioning of securities markets, in addition to the public interest in competition; (ii) a proposed "hold separate arrangement" would have covered the entire Lakeport business (there was no issue of the potentially messy separation of parts of the business should a remedy be required); (iii) the Commissioner had refused to engage in discussions regarding such a hold separate arrangement; (iv) Labatt voluntarily undertook to abide by a hold separate arrangement in the event that the Tribunal dismissed the Commissioner's application; (v) Lakeport had recently undergone an initial public offering and had performed very well, indicating it could be re-sold to implement a future remedy; (vi) Lakeport and Labatt had complied with document and information production orders before the s. 100 application, and most other recipients of such orders had also complied; and (vii) the Commissioner had substantial recent industry knowledge as a result of considering another proposed beer acquisition in the recent past.

The Court of Appeal decision

The Court noted that three conditions must be satisfied before an interim order delaying closing may be granted. The first two conditions were not disputed on the appeal as the Commissioner: (i) had certified that an inquiry was being made into the transaction; and (ii) was of the opinion that more time was required to complete the inquiry.

The third condition, the subject of the appeal, is that "the Tribunal must be satisfied that if the interim order is not granted, a person is likely to take an action that would substantially impair the ability of the Tribunal to make an order under section 92 to remedy the effect of the proposed transaction on competition because that action would be difficult to reverse."

The Commissioner argued on appeal that the correct interpretation of s.100 is that once the first two conditions are met (i.e., once the Commissioner certifies that an inquiry is being made into a transaction and is of the opinion that more time is required to complete the inquiry), the Tribunal can refuse to grant an order delaying closing only if either the Commissioner has acted in a patently unreasonable manner or not in good faith, or the application is an abuse of process. The Court found that Parliament had not intended so limited a role for the Tribunal.

The Commissioner also argued that the Tribunal's decision essentially restored a now non-existent requirement that the Commissioner satisfy the Tribunal that the transaction is reasonably likely to prevent or lessen competition substantially. This requirement was removed through an amendment to s.100 in 1999. The Court, however, found that the Tribunal had not revived the pre-1999 language because the Tribunal had not required the Commissioner to establish that the transaction was reasonably likely to prevent or lessen competition. Instead, the Court found that the Tribunal was correct in requiring that it be satisfied that its ability to remedy the effect of the merger on competition would be substantially impaired if the order delaying closing was not granted. The Commissioner's application was deficient in this key regard - it failed to establish to the Tribunal's satisfaction that, without an interim order, the Tribunal's remedial powers would be substantially impaired.

The Court added that in the factual context of the Labatt / Lakeport transaction, the Tribunal needed to understand the nature of the potential lessening of competition that prompted the inquiry, the kinds of remedies that might ultimately be sought by the Commissioner, the action the Commissioner wished to forbid, what would be required to reverse the action, and the potential effectiveness of remedies with and without the interim order.

Implications for future transactions

The ability to potentially close very complex transactions soon after the expiry of the statutory waiting period raises important tactical implications for transactions where the purchaser is prepared to close without competition clearance and thereby take the risk of a post-closing merger challenge by the Commissioner. Although in this case the Tribunal refused to order a hold separate over the objection of the Commissioner, in the future it may still be wise to propose a workable hold separate to the Commissioner if the parties wish to close at the end of the statutory waiting period. The Commissioner may decline to participate in such discussions in order to preserve the ability of the Tribunal to fashion a post-closing remedy, but this may be at her peril. It may also be appropriate to propose an alternative form of hold separate arrangement that does not need the Commissioner's involvement. Indeed, the Commissioner agreed to a hold separate arrangement in the scrap metal merger of American Iron & Metal Company Inc. and SNF Inc. on January 29, 2008, immediately after filing an application under section 100 to delay closing.

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

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

Appeal Court firmly dismisses Commissioner's merger injunction appeal

Shawn C.D. Neylan

On January 22, 2008, the Federal Court of Appeal dismissed an appeal by the Commissioner of Competition (the Commissioner) of the Competition Tribunal's refusal to grant an injunctive order under s. 100 of the Competition Act. The order would have delayed the closing of Labatt Brewing Company Limited's acquisition of Lakeport Brewing Income Fund. The Tribunal's decision not to grant the injunctive order was a landmark in Canadian merger review law. It has now been upheld by the Court in a resounding manner, as the Court concluded it did not need to hear submissions from Labatt's counsel. The Court is expected to issue reasons for its decision in due course. We will send out an update when those reasons are issued.

Shawn Neylan and Katherine Kay of Stikeman Elliott were competition counsel to Lakeport (until its acquisition by Labatt), successfully defending the Commissioner's request to the Tribunal for an injunction in the original proceedings.

