The Competitor

Canada's Competition Bureau releases revised Merger Review Process Guidelines

Stikeman Elliott LLP — Thu, 12 Jan 2012 16:44:08 -0500

Susan M. Hutton and Michael Laskey -

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

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

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

The most significant changes in the revised Guidelines include:

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

U.S. Steel agrees to settle Investment Canada enforcement action

Stikeman Elliott LLP — Tue, 13 Dec 2011 13:48:30 -0500

Susan M. Hutton and Robert Mysicka -

On December 12, 2011, Canada’s Minister of Industry, Christian Paradis, announced that the federal government has reached an out-of-court settlement in its case against U.S. Steel Corp. for its alleged failure to abide by various undertakings that were conditional to the government’s approval of its acquisition of Stelco, a Hamilton-based steel manufacturer, under the Investment Canada Act.

In September, 2007, U.S. Steel sought to acquire Stelco, and submitted the required application for ministerial review and approval under the Act. The statute requires the Minister of Industry to review a foreign acquisition of control of a significant Canadian business and to approve the change in control only if persuaded that the transaction is likely to be of “net benefit” to Canada, based on prescribed - largely economic - criteria. On October 29, 2007 the Minister approved the transaction, subject to 31 binding undertakings which U.S. Steel agreed to abide by as part of its obligations under the Act.

On May 5, 2009, however, in the wake of the global economic downturn and the shutter of two former Stelco plants in Canada (Hamilton and Lake Erie/Nanticoke), the Minister notified U.S. Steel that it had not complied with two of the undertakings, namely the obligation to ensure steady employment levels and continued production at the two plants. Consequently, the Minister demanded under section 39 of the Act that U.S. Steel comply with its undertakings and remedy its default. In response, U.S. Steel sent a letter to the Minister explaining that its non-compliance was due to the unexpected slowdown in economic activity following the 2008 financial crisis.

Eventually, the Minister commenced proceedings against the company pursuant to section 40 of the Act, seeking an order directing compliance and a penalty for non-compliance of C$10,000 for each day of the breach. In response, U.S. Steel filed a Notice of Motion challenging the constitutional validity of sections 39 and 40 of the Act on the grounds that they violated the presumption of innocence and the right to a fair hearing, contrary to subsection 2(e) of the Canadian Bill of Rights and subsection 11(d) of the Charter of Rights and Freedoms.

The Federal Court dismissed the motion by U.S. Steel, a decision that was affirmed on appeal at the Federal Court of Appeal. Details of the Federal Court of Appeal’s decision can be found in our previous post on the constitutional validity of section 40 of the Investment Canada Act. On November 24, 2011 the Supreme Court denied U.S. Steel’s motion for leave to appeal. Around the same time, U.S. Steel approached Minister Paradis with a proposal for new undertakings, which formed the basis for negotiations between the Minister and the company.

The final settlement requires U.S. Steel to continue producing steel in Canada for at least another four years, and to make substantial capital investments in its Hamilton and Lake Erie plants, totaling C$50 million. These undertakings are over and above U.S. Steel’s original commitment to invest C$200 million in the Canadian plants by October 31, 2012.

In addition, U.S. Steel has committed to making financial contributions of C$3 million to local communities. In the Minister’s view, these additional investments mean that “U.S. Steel will continue operations in Canada that provide economic benefit to the communities of Hamilton and Nanticoke”. Minister Paradis praised the settlement as achieving “benefits that in all likelihood would not have been obtained through the court process”. A spokesperson for the steelmaker says that “the resolution reflects our ongoing and long term interest in doing business in Canada”.

Should you have any questions about foreign investment or doing business in Canada please do not hesitate to contact the authors or your usual counsel at Stikeman Elliott.

Supreme Court of Canada grants leave to appeal regarding indirect purchaser issues

Stikeman Elliott LLP — Thu, 01 Dec 2011 15:37:59 -0500

Sultana L. Bennett -

On December 1, 2011, the Supreme Court of Canada granted leave to appeal in the British Columbia Court of Appeal decisions Pro-Sys Consultants Ltd. v. Microsoft Corporation (Microsoft) (2011 BCCA 186) and Sun-Rype Products Ltd. v. Archer Daniels Midland Company (Sun-Rype) (2011 BCCA 187). Microsoft and Sun-Rype were two to one majority decisions concluding for the first time in Canada that indirect purchasers of allegedly price-fixed products have no cause of action recognized in law. (see our ealrier post titled: Court of Appeal for British Columbia bars indirect purchaser suits.)

Earlier this month the Québec Court of Appeal in Option Consommateurs v. Infineon Technologies AG (2011 QCCA 2116), unanimously overturning a Superior Court decision that had denied a motion to authorize class action proceedings, allowed indirect plaintiffs to proceed with their price-fixing suit, expressly disagreeing with the British Columbia Court of Appeal’s rulings in Microsoft and Sun-Rype that such plaintiffs have no claim in law. (see our ealrier post titled: Québec Court of Appeal authorizes price-fixing class action involving indirect purchasers.)

These appeals will mark the first time the highest court in Canada will consider this issue in the context of competition class actions.

Québec Court of Appeal authorizes price-fixing class action involving indirect purchasers

Stikeman Elliott LLP — Thu, 24 Nov 2011 17:07:34 -0500

Sultana L. Bennett -

On November 16, 2011, the Québec Court of Appeal issued a judgment unanimously reversing the 2008 Québec Superior Court decision in Option Consommateurs v. Infineon Technologies AG dismissing the motion for authorization to institute class action proceedings. Significantly, the class includes both direct and indirect purchasers, and the Quebec decision thus follows the dissent in the 2011 British Columbia Court of Appeal decision in Sun-Rype Products Ltd. v. Archer Daniels Midland Company, holding that the defendants would not face an unfair risk of double recovery because the plaintiffs alleged a single, aggregate loss notwithstanding the mix of direct and indirect purchasers in the class.

