The Competitor

Bureau's investigation into aftermarket auto parts industry results in $1.5 million fine for price-fixing

Stikeman Elliott LLP — Mon, 14 May 2012 13:30:35 -0500

Susan M. Hutton and Robert Mysicka -

On May 4, 2012 the Competition Bureau announced that Maxzone Auto Parts (Canada) pleaded guilty to price-fixing for its participation in an international cartel involving aftermarket replacement automotive lights. Maxzone was fined C$1.5 million under subsection 45(2) of the Competition Act which provides for imprisonment and/or a maximum fine of C$25 million for the offence of conspiracy to fix prices between competitors.The products that were the subject matter of the conspiracy consisted primarily of headlights and tail lights purchased by auto parts supply companies in Canada for use as replacement parts in automobiles.

Maxzone admitted to implementing an agreement with its competitors that fixed the price of aftermarket automotive lights in Canada from January 2004 to September 2008. The products that were the subject matter of the conspiracy consisted primarily of headlights and tail lights purchased by auto parts supply companies in Canada for use as replacement parts in automobiles.

The Bureau’s investigation in this case benefited from cooperation under its Immunity and Leniency Programs. The Immunity Program allows for the first party to disclose to the Bureau the existence of an offence that has not yet been detected or to provide evidence leading to the filing of charges may receive immunity from prosecution from the Director of Public Prosecutions of Canada (DPP) as long as the party co-operates with the Bureau in its investigation. Under the Leniency Program, the Bureau may recommend to the DPP that cooperating persons who have breached the cartel provisions under the Competition Act, who are not eligible for a grant of immunity, nevertheless be considered for lenient treatment in sentencing.

Federal government announces targeted changes to the Investment Canada Act

Stikeman Elliott LLP — Tue, 01 May 2012 08:07:37 -0500

D. Jeffrey Brown & Robert Mysicka

On April 26, 2012 the Minister of Finance, Jim Flaherty, introduced the budget implementation legislation, Bill C-38—the Jobs, Growth and Long-term Prosperity Act—which provides for significant amendments to federal legislation in line with the objectives set out in the government’s 2012 Budget Plan.

In addition to the government’s budget implementation measures, Bill C-38 includes proposed changes to the Investment Canada Act designed to increase transparency in the foreign investment review process while preserving commercial confidentiality for investors supplying information under the Act. The proposed amendments will also authorize the Minister of Industry to accept security for payment of any penalties ordered by a court as a result of any contravention of the Act, including breach of undertakings given by a foreign investor to secure approval of investments under the Act.

The following includes a summary of the key amendments as they relate to specific sections of the Act:

Section 19 will be amended to allow the government to accept security in respect of any future failure by a foreign investor to abide by undertakings made pursuant to the Act. Such a contravention currently carries a maximum penalty of $ 10,000 per day of contravention.
Subsection 36(4) will be amended to allow for the disclosure of:
- Information relating to the Minister’s acceptance of a security provided under the proposed amendment to section 19 of the Act.
- Information in any notice sent to an investor approving an investment as being of net benefit to Canada;
- Information in a notice and in reasons provided to an investor under section 23(1) of the Act indicating that the Minister is not satisfied that an investment will be of net benefit to Canada (such satisfaction on the Minister’s part being necessary for implementation of a reviewable transaction under the Act), and giving an investor 30 days to make representations and submit undertakings in that regard.
Proposed Subsection 36(4.1) will include a provision requiring the Minister to inform investors before communicating any information permitted to be disclosed under subsection 36(4), and preventing such disclosure if they satisfy the Minister, without delay, that the communication or disclosure would prejudice them.

The practical effect of the transparency amendments is that the Minister will have the ability to publicly disclose the information contained in any notice sent to investors indicating: (i) that the Minister is (or is not) satisfied that an investment will be of net benefit to Canada; (ii) the reasons provided to an investor explaining why the Minister is not satisfied that an investment will be of net benefit to Canada; and (iii) information relating to the Minister’s acceptance of a security provided under the proposed amendment to section 19 of the Act.

Supreme Court puts to rest question of Wind Mobile's Canadian ownership - just as feds poised to change the rules

Stikeman Elliott LLP — Mon, 30 Apr 2012 09:31:55 -0500

David Elder -

The Supreme Court of Canada has refused to hear an appeal relating to the scope of the authority of the federal cabinet to overturn a CRTC decision concerning whether a telecommunications carrier has met Canadian ownership obligations.

In doing so, the Court has essentially affirmed the eligibility of wireless new entrant Wind Mobile to operate, as well as implicitly endorsed the authority of the federal cabinet to take into account broad policy questions in determining whether to overturn CRTC decisions.

It also brings to an end a lengthy string of contradictory decisions, reviews and appeals, which began when the CRTC found in 2009 that that, Globalive Wireless Management Corp. (Globalive), which operates in Canada as Wind Moible, was effectively controlled by a non-Canadian (Orascom Telecom Holding (Canada) Limited -- an Egyptian-controlled company) and was therefore ineligible to operate in Canada (Orascom Telecom Holding (Canada) Limited was subsequently acquired by Russian wireless carrier Vimpelcom Ltd. in April of 2011). That CRTC decision was at odds with the government’s issuance to Globalive of a spectrum licence, since holders of such licences must meet the same Canadian ownership requirements as telecommunications carriers.