Recent marketing and advertising enforcement actions

Kim D.G. Alexander-Cook

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

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

Commissioner strips Lululemon of clothing claims

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

Health and environmental claims an ongoing bureau focus

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

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

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

Canada levies fines against Bayer Group for role in international cartels

Michael Kilby

On October 30, 2007, the Competition Bureau announced that the Bayer Group pled guilty to three counts under section 45 of the Competition Act in respect of its role in three international price fixing conspiracies in the rubber and chemicals industry. Bayer AG was fined C$2.9 million for its part in a rubber chemicals conspiracy and C$400,000 for its role in a nitrile rubber conspiracy. Bayer Corporation, a wholly owned US subsidiary of Bayer AG, was fined C$345,000 for participation in a conspiracy to fix the price of aliphatic polyester polyols made from adipic acid.  In all, the fines totalled C$3.645 million.  Significant fines have also been levied against several companies in respect of these cartels in the United States and Europe.

Grain handlers make divestitures to maintain industry competitiveness

Susan M. Hutton and Ian Disend

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

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

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

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

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

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

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

Canadian Competition Bureau Obtains Record Fines for Conspiracy Conviction

Danielle K. Royal

Following a Competition Bureau investigation, three Canadian carbonless paper sheet manufacturers (Cascades Fine Papers Group Inc., Domtar Inc. and Unisource Canada Inc.) recently pleaded guilty to conspiring to lessen competition in the supply of carbonless paper sheets in Ontario and Quebec contrary to section 45 of the Competition Act.Carbonless paper sheets are used in multiple copy forms. The demand for carbonless paper sheets has been declining for several years as a result of the development of computerized receipts.

Each of the accused was sentenced to pay a fine in the amount of $12,500,000, comprised of a $10,000,000 fine for activity in Ontario and $2,500,000 for activity in Quebec. In addition to the fines, each accused must educate its directors, officers, employees and agents about complying with the Competition Act.

This is the first time the Court has imposed the maximum $10,000,000 fine available under the Competition Act against a domestic company.

Nippon Pleads Guilty

In the latest conviction related to the international conspiracy to fix the price of graphite electrodes used in steel production, Nippon Carbon Company, Ltd. pleaded guilty on December 8, 2005 to aiding and abetting the conspiracy, contrary to section 46 of the Competition Act and section 21(1) of the Criminal Code.  Nippon had agreed, during the 5-year term of the illegal market sharing agreement, not to sell into Canada.  Nippon will pay a fine of C$100,000. It is the 7th party to be convicted in Canada in connection with the graphite electrode conspiracy, and fines in the case now top C$25 million.
 

Canada Releases Draft Merger Remedies Bulletin for Comment

Susan M. Hutton and Michael Kilby

In a flurry of announcements this fall, the Canadian Competition Bureau released a draft Information Bulletin on Merger Remedies in Canada. Comments are requested by January 20, 2006. Highlights of the draft Bulletin of note to practitioners include:

  • a preference for structural remedies (such as divestiture) to behavioural remedies (which, in the Bureau's view, may require monitoring and/or risk being ineffective).

  • acceptance of partial divestitures (e.g., selected manufacturing facilities, retail locations, products or product lines, intellectual property or other discrete assets), subject to satisfaction that willing buyers are available. In this regard, the Bureau may seek information from the marketplace to verify the likely viability and effectiveness of the proposed remedy.

  • a strong recommendation to merging parties to use a "fix it first" approach, which means either completion of a divestiture of a party's own assets before the main transaction closes or a signed agreement in this regard, to be executed on closing of the main transaction. Registration of a consent agreement in such circumstances will not normally be required.

  • if up-front divestiture is not possible, the Bureau indicates it expects sales processes to be concluded within between 3 and 6 months after closing (considerably shorter time limits than many prior consent agreements would indicate).

  • the increased use of "crown jewels" during the trustee sale period, to provide the vendor with an incentive to complete the initial divestiture in a timely fashion, and/or to enhance its marketability in the hands of the trustee.

  • the draft Bulletin indicates that certain terms of agreed remedies can initially be kept confidential. Such information as the initial time period for sale before the assets are transferred to a trustee, the fact that there is no minimum price, and the assets forming part of a "crown jewel" package, may be kept confidential. Full disclosure will be the norm, however, if other jurisdictions disclose such information, or in the case of cases that are contested before the Competition Tribunal (in which case the full text of a proposed order will be made public at the time the application is filed).