Background and Decision in the Superior Court

The defendants were manufacturers of dynamic random access memory or “DRAM,” a semiconductor memory product used in electronic devices, each of whom had admitted participation in a price-fixing conspiracy between 1999 and 2002 and all but one of whom had pleaded guilty to Sherman Antitrust Act violations arising from that conduct in the United States.

In its motion to institute the proceedings in Québec Superior Court, Option Consommateurs, a consumer advocacy organization, alleged that the defendants failed to respect statutory obligations under the Competition Act, and breached the general extracontractual duties imposed upon them by the Civil Code of Québec. Claudette Cloutier, a Montreal resident, sought status as the designated representative in the proceedings on behalf of direct and indirect purchasers of DRAM in Québec. In October 2001, Cloutier had purchased a computer containing DRAM online from Dell Computer Corporation’s website, and claimed to have paid an artificially inflated price for the computer as the result of the defendants’ price-fixing activity.

Justice Mongeau of the Superior Court denied the motion to authorize proceedings on two grounds: first, that Québec did not have proper territorial jurisdiction to hear the class action, but that even if it had, the allegations did not meet the test for authorization under Québec class proceedings law. Option Consommateurs and Cloutier appealed the ruling to the Court of Appeal.

The Québec Court of Appeal’s Ruling

In rendering its judgment reversing the decision of the Superior Court, the Court addressed three major issues: (i) the source in law of the claims made by the putative class members; (ii) jurisdiction over the alleged losses of the class members; and (iii) and the authorization of the class action under Québec class proceeding law.

As a threshold matter, the Court held that the direct and indirect purchasers of DRAM within the class both essentially alleged a single extracontractual fault as the basis for their causes of action: the conspiracy to inflate artificially the price of DRAM, a conspiracy that would have if not for the passing of the statute of limitations given rise to a civil remedy pursuant to section 36 of the Competition Act. Accordingly, the Court found that there would be no impediment to the authorization of the class action based on a different source of liability between direct and indirect purchasers.

The Court’s ruling on Québec’s territorial jurisdiction over the proceedings suggests an expansive view of the extraterritorial application of Canadian antitrust laws upon foreign defendants. While Justice Mongeau had held that Cloutier’s financial loss was connected to Québec only by reason of her domicile being there — a fact which could not by itself establish financial loss suffered in Québec and provide a basis for the exercise of jurisdiction — the Court of Appeal, while agreeing that the question of jurisdiction was one appropriate for decision on an authorization motion, came to the opposite conclusion. Despite the fact that the defendants were not domiciled in Québec and had no place of business there, and the alleged conspiracy was not alleged to have taken place in Québec, the Court concluded that the damage Cloutier claimed to have suffered in Québec arising from her online computer purchase justified the exercise of jurisdiction.

The Court of Appeal went on to find that the class action was authorized pursuant to articles 1002 and 1003 C.C.P. Rejecting the defendants’ position that the motion did not clearly set out an undue restraint of competition resulting from their anti-competitive activities outside of Canada, the Court held that while the plaintiff was “far from having established its case on the merits,” the extent of the conspiracies as set out in the plea agreements were sufficient to support the allegations of undue restraint of trade. Furthermore, while acknowledging the “unhelpful lack of detail” in the allegations relating to the class members’ loss, the Court of Appeal found that there had been alleged sufficient facts to establish the loss and to constitute a prima facie demonstration of loss under article 1003(b) C.C.P.

The Court then addressed the defendants’ argument that the alleged losses suffered by indirect purchasers were not compensable because of the indirect purchasers’ lack of standing. Referring to the British Columbia Court of Appeal’s decisions in Sun-Rype Products Ltd. v. Archer Daniels Midland Company (Sun-Rype) and Pro-Sys Consultants Ltd. v. Microsoft Corporation (Microsoft), which concluded that indirect purchasers of allegedly price-fixed products have no cause of action recognized in law, the Court was not persuaded that double recovery could result from the recognition of indirect purchasers’ claims. Instead, concurring with the reasons of the dissenting justice, Donald J.A., in Sun-Rype, the Court held that the defendants would not face an unfair risk of double recovery because the motion alleged a single, aggregate loss notwithstanding the mix of direct and indirect purchasers in the class. Significantly, the complexity of proving the passing-on of losses to the indirect purchasers was acknowledged by the Court, but deemed merely an evidentiary concern that should be properly addressed as part of the burden of proof resting upon the plaintiffs once the case proceeded to trial.

Conclusion

The rulings in this decision are reminders of the relatively low threshold for authorization of class actions in Québec. The Court of Appeal, even while noting the lack of specificity in the motion pertaining to loss and causation (including the fact that Cloutier had not alleged that the DRAM in her computer was sold to her directly or indirectly by the defendants or any them) and acknowledging the evidentiary challenges awaiting the plaintiff upon trial, ultimately held the allegations sufficient to meet the test for authorization under Québec law.

The timing of the decision is also notable. The Supreme Court of Canada is expected to rule on the leave applications in Sun-Rype and Microsoft in the near future.

Criminal charges laid in alleged Montreal sewer services cartel

Stikeman Elliott LLP — Wed, 23 Nov 2011 15:44:02 -0500

Michael Laskey -

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

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

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

Competition Tribunal confirms possibility of dissolution as remedy in CCS case

Stikeman Elliott LLP — Thu, 10 Nov 2011 11:49:33 -0500

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.

CRTC's vertical integration decision in broadcasting proposes controls on vertically-integrated broadcasters

Stikeman Elliott LLP — Mon, 31 Oct 2011 08:07:18 -0500

Michael Laskey -

On February 1, 2011, the Competition Bureau issued a statement in respect of the proposed acquisition of CTVglobemedia Inc. by BCE Inc. The statement noted that the Bureau was “cognizant of the growing trend toward vertical integration in the broadcasting industry” and that it was reviewing issues of vertical foreclosure. The statement also noted that the Commissioner of Competition would “closely monitor” the CRTC’s vertical integration hearings and subsequent regulatory developments in that same regard.