The Telecommunications Act provides that telecommunications common carriers must meet Canadian ownership requirements to be eligible to operate in Canada. In order to be so eligible, at least 80% of the members of a corporation’s board must be Canadian, at least 80% of its voting shares must be held by Canadians and the corporation may not be otherwise controlled by non-Canadians. Each of the CRTC’s decision and the subsequent variances and appeals focused on Globalive’s compliance with the latter criterion.

Next, the federal cabinet disagreed with the CRTC and varied the regulator’s decision, finding that the record did not support the conclusion that the company was controlled by a non-Canadian, and suggesting that the Canadian ownership and control requirements “should be interpreted in a way that ensures that access to foreign capital, technology and experience is encouraged.”

The federal cabinet (formally, the Governor in Council) is empowered by s. 12 of the Telecommunications Act to vary, rescind or refer back for reconsideration any CRTC decisions under that Act, although the section provides no guidance on the factors to be taken into account by the cabinet in making such a decision.

Then, Public Mobile Inc., another new wireless entrant, brought an application for judicial review of the cabinet decision. In the case of Public Mobile v. Attorney General of Canada et al., the Federal Court, Trial Division granted the application and quashed the cabinet decision.

In Globalive Wireless Management Corp. v. Public Mobile Inc. the Trial Division decision was subsequently overturned by the Federal Court of Appeal, which rejected the errors of law identified by the lower court. We discussed this case in more detail in a previous post.

The Supreme Court’s refusal to hear a further appeal means last year’s Federal Court of Appeal decision will continue to stand, and that all avenues for appeal or variance have been exhausted.

Ironically, on the same day that the Supreme Court issued its denial of leave to appeal, Parliament introduced proposed amendments to the Telecommunications Act, which would exempt smaller telecommunications carriers like Wind Mobile from the obligation to comply with Canadian ownership requirements, rendering moot the original impetus for the cabinet variance and judicial consideration of the last 3 years.

Government tables foreign ownership amendments to Telecom Act

Stikeman Elliott LLP — Mon, 30 Apr 2012 09:28:13 -0500

David Elder -

With the introduction of the federal government’s latest budget bill, Canada is a step closer to lifting foreign ownership restrictions for some telecommunications providers.

In mid-March, the Minister of Industry announced planned changes to the current foreign ownership restrictions that are intended to provide greater access to capital and expertise for new entrants and smaller telecommunications carriers. Last week’s budget bill, which amends over 50 statutes, contains amendments to the Telecommunications Act that are designed to put these changes to the Canadian ownership rules into effect.

Under the proposed amendments, which commence at section 595 of Bill C-38, the Jobs, Growth and Long-term Prosperity Act, Canadian ownership rules will no longer apply to a telecommunications common carrier if the carrier and all its affiliates have total annual telecommunications revenues that represent less than 10% of total Canadian telecommunications revenues, as determined by the CRTC.

Based on the most recent Communications Monitoring Report, in which total Canadian telecommunications revenues for 2010 were reported at $41.7 billion, this means that telecommunications common carriers with annual revenues from telecommunications services of less than $4.2 billion will not be required to meet Canadian ownership requirements.

If a carrier that was eligible to operate without meeting Canadian ownership requirement exceeds the 10% threshold through internal growth, they will continue to be unaffected by Canadian ownership rules; however, those that exceed the threshold due to the acquisition of control of another carrier, or the acquisition of the assets of another carrier will become subject to ownership requirements. In fact, the amendments contain a new requirement that telecommunications carriers with less than 10% of total Canadian telecommunications revenues must notify the CRTC when it acquires control of another carrier or acquires assets used by a carrier to provide telecommunications services.

The amendments would also introduce a number of new definitions to the Telecommunications Act.

One of the more notable new definitions fixes a current feature in the Act which provides that only corporations can be eligible to operate as Canadian carriers. Over the years, this limitation has provided some challenges of interpretation with respect to other forms of business associations, such as partnerships, where the Commission has found that in order to be eligible to operate, each partner in a partnership must be a corporation that meets Canadian ownership and control requirements.

The proposed amendments to the Telecommunications Act would add a new definition of an “entity,” which would encompass not only corporations, but also to partnerships, trusts and joint ventures, each of which would now be eligible to operate in Canada, provided that they meet any applicable ownership requirements. The requisite level of ownership and control for non-corporations would be determined based on the “voting interest” in a partnership, trust or joint venture, being the ownership interest in the assets of the business that entitles the owner to receive a share of the profits and to share in the assets upon dissolution. At the operating company level, at least 80% of such voting interests would have to be beneficially owned by Canadians.

Other proposed amendments to the Act relate to telemarketing rules and the National Do Not Call List, giving the CRTC the explicit power to conduct investigations to determine whether there has been a contravention of any order made by the Commission with respect to its telemarketing rules, and clarifying the Commission’s power to set fees for the use of the National Do Not Call list and similar databases.

Since it is contained in the budget bill of a majority government, it is expected that these amendments will be passed in the coming weeks.

Competition Bureau releases statement on Chartwell and Health Care REIT's acquisition of Maestro Retirement Residences

Stikeman Elliott LLP — Fri, 20 Apr 2012 07:48:09 -0500

Marisa Berswick -

On April 11, 2012, the Competition Bureau released a statement summarizing its review of the acquisition of retirement residences by Chartwell Seniors Housing REIT (Chartwell) and