  • the draft Bulletin also contains an indication that, in cooperating with other competition enforcement agencies internationally, Canada may rely on remedies arrived at in foreign jurisdictions if they raise no Canada-specific issues.

The shortened time limits for initial divestiture, the increased desire for crown jewels, and the emphasis on up-front buyers and other "fix it first" remedies are likely to engender significant comment amongst merger specialists and their clients.

International Food Flavour Cartel Brings $1.675 Million in Fines

The Competition Bureau announced on August 30, 2005 that the Federal Court of Canada imposed fines totaling $1.675 million for a conspiracy to fix prices of nucleotides, a food flavour enhancer, in Canada. Ajinomoto Co. Inc., Japan's largest producer of seasonings, pleaded guilty to violating section 45 of the Competition Act by virtue of its participation in the conspiracy and was fined $1.5 million. CJ Corp. also pleaded guilty and was fined $175,000. In 2001, these same two companies pleaded guilty and paid fines in the United States for participating in this cartel. Katherine Kay of Stikeman Elliott's Competition/Antitrust Group acted for one of the defendants in this matter.

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

BY D. JEFFREY BROWN

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

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

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

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

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

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

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

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

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

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

Amendments to Canada's Competition Act Could Pass this Spring

Susan M. Hutton and Patricia Martino

As reported in the March, 2005 edition of this newsletter, the House of Commons Standing Committee on Industry, Natural Resources, Science and Technology resumed consideration of Bill C-19 on March 9, 2005, after a hiatus of several months due to political skirmishing between opposition parties and the minority government members of the Committee. Further witnesses appeared on March 23, 2005. Although more witnesses may appear, it is still possible that Bill C-19 may become law this spring. So far, the Bill appears to have general all-party support, despite the opposition of some witnesses to certain aspects of the Bill.

Bill C-19 seeks to implement some long-debated - and in some cases controversial - amendments to Canada's Competition Act (the "Act"). The Commissioner of Competition (the "Commissioner") grouped the proposed amendments into five areas in her appearance before the Committee last Fall:

  1. Providing authority for the Tribunal to order restitution for consumer loss resulting from false or misleading representations under paragraph 74.01(1)(a) of the Act1;
  2. Enabling the Tribunal to issue an "administrative monetary penalty" (AMP), or fine, for abuse of dominance in any industry, to a maximum of $10 million for a first offence and $15 million for subsequent orders;
  3. Repealing the airline-specific provisions of the Act2;
  4. Increasing the level of AMPs for civil deceptive marketing practices (to maximums of $750,000 for a first offence and $1 million for subsequent orders against individuals; and to maximums of $10 million for a first offence and $15 million for subsequent orders against corporations); and
  5. Repealing the criminal pricing provisions in sections 50 and 51, leaving such practices as predatory pricing and price discrimination to be dealt with as instances of (civil) abuse of a dominant position.

As noted, while few of the proposals in Bill C-19 are without controversy, the Bill appears likely to pass - although speculation as to the exact timing of such passage is made interesting by the lack of a majority government in Ottawa.

With respect to restitution for victims of false or misleading representations, the Commissioner has noted that restitution can already be ordered for similar offences in other countries such as the United States and Australia. With both restitution orders and drastically increased fines in her arsenal, the Commissioner will seriously increase her leverage over prospective defendants. Million-dollar-plus penalties and voluntary settlements of the type agreed to by The Forzani Group Ltd. ($1.7 million) and Suzy Shier Inc. ($1 million) could well become the norm, even for civil offences.

One of the more controversial proposals in Bill C-19 is the introduction of fines for companies who have abused their dominant market positions. As noted, the Tribunal will be empowered to issue fines of up to $15 million (for repeat offenders). This exceeds the maximum fine available for criminal price fixing under the domestic conspiracy provision (section 45). With the Commissioner vigorously pursuing abuse cases such as that brought recently against Canada Pipe3this provision clearly raises the stakes for firms with large market shares in Canada.

The introduction of criminal-sized fines for abuse of dominance also significantly affects the impact of the repeal of the criminal predatory pricing, price discrimination and promotional allowance provisions. The repeal of these provisions has been widely supported, as they require no finding of dominance or anti-competitive effect. That said, firms with large market shares arguably will face more vigorous enforcement as a result of the lower civil burden of proof and the prospect of large fines for abuse of dominance.

FOOTNOTES:

1] Fines are currently available for both criminal and civil misleading representations. A private party harmed by the offence can also sue for damages caused by misleading representations that are "knowingly or recklessly made" (the standard of intent for the criminal offence), regardless of whether criminal charges have been laid.