On September 21, 2011, the CRTC released its decision, Broadcasting Regulatory Policy CRTC 2011-601, setting out a regulatory framework for vertical integration among broadcasting and programming companies. In its decision, the CRTC imposes a number of restrictions on the activities of “vertically integrated” companies, which for the purposes of the decision it defines as companies that control both programming services (such as conventional television stations) and distribution services (such as cable or satellite systems). More specifically, some of the restrictions imposed by the decision include:

Restriction on Exclusivity: In proposed amendments to the Exemption order for new media broadcasting undertakings1, to be published later this year, no person operating under that order will be allowed to offer programming designed primarily for conventional television on an exclusive (or otherwise preferential) basis in a manner that is dependent on a consumer’s subscription to a specific mobile or retail internet service. However, to encourage innovation in programming, exclusivity may be offered for programs created specifically for new media platforms (e.g., content designed specifically for mobile phones). A notice of consultation will be published, calling for comments on the draft regulations.
Programming Services Must Be Independently Available: Before the end of 2011, the CRTC will issue a notice of consultation containing draft regulatory amendments that will include a provision that all programming services must be made available to independent broadcasting distribution undertakings (BDUs) on a stand-alone basis. Therefore, vertically integrated firms will not be allowed to use their most popular programming services to encourage sales of less valuable programming.
”No Head Start” Rule: Before the end of 2011, the CRTC will issue a notice of consultation containing draft regulatory amendments stating that, whenever a programming undertaking is ready to launch a new pay or specialty service, it will be obligated to make that service available to all BDUs. If a commercial agreement between the parties cannot be reached, the CRTC will be able to manage the dispute and impose rates. The “no head start” rule will also apply to television programming distributed on new media distribution platforms (including mobile phones and retail internet).
“Code of Conduct” for Commercial Interactions: The CRTC concluded that there was a potential for abuse of market power by vertically integrated entities, and imposed a code of conduct to ensure no party “uses its market power to engage in anti-competitive behaviour”. The code of conduct, which establishes the guidelines for commercial arrangements between BDUs, programming undertakings and new media exempt undertakings, is attached as Appendix 1 to the CRTC’s decision. The CRTC noted that it would refer to the principles in the Code of Conduct when making determinations on complaints or other applications.
Penalties for Non-Compliance: In “appropriate case[s]”, the CRTC said that it would impose financial remedies on non-compliant entities in the form of orders to pay amounts into a fund for the “benefit of the Canadian broadcasting system”.

As noted above, several of the new restrictions will be implemented though regulatory amendments, and will be subject to further consultation before they are set out in their final form. The Competition Bureau has not commented on the CRTC’s decision.

1. This order applies to, among others, Bell, Rogers, Shaw, and Quebecor Media.

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

Stikeman Elliott LLP — Mon, 31 Oct 2011 08:00:52 -0500

David Elder and Lindsay Gwyer -

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

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

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

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

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

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

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

Parties consent to interim supply order in refusal to deal case

Stikeman Elliott LLP — Fri, 21 Oct 2011 14:38:00 -0500

Michael Laskey -

The Competition Tribunal today released an interim supply order requiring the Insurance Bureau of Canada to continue to supply access to its Web Claims Search Application to the Used Car Dealers Association of Ontario. The IBC, which consented to the interim supply order, must continue to supply the UCDA until the disposition of the UCDA’s application under the refusal to supply provision (section 75) of the Competition Act.

As described in our earlier article, the UCDA alleges that the IBC is refusing to supply it with automobile accident history data, which the UCDA says it requires in order to supply its Auto Check service to its members. The UCDA was granted leave to bring its application on September 9, 2011, and the matter is currently pending before the Tribunal.

Competition Tribunal orders production of unredacted documents

Stikeman Elliott LLP — Fri, 21 Oct 2011 12:55:12 -0500

D. Jeffrey Brown and Lindsay Gwyer -

In a recent decision, the Competition Tribunal granted the Commissioner of Competition’s motion requesting that the Toronto Dominion Bank (TD) produce complete versions of a number of documents, including several that had previously been produced in a redacted form. The motion was part of the Commissioner’s proceedings against Visa Canada and Mastercard International under the Competition Act’s civil resale price maintenance (RPM) provision, enacted as part of the substantial amendments to the Competition Act in 2009. TD was granted leave to intervene in that proceeding in respect of a number of issues earlier this year.

The motion stemmed from the redaction by TD of certain documents produced by it in response to the Tribunal’s order granting it leave to intervene, which also ordered it to produce documents relative to the issues within the scope of its intervention. TD submitted that redactions are permitted if information is irrelevant and confidential, or if it is contained in an irrelevant portion of a segmented document. The Tribunal rejected this view, and held that, as a general rule, irrelevant portions of otherwise relevant documents must be disclosed. After reviewing relevant jurisprudence, the Tribunal held that redaction is permissible only in exceptional circumstances, such as where the redacted information is embarrassing or harmful or where there is an “enormous” volume of redacted material.

Having set out the general rule, the Tribunal considered whether any of TD’s redactions could fit within the “exceptional circumstances” exception. The Tribunal concluded that there were no special circumstances to justify the redaction of the names of merchants with whom TD interacted. TD maintained that the names could not be disclosed on the basis of its contractual confidentiality obligations, but the Tribunal found that the relevant contracts permitted disclosure in the context of litigation.

The Tribunal similarly found a lack of supporting evidence to justify the redaction of profit and loss statements and certain government relations documents to exclude information about business lines other than credit cards. Even had it found such an evidentiary foundation, the Tribunal suggested that it might have rejected the redactions nevertheless given that the documents enjoyed the protections of a Tribunal-granted confidentiality order.

The Tribunal also ordered TD to disclose documents showing the content of its pre-contractual negotiations with Visa and Mastercard. The contracts themselves had already been disclosed, and TD argued that pre-contractual documents were not relevant. The Tribunal disagreed, finding that the documents were “clearly relevant” on the basis that TD had been granted leave to intervene on the issue of its “interactions” with the two credit card companies.

Superior Court issues partial sealing order in Commissioner's case against Chatr Wireless

Stikeman Elliott LLP — Wed, 19 Oct 2011 08:49:42 -0500

D. Jeffrey Brown and Robert Mysicka -

In a recent ruling, Ontario’s Superior Court of Justice explored the principles underlying the law respecting sealing orders and its application to reviewable matters under Part VII.1 of the Competition Act. On a motion by the Commissioner of Competition, the Court issued a partial confidentiality (or sealing) order with respect to certain information used by the Commissioner in her application against Rogers Communications Inc. and its wholly owned subsidiary, Chatr Wireless Inc., for alleged misleading advertising. Information about “dropped call” rates, which the Court characterized as being at the “very heart” of the Commissioner’s application, was excluded from the sealing order after the Court determined that it was essential for that aspect of the proceedings to remain transparent.

Investigation into Misleading Advertising

The application to which the confidentiality order relates originated in November, 2010, when the Competition Bureau commenced legal proceedings against Rogers and Chatr. The Bureau’s application came after complaints were made by competing discount wireless carriers, Wind Mobile and Mobilicity, alleging that Rogers’ Chatr discount brand was misleading consumers into believing that its network was more reliable and had fewer “dropped calls” than those of other discount carriers.

In her application to the Court, the Commissioner alleged that Rogers and Chatr had engaged in misleading advertising under sections 74.01(1)(a) and (b) of the Competition Act. The Commissioner is seeking orders under section 74.1(1) of the Act:

directing Rogers to immediately cease its advertising campaign and refrain from engaging in similar campaigns;
requiring Rogers to pay an administrative monetary penalty (AMP) of $10 million dollars;
requiring Rogers to pay restitution to Chatr customers affected by the advertising (more specifically, $20 for each month that a customer was a Chatr customer during the currency of the alleged misleading advertising); and
Issuing a corrective notice informing the general public about the nature and provisions of the foregoing orders.

The Commissioner’s application is set to be heard by the Superior Court on November 7, 2011.

The Motion for Confidentiality

As part of its investigation into the allegations against Rogers and Chatr, the Bureau collected information from recent discount wireless carrier entrants Public Mobile, Wind Mobile and Mobilicity. The information that was the subject of the Commissioner’s confidentiality motion was divided into: (i) data on “dropped call” rates; (ii) information on call volumes, geographic locations of calls, subscriber data, financial information (including average revenue per user, or “ARPU”), marketing plans and strategy; and (iii) other information of a competitively or commercially sensitive and/or proprietary nature.

In her submissions to the Court, the Commissioner supplied an affidavit of the Assistant Deputy Commissioner that outlined the importance of maintaining confidentiality in the Bureau’s investigations under the Competition Act. In her affidavit, Ms. Salvatore explained that the Bureau’s ability to access information required in enforcement proceedings, and its duty not to release information that could frustrate the goals of the Competition Act,required it to maintain the confidentiality of confidential business records supplied to it for investigatory purposes.

In considering the motion, Marrocco J. discussed the Bureau’s 2007 Information Bulletin on the Communication of Confidential Information under the Competition Act. He noted that, although the Bulletin clearly establishes the Bureau’s commitment to protecting confidential information, it also recognizes that, due to the nature of the legislative scheme under which the Bureau operates, there is a risk that certain information may be required to be disclosed in the event that legal proceedings are initiated. Marrocco J. noted that this exception to the general rule against disclosure is expressly provided for in section 29(1) of the Competition Act and that “there is a risk of disclosure every time the Commissioner concludes an investigation and decides to commence proceedings.”

In deciding whether to issue a sealing order, Marrocco J. applied the Supreme Court’s decision in Sierra Club of Canada v. Canada (Minister of Finance), which set out the following two-part test for determining when a confidentiality order should be made:

(a) The order is necessary to prevent a serious risk to the proper administration of justice because reasonably alternative measures will not prevent the risk; and

(b) The salutary effects of the publication ban outweigh the deleterious effects on the rights and interests of the parties and the public, including the effects on the right to free expression, the right of the accused to a fair public trial and the efficacy of the administration of justice.

As applied to the Commissioner’s application, Marrocco J. accepted that the information in respect of which the order was sought was treated by the parties, and by the industry generally, as confidential business information. He also accepted the Commissioner’s submissions that “indiscriminate disclosure” of such information “will discourage telecommunications providers from voluntarily co-operating with the Competition Bureau,” thereby satisfying the first part of the Sierra Club test. Marrocco J. rejected a further argument that disclosure of the information would cause injury to competition, since the information would be historical by the time the Commissioner’s application was heard, however this further finding did not alter his conclusion that the first part of the Sierra Club test was met, i.e., based on the Commissioner’s legitimate need to ensure her ability to protect information.

Applying the second part of the Sierra Club test to the Commissioner’s application:

Marrocco J. denied the Commissioner’s request for an order sealing information on “dropped calls,” which information, as noted previously, he observed lies at the “very heart” of the proceeding. According to Marrocco J., such an order would have a deleterious effect on the public, since customers of Rogers and Chatr Wireless would be unable to determine for themselves whether Rogers had deliberately engaged in the reviewable conduct alleged by the Commissioner.
Marrocco J. found that the salutary effects of sealing information on call volumes, geographical locations of calls, subscriber data, financial information (including ARPU) and marketing and strategic plans outweighed the deleterious effects on the rights of Rogers and Chatr to free expression and a fair public trial.

Accordingly, Marrocco J. allowed the Commissioner’s application to seal the marketing and strategic information of Wind Mobile, Mobilicity and Public Mobile, but he refused the order in respect of “dropped call” rates. Information about “dropped calls”, therefore, will not be sealed and will form part of the public record of the proceeding. With respect to the Commissioner’s request for an order respecting competitively or commercially sensitive confidential information and/or information of a proprietary nature, Marrocco J. refused “to make a sealing order in these general terms,” albeit without prejudice to the Commissioner’s right to “apply to seal a specific item of information not otherwise affected” by his order.

The Superior Court’s decision provides a useful reminder that, notwithstanding the strong protections of confidentiality in section 29 of the Competition Act, provision of information to the Bureau, whether on a compulsory or voluntary basis, is not risk free, particularly if the subject matter of the Bureau’s examination proceeds to litigation.