2] Currently, amongst other things, there are airline-only definitions of "anti-competitive acts" under the abuse of dominance provisions, and the Tribunal is able to issue fines in respect of abuse of dominance only to dominant Canadian airlines. See sections 78 and 79 of the Act.

3] Commissioner of Competition v. Canada Pipe Company Ltd., 2005 Comp. Trib. 3 (Competition Tribunal). See the March 2005 edition of The Competitor for a description of the Tribunal's decision, which rejected the notion that the exclusivity rebates in question were anti-competitive. The Commissioner has appealed the decision.


 

Bill C-19: Off Again-On Again

On March 9, 2005 The House of Commons Standing Committee on Industry, Science and Technology resumed consideration of Bill C-19, which proposes to amend the Competition Act by creating, among other things, stiff fines for abuse of dominance and misleading advertising practices.

RONA Asks Competition Tribunal to Rescind Consent Agreement

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

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

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

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

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

Parliamentary Hearings Suspended on Canada's Competition Act Amendments (Bill C-19)

Susan M. Hutton

In a surprising turn of events, the House of Commons Standing Committee on Industry, Science and Technology voted on December 2, 2004 to suspend further discussion of Bill C-19, An Act to Amend the Competition Act and to Make Consequential Amendments to Other Acts, for an indefinite period. The Committee had only recently commenced hearings concerning Bill C-19, the Government bill proposing important changes to the abuse of dominance, pricing and misleading advertising provisions of the Act, among others (see the November, 2004 issue of The Competitor for details).

The Committee had already heard from several witnesses, including the Commissioner of Competition, Sheridan Scott, as well as representatives from various business and lawyers' groups including the Canadian Council of Chief Executives, the Competition Law Section of the Canadian Bar Association, and the Canadian Chamber of Commerce. Several other witnesses were scheduled to be heard, but their appearance has been postponed, along with further discussion of the bill.

The reason for the suspension actually has little to do with the bill itself ; an NDP Committee member proposed the motion out of frustration with apparent delays on the part of the Government to introduce promised legislation to make corporate fines and "administrative monetary penalties" (such as those proposed in Bill C-19 for abuse of dominance and for civil misleading advertising) non-deductible for income tax purposes. The other opposition MPs voted - for various reasons - with the NDP to pass the motion to suspend consideration of the bill, defeating the Liberal MPs in the process (most of whom then left the hearings).

The upshot is that Committee hearings were suspended a week earlier than they would otherwise have been for the holiday season. The Committee will resume its work in January when Parliament reconvenes, but when it will continue its consideration of Bill C-19 remains to be seen. It is likely only a question of time before deliberations resume, but the events of December 2 showed that with a minority government "anything can happen."

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

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

Competition Act Amendments:One Step Closer to Reality with Bill C-19

Kevin Rushton

On November 2, 2004, by tabling Bill C-19, the Canadian government took the first step toward implementing some of the long-debated amendments to Canada's Competition Act (the Act). If Bill C-19 manages to weave its way successfully through Canada's minority Parliament, it will implement the most wide-ranging changes in decades to Canada's competition legislation. Likely the most significant of these is the introduction of the additional remedy of fines ("administrative monetary penalties") for abuse of dominance, which should cause leading Canadian businesses to re-evaluate the way in which they operate.

Background to Bill C-19

Bill C-19 had its genesis in the Government's June 2003 discussion paper, Options for Amending the Competition Act: Fostering a Competitive Marketplace. Very briefly, the discussion paper proposed changes to the Act in four broad areas. The first area - which is the subject of Bill C-19 - was the strengthening of the Act's civil provisions by introducing additional remedies for non-merger offences (i.e., abuse of dominance, exclusive dealing, tied selling, market restriction and refusal to deal). The discussion paper proposed a trio of new sanctions: administrative monetary penalties (fines), restitution in cases of civil misleading advertising and deceptive market practices, and a private right of action for damages (currently confined to damages for behaviour that is criminal under the Act).

Secondly, the discussion paper proposed reforming the Act's criminal conspiracy section, and replacing it with a dual-track provision. A per se criminal provision would apply to anti-competitive agreements, such as those involving price fixing, market allocation and output restrictions. Other agreements between competitors that are generally pro-competitive but have the potential to prevent or lessen competition substantially would be subject to civil review. The amendments proposed in the discussion paper would also have repealed the Act's criminal pricing provisions, instead addressing discriminatory and predatory pricing under the abuse of dominance provision . Finally, the discussion paper proposed allowing the Commissioner to ask an independent and impartial body with economic expertise, such as the Canadian International Trade Tribunal, to inquire into the state of competition in any industry.