The Commissioner’s application is scheduled to be heard by the Superior Court on November 7, 2011, and will be carefully watched. It has the potential to provide an important precedent for applications under the reviewable matters provisions in Part VII.1 of the Competition Act, especially given the Commissioner’s decision to seek payment of a $10 million AMP (the maximum available under the Competition Act’s civil misleading advertising provisions) and to seek the first order requiring payment of restitution to affected customers since the Competition Act was amended to allow for such orders in 2009.

Competition Bureau publishes final version of revised Canadian MEGs

Stikeman Elliott LLP — Fri, 07 Oct 2011 18:35:21 -0500

Megan MacDonald -

On October 6, 2011, the Competition Bureau announced the publication of the final version of its revised Merger Enforcement Guidelines (MEGs), only thirteen months after announcing its intention to review the guidelines in September 2010. The revised MEGs replace both the 2004 version of the guidelines and the Bureau’s 2009 Efficiencies in Merger Review bulletin.

The revisions aim to better describe the Bureau’s analytical approach to merger review by addressing discrete areas where the 2004 MEGs no longer fully reflected Bureau practice or current economic and legal thinking. It is generally understood that the 2010 revisions to the U.S. Horizontal Merger Guidelines (U.S. Guidelines) also constituted an important factor driving the need for review. Whereas the U.S. Guidelines are limited to horizontal mergers, however, the revised MEGs also address vertical merger analysis and go further than the U.S. Guidelines with respect to horizontal merger analysis by incorporating more recent thinking on Canada’s own unique efficiencies defence.

As in the draft version of the revised MEGS, released for consultation in June 2011, the final revised MEGs are not intended to reflect any dramatic shifts in Bureau merger enforcement policy or practice. Neither does the final version introduce any major changes from the draft version, although it does further clarify a number of definitions, fully incorporate and replace the Bureau’s 2009 Efficiencies Bulletin, and eliminate an appendix providing additional information on sunk costs that was contained in both the 2004 MEGs and the draft revisions. While the title of Part 13 is changed from “Failing Firm” to “Failing Firms and Exiting Assets” in the final version, no changes were made to the substance of this section.

As discussed in greater detail in our post of July 4, 2011, the revised MEGs:

adopt a more nuanced approach to market definition, making clear that market definition is a means and not an end toward assessing competitive effects and emphasizing the importance of economic and other analytical tools;
provide greater detail regarding the Bureau’s approach to transactions involving minority interests and interlocking directorates, reflecting the position taken in a prior submission to the Organization for Economic Co-operation and Development (“OECD”);
incorporate more detailed thinking on monopsony power, such that it may apply not only to a merger of suppliers but also to a merged firm with significant capacity as a buyer; and
provide enhanced guidance regarding the Bureau’s framework for analysis of “vertical” mergers, particularly with respect to foreclosure and in relation to both unilateral and coordinated effects.

In addition to the above developments, the revised MEGs make the timeliness branch of the three-pronged entry test more flexible by removing prior reference to a two-year period during which, as a rule of thumb, entry would be considered timely in all industries. They also reorganize the contents of the coordinated effects framework to better reflect Bureau practice, provide additional examples of countervailing power, and introduce a discussion of bidding and bargaining markets in the assessment of unilateral anti-competitive effects.

These changes, designed to better reflect current Bureau practice, should not result in any fundamental changes in approach, although they do introduce more nuanced thinking and a greater range of economic and analytical tools than were previously incorporated in the 2004 version of the guidelines. While the changes could be considered consistent with a movement by the Bureau toward a more activist approach to merger review, they will also present opportunities for parties to incorporate more nuanced thinking and a greater range of tools when presenting a case to the Bureau.

Competition Bureau releases Canadian Tire/Forzani "Position Statement"

Stikeman Elliott LLP — Thu, 06 Oct 2011 07:40:42 -0500

Jeffrey Brown -

On October 5, 2011, the Competition Bureau released a “Position Statement” summarizing its approach in reviewing Canadian Tire’s recent acquisition of the Forzani Group. The transaction, which took the form of a takeover bid, was announced on May 9, 2011, and the Bureau cleared the transaction on August 3, 2011. The transaction provided the Bureau with the relatively rare opportunity to review a retail merger between retailers carrying on business using different business models: Forzani is a national sporting goods retailer (including sports apparel and equipment), and Canadian Tire is a mass merchandiser selling products, through a network of independent dealers, across a range of categories, including sporting goods as well as automotive parts, tools, house wares and electronics.

In reviewing the transaction, the Position Statement notes that the Bureau analysed its potential competitive effects in a number of possible product markets (retail sale of sporting equipment; retail sale of certain sporting equipment categories, such as hockey equipment; and the retail sale of specific sporting equipment products, such as hockey skates), but ultimately concluded that it was not necessary to conclusively define the relevant product market(s) in light of econometric evidence showing that neither party responded competitively to the presence of the other in local markets, and to evidence that this was unlikely to change post-merger. To our knowledge, this is the first time the Bureau has expressly relied on such a competitive effects analysis in its assessment of a merger, although the potential for such an approach was signalled in its draft revisions to the Merger Enforcement Guidelines, published earlier in 2011.

Stikeman Elliott LLP acted as competition counsel to Canadian Tire, with a team consisting of Lawson Hunter, Jeffrey Brown, Paul Beaudry, Megan MacDonald and Alexandra Stockwell.

Criminal charges laid in Canada for international telemarketing fraud

Stikeman Elliott LLP — Wed, 28 Sep 2011 13:11:34 -0500

Michael Laskey -

On September 22, 2011, the Competition Bureau (the Bureau) announced that charges had been laid against five individuals and four Montreal-based companies involved in an allegedly fraudulent telemarketing operation. According to the Bureau’s Backgrounder, the companies hired telemarketers to contact businesses and falsely suggest (i) that the telemarketers were regular suppliers of the businesses looking to obtain renewals for services; (ii) that purchases of medical kits were required to comply with new legislation; (iii) that an order had already been pre-authorized by someone else in the business; or (iv) that the purpose of the telemarketer’s call was to verify an address when in fact it was to obtain an order confirmation. The companies allegedly sold products which were inflated up to ten times the market value, and threatened collection actions against businesses when they refused to pay.

Based in Montreal, the telemarketing operation had allegedly targeted businesses in Canada, the United States, Europe and Central America since at least 2001. The accused individuals and companies are charged with deceptive telemarketing and misleading representations (both criminal offences) under the Competition Act, and fraud under the Criminal Code. Last year, in remarks made to the International Consumer Protection and Enforcement Network, the Commissioner of Competition remarked that “[i]t is now clear that victims do not need to be Canadian in order for [the Bureau] to take action. This is an important step forward in the international fight against fraud.”

Prime Minister says free market principles will be tempered by reality

Stikeman Elliott LLP — Thu, 22 Sep 2011 12:58:08 -0500

Shawn Neylan -

Bloomberg News reported yesterday that in an interview given on September 21, Canada's Prime Minister Harper confirmed that capital from China and other countries is welcome provided that acquisitions of Canadian businesses are “economic in nature and don’t have other strategic or political objectives”. Bloomberg quoted the Prime Minister as saying "[a]s much of an advocate as I am of free markets, I don’t think that governments realistically can just make the assumption that everybody else is operating on a market basis."

With respect to the BHP-Potash transaction that was rejected under the Investment Canada Act the Prime Minister stated: "If it had been in Australia, to put the shoe on the other foot, I don’t believe that takeover would have been approved. ... I think the objectives of BHP, in fairness, probably were beyond merely what we would consider good business in a market sense, but probably more an issue of strategic positioning, and that strategic positioning was obviously not in the interest of the Canadian economy.”

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

Competition Bureau releases review of 2007 self-regulated professions study

Stikeman Elliott LLP — Thu, 22 Sep 2011 07:51:30 -0500

Susan M. Hutton and Paul Beaudry

On September 2, 2011, the Competition Bureau released the results of an ex-post assessment of its December 2007 study entitled “Self-Regulated Professions: Balancing Competition and Regulation.” The Bureau’s review assessed developments since the publication of its 2007 study, which contained 53 recommendations aimed at eliminating unwarranted regulatory restrictions on competition in five self-regulating professions: accountants, lawyers, optometrists, pharmacists and real estate agents.

In addition to specific recommendations, the 2007 study also included six guiding principles set forth by the Bureau to help regulators develop regulatory frameworks that maximize consumer welfare through competition:

Regulation should have clearly defined and specific objectives.
Restrictions should be directly linked to clear and verifiable outcomes.
Regulation should be the minimum necessary to achieve stated objectives.
The regulatory process must be impartial and not self-serving.
A regulatory scheme should allow for periodic assessment of its effectiveness and be subject to regular reviews.
A primary objective of the regulatory framework should be to promote open and effectively competitive markets.

At the time, the self-regulating professions considered in the study had been asked to re-examine the restrictions identified by the Bureau, and to remove those that did not benefit the public interest. In December of 2009, the Bureau requested an update from each of the five professions on measures taken since the publication of its 2007 recommendations. In the ex-post assessment just released, the Bureau found that the impact of its 2007 study had extended beyond the five professions noted above and that progress had been made toward the removal of unnecessary restrictions on competition in several sectors. More specifically, the Bureau highlighted improvements made in the following sectors:

Labour mobility: Amendments to the labour mobility provisions of the Agreement on Internal Trade now allow workers certified for an occupation in a province or territory to be certified for that occupation in another province or territory, upon application to the relevant regulatory authority (except for public accountants, who remain subject to more stringent regulatory requirements).
Provision of legal services: Under the Quebec Mobility Agreement, entered into in March 2010 by all Canadian common-law jurisdictions and the Barreau du Québec, members of any provincial or territorial law society can exercise mobility on a reciprocal basis.
Marketing and advertising of accounting and legal services: Changes to the Canadian Institute for Chartered Accountants’ Model Rules for Professional Conduct and professional rules for the marketing of legal services have enhanced accountants’ and lawyers’ freedom to advertise.
Optometry: In British Columbia, Ontario, Nova Scotia and Prince Edward Island, optometrists have been given new authority to prescribe pharmaceuticals for eye conditions that they are qualified to treat.
Opticians: In British Columbia, opticians now have the authority to perform eye tests and identify persons requiring more in–depth assessment by an optometrist.
Pharmacy: A number of provinces are in the process of creating a pharmacy technician designation, which would allow pharmacy technicians to perform dispensing tasks currently reserved for pharmacists.

The Bureau concluded its review by reiterating the importance for self-regulating professions and government authorities to ensure that professional restrictions are developed and applied in a pro-competitive manner, and to strike a balance between competition and regulation.

It is important to note that the Bureau’s 2007 study and recent follow-up are relevant only to professional bodies that have been granted statutory authority to regulate some or all aspects of their profession.

Should you have questions about the Bureau’s study or any aspect of the Competition Act, please contact the authors or another member of Stikeman Elliott’s Competition & Foreign Investment Group.

Used Car Dealers Association accuses Insurance Bureau of refusal to deal

Stikeman Elliott LLP — Tue, 20 Sep 2011 14:05:36 -0500

Michael Laskey -

On September 9, 2011, the Competition Tribunal released a decision granting leave to the Used Car Dealers Association of Ontario (UCDA) to bring an application against the Insurance Bureau of Canada (IBC) seeking redress under the “refusal to deal” provisions contained in section 75 of the Competition Act. UCDA claims that IBC stopped supplying it with data on vehicle accident and claims history, which the IBC compiles from its member insurers. According to UCDA, it relies on being able to purchase this data to supply vehicle accident history reports to its members. The Tribunal has granted the UCDA's application for leave to file an application under section 75, and such an application has in fact been filed.

UCDA alleges that one of its competitors in the accident history report market, CarProof, has a significant business relationship with IBC. CarProof provides its claims check service to the public at a price of $34.95 per search, while UCDA’s Auto Check service is available only to UCDA members and costs $7 per search (but includes less information than a CarProof report). UCDA alleges that IBC refuses to supply it with insurance data because of UCDA’s low pricing policy.