In April of 2004, the Public Policy Forum, an independent non-profit organization mandated to conduct public consultations about the proposals put forward in the discussion paper, submitted its final report. Suffice it to say that the consultations revealed sharp divisions amongst stakeholders with respect to most of the proposed amendments, including the proposal to make civil conduct, such as abuse of dominance, subject to administrative monetary penalties.

Bill C-19: An Overview

Bill C-19 deals with the first and third areas listed above: strengthening of the remedies for the civil provisions of the Act, and de-criminalization of the pricing provisions. There are, however, some key differences between Bill C-19 and the discussion paper proposals in these areas.

The most significant amendment - permitting the Competition Tribunal to, in essence, impose civil fines in respect of abuse of dominance - as proposed in Bill C-19, covers only abuse and not the other civil non-merger provisions. Whereas the discussion paper contemplated unlimited fines, Bill C-19 caps them at C$10 million for first offences and C$15 million for each subsequent offence. Secondly, Bill C-19 seeks to increase the maximum amount of AMPs in respect of deceptive marketing practices (already provided for in the Act), in the case of individuals, to $750,000 for a first offence (now $50,000) and $1 million for repeat offences (now $100,000). The maximum "civil" fine for corporations guilty of "civil" deceptive marketing practices will (if Bill C-19 passes in its current form) be increased to C$10 million for a first offence (now $100,000) and C$15 million for repeat offences (now $200,000). If the public comments on the discussion paper proposals are any indication, the imposition of such serious penalties for non-criminal behaviour may well be controversial. Moreover, the "decriminalization" of the pricing provisions (including predatory pricing, price discrimination and promotional allowances in sections 50 and 51 of the Act), might be said to be a question of form over substance if the Tribunal has the power to impose fines at the same level as those available for criminal convictions. Indeed, the lower burden of proof inherent in civil proceedings will facilitate enforcement of these provisions (although, for price discrimination and promotional allowances, the requirement under the abuse of dominance provision that they be proven to substantially lessen or prevent competition may limit the circumstances in which such proceedings might arise).

As indicated in recent Bureau speeches, the creation of a per se criminal conspiracy offence in respect of so-called "hard core" cartels, and a civil track for other anti-competitive agreements, is the subject of continued study. It is our understanding that the Competition Bureau is working on revised draft language and that another round of consultations on such changes will be held. Accordingly, Bill C-19 leaves the conspiracy provisions untouched.

No mention has been made of the proposed "inquiry" procedure put forth in the discussion paper. As comments were generally opposed to such an amendment, however, it is quite possible that this amendment will not be heard of again.

Finally, the Bill does contain a set of new amendments not originally proposed in the discussion paper. Specifically, Bill C-19 will repeal all of the Act's airline-specific provisions, including the expanded definitions of anti-competitive acts for the purposes of abuse of dominance, and the ability of the Commissioner herself to issue injunctive-like cease-and-desist orders against an airline. The latter provision has been held unconstitutional by the Québec Court of Appeal.

Significance of Bill C-19

Given the import of an expanded AMPs regime under Bill C-19, those at the leading edge of Canada's business community will undoubtedly have to re-think the risks involved with being "too" successful. Whether or not Bill C-19 will have the effect of "chilling" vigorous and effective competition, as is feared by so many, remains to be seen.

Bill C-19 passed first reading in the House on November 2, 2004.

For more information about the contents of this newsletter, please contact the author, Kevin Rushton or the editor, Susan Hutton.

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

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

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

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

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

U.S. Merger Notification: Gates, Manulife Face Big Civil Penalties for Hart-Scott-Rodino Violations

The U.S. Department of Justice has twice levied significant civil penalties for failure to notify transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the Hart-Scott-Rodino Act) in recent weeks.

William H. Gates III was ordered to pay US$800,000 as a result of his acquiring, through a limited liability company, 500,000 shares of Republic Services Inc. The acquisition resulted in Mr. Gates owning approximately 10.1% of the company's outstanding voting securities. Mr. Gates' failure to notify the transaction was the result of an improper, albeit inadvertent, reliance on an investment exemption.

Like Mr. Gates, Manulife Financial, a Canadian corporation, improperly relied on an investment exemption with costly consequences. Manulife was ordered to pay US$1,000,000 in relation to a failure to notify an acquisition of stock issued by John Hancock Financial Services, Inc. The Hart-Scott-Rodino Act exempts acquisitions of 10% or less of a company's stock if they are made "solely for the purpose of investment"; however, the government alleged that this exception was not available to Manulife since, by the spring of 2003, it was considering a merger with John Hancock

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

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

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

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

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

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

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

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

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