IBC replied that UCDA had failed to provide sufficient credible evidence that it was “substantially affected” in its business by the alleged refusal to deal. The Tribunal rejected this argument, however, finding UCDA’s evidence that its Auto Check service represented more than 50% of its net income to be sufficient to show a direct and substantial effect. IBC also argued that UCDA had not satisfied the requirements to seek leave to file an application under section 75 because it had failed to provide evidence that it was unable to obtain supplies of substitutable data (including from its competitor, CarProof), that it was willing and able to meet IBC’s usual trade terms, and that the elimination of its Auto Check product would have an adverse effect on competition in a market.

The Tribunal rejected these arguments as well, finding that the Competition Act does not require UCDA to purchase the data it needs from its competitors. The Tribunal also found that it could potentially conclude – on a full hearing under section 75 – that there was insufficient competition in the market for the necessary data (with IBC as the sole supplier of suitable data), that UCDA was willing and able to meet the usual trade terms for the data, that the data was in ample supply (based on IBC’s continued ability to supply the data prior to its termination of UCDA as a customer), and that the refusal to deal would likely have an adverse effect on competition in UCDA’s market.

UCDA had also requested leave to bring an application under the now-civil resale price maintenance provision (s. 76 of the Competition Act), but the Tribunal found that there was insufficient evidence to show the possibility that IBC’s termination of UCDA as a customer was due to Auto Check’s low pricing policy, and did not grant leave to proceed with that claim.

One of the most interesting issues raised by UCDA’s application is whether the Tribunal will use it as an opportunity to revisit its 1997 finding, in The Director of Investigation and Research v. Warner Music Canada Ltd., that “[copyright] licences are not a product as that term is used in section 75 of the Act.” While recognizing that copyright licenses can be considered “products” for the purposes of other sections of the Act, the Tribunal, in Warner, noted that section 75 requires that a product be in an “ample supply,” a concept that the Tribunal found to be inapplicable to a copyright licence.

Some commentators have said that Warner presents an insurmountable roadblock to bringing refusal to deal cases in respect of intellectual property. Some also have suggested that the case was wrongly decided, or at least that its conclusion was drafted more broadly than was necessary, perhaps in reaction to an overly aggressive position taken by the Director (the predecessor title of the Commissioner of Competition) in that case.

UCDA is very much aware of this issue, and addressed it head on in its pleadings. UCDA denied that the data supplied to it by IBC was in the nature of a “license”, and argued further that even if intellectual property were involved it should be granted leave to bring its application on the basis of its view that the subsequent Federal Court of Appeal decision in Eli Lilly and Co. v. Apotex Inc. calls into question the Tribunal’s broad conclusion in Warner. More specifically, UCDA pleads that Warner “may have been decided incorrectly and it would be unfair to make a negative leave determination which would preclude reconsideration of the reasoning in Warner in a proceeding where the parties have the full opportunity to develop the facts and arguments related to each element of section 75.”

By arguing that it will be unable to compete in the vehicle accident history report market if IBC refuses to supply it with the necessary data, UCDA also can be viewed as invoking what has sometimes been referred to as the “essential facilities doctrine.” This doctrine, which has never been formally accepted in Canada, refers to a situation in which a monopolist controls a facility that a competitor is unable reasonably to duplicate, and the monopolist refuses to provide access to the competitor although it could feasibly do so, thereby rendering the competitor unable to compete. The essential facilities doctrine has had mixed success in other jurisdictions, faring better in the European Union (including a recent Microsoft decision, in which the Court of First Instance found that Microsoft’s failure to disclose interoperability information about its workgroup server operating system violated the European Union’s abuse of dominance law) than in the United States (where, in Verizon v. Trinko, the Supreme Court stated that it had “never recognized such a doctrine,” and, while expressly refusing to recognize or repudiate such a doctrine, expressed strong reservations about creating a new exception to the proposition that there is no duty to aid competitors).

In its leave decision, the Tribunal has not dealt with these arguments directly. It merely found that there was no evidence to suggest that IBC had ever characterized its arrangements with the UCDA as a license. Whether the Tribunal will rest on this distinction when it hears UCDA’s application on its merits, and whether it will use this case as an opportunity to critically assess the reasoning of its Warner decision, remain to be seen.

Competition Bureau finds slimming creams not as effective as advertised

Stikeman Elliott LLP — Fri, 16 Sep 2011 15:25:05 -0500

Ashley Weber -

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

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

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

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

Canadian Competition Bureau introduces new standard language for "no action" letters

Stikeman Elliott LLP — Thu, 18 Aug 2011 08:12:02 -0500

Paul Beaudry -

On August 8, 2011, the Competition Bureau provided guidance regarding the standard language parties can expect to see in standard “no action” letters issued in the context of merger reviews.

The Bureau’s approach better aligns the default language in no action letters with subsection 123(2) of the Competition Act and will no longer refer to the sufficiency of grounds to challenge. After September 1, 2011, “no action” letters will specify that:

“…the Commissioner does not, at this time, intend to make an application under section 92 in respect of the proposed transaction.”

For years, there has been a disconnect between the requirements of section 123 of the Competition Act for early termination of the initial 30-day waiting period under subsection 123(2) of the Act and the language actually used in “no action” letters, which granted such early termination, but mimicked the language used in advance ruling certificates issued under section 102 of the Act. The Bureau’s new standard language, while not changing the intended meaning of “no action” letters, aligns “no action” letters with the statutory requirements.

Competition Bureau releases study of Canadian merger remedies

Stikeman Elliott LLP — Wed, 17 Aug 2011 08:55:06 -0500

Susan M. Hutton and Robert Mysicka -

On August 11, 2011 the Competition Bureau (Bureau) released a summary of an internal study on the efficacy of remedies obtained under the merger provisions of the Competition Act. The study examined the efficacy of the Bureau’s policies and procedures on merger remedies for the years 1995-2005. In particular, the survey focused on 23 merger cases in which different remedial measures were implemented over the ten-year period. The Bureau interviewed different stakeholders in the merger review process, including merged entities, customers and purchasers of divested assets, as well as third parties affected by the remedy. The study utilized 135 interviews, approximately 50% of which were responses from customers.

The Competition Act allows for the Commissioner of Competition to make an application to the Competition Tribunal preventing a merging entity, alone or in combination with others, from having the ability to exercise market power as a result of its merger. The Commissioner can challenge the merger under section 92 of the Act, or seek to resolve the competition concerns by negotiating remedies with the merging parties. In practise, very few merger cases in Canada are litigated. Accordingly all of the remedies examined had been agreed with the parties. The Bureau’s 2006 Bulletin on Merger Remedies specifies four types of remedial measures used by the Bureau and the Tribunal to address mergers that have, or are likely to have, detrimental effects on competition. The study, which will be used to validate and refine certain aspects of the Bureau’s practice, describes key observations on the four principal remedies currently used by the Bureau, including: structural remedies, quasi-structural remedies, combination remedies, and stand-alone behavioural remedies. For purposes of the public summary of the report, however (details of the complete study must remain confidential pursuant to the confidentiality provisions of section 29 of the Competition Act), results have been summarized for structural, and for all other categories.

Structural Remedies

Structural remedies are by far the most common remedial measures used by the Bureau when negotiating the terms of a proposed merger. Of the 23 merger cases reviewed in its study, 20 involved some form of divestiture where a merging entity’s assets were sold to new market participants. The study found that divestitures had been completed in all but two cases. Interviewees reported that the divestitures had generally been effective in achieving their objective of eliminating the anti-competitive effects of the merger.

In the two cases where divestitures had not been completed, participants in the Bureau’s study pointed towards several possible explanations. First, certain assets designated for divestiture were not perceived by interviewees as being attractive to buyers, partly due to economic conditions. Second, divestiture orders included minimum pricing provisions that did not accord with the market value of the assets. Third, foreign ownership restrictions limit the pool of potential buyers in some industries. Change of control provisions or the need to obtain third party consents to the assignment of contractual rights (e.g. intellectual property licences), can also complicate divestitures involving such rights. Importantly, respondents in the Bureau’s survey noted that successful divestitures were more likely to occur when purchasers were financially stable and had prior industry experience.

The Bureau’s study also commented on the length of sale periods for divested assets. Typically, consent agreements provide for an initial sale period during which the purchaser can attempt a sale, followed by a trustee sale period (which occurs if there is no sale during the initial period) during which a trustee appointed by the Bureau will take charge of the sale process. Initial sales periods ranged from 3 to 24 months while trustee sale periods ranged from 3 to 12 months. The study found that longer sales periods frequently resulted in a degradation of assets, a concern which is discussed in greater detail below.

The study also examined the use of “crown jewels” provisions. In cases where a divestiture does not occur within a specified initial sales period, additional assets can be added to the divestiture package in order to make it more attractive to purchasers. The Bureau noted that of the five cases in its study which involved crown jewels provisions, none had been triggered.

As noted, the Bureau’s study identified a number of problems that arose during the sale period, prior to the divestiture of assets. Concerns were raised about the degradation of assets, failure to keep the business to be divested at arm’s length from the purchaser, lack of investment in the assets, an exodus of key personnel from the business, divulging of confidential information to purchasers interested in the business, as well as a failure to maintain customer/supplier relations during the sale period. The Bureau noted that there was no discernible trend in the approach to asset maintenance during the interim period. Rather, maintenance obligations were imposed on a case- by-case basis, suggesting that the divestiture remedy continues to be a very fact-sensitive task in which the Bureau considers, inter alia, the types of assets and their viability, the timeline of divestiture, and the independence of the proposed purchaser. For more information on specific divestiture guidelines, see the Bureau’s Bulletin on Merger Remedies.

Quasi-Structural and Behavioural Remedies

Quasi-structural remedies include strategies designed to reduce barriers to entry or to provide access to essential facilities, infrastructure, or technology, and generally facilitate entry or expansion into the market place. They include things such as compulsory licensing, removal of non-competition clauses, the imposition of non-discriminatory access to facilities or property, and the removal of quotas, tariffs and other regulatory barriers.

In its study, the Bureau noted that quasi-structural remedies had been far less effective when structural divestitures were not also implemented. In cases where behavioural commitments were made, a lack of oversight by a monitor was felt to have contributed to the ineffectiveness of this remedy. Moreover, the success of purchasers was often contingent on the availability of and access to downstream services which could be arranged through long-term supply agreements. Parties also expressed a frustration with formal arbitration procedures when they were put into place due to the ongoing business relationships between third parties and the merged entity. Finally, in cases where a business was operated independently as a stand-alone enterprise there was concern about continued information sharing between the merged entity and the supposedly independent business.

Standalone behavioural remedies are seldom used by the Bureau since it is difficult to create remedial measures that adequately replicate competitive market forces. Furthermore, the Bureau’s view is that it is difficult to design such remedies, make them workable, and continue to enforce them. The Bureau’s survey found that in circumstances where it has imperfect information about future entry in a market, the terms of a standalone behavioural remedy are critical. The study also found that without underlying structural reforms in a market prior to the expiration of a behavioural remedy, a merged firm will have the opportunity to continue to exercise market power. Overall, market participants were less enthusiastic about standalone behavioural remedies noting that they do not address the underlying issue of a merged firm’s ability to exercise market power. That said, while not discussed in the study, we do note that behavioural remedies have been agreed to in several recent cases, either in combination with divestitures or on a stand-alone basis , particularly where the anti-competitive concerns were vertical in nature.

Merger Remedies Going Forward

The Bureau sees the remedies study as confirming the effectiveness of its existing policies and procedures relating to the design and implementation of merger remedies. The Bureau intends to use the knowledge gained from its survey to update its Bulletin on Merger Remedies as well as the standard consent agreement that it uses as the basis for negotiations over remedies with parties during the merger review process. The study likely also will inform the Bureau’s approach to structural, quasi-structural, and standalone behavioural remedies used to prevent the substantial lessening of competition in the merger context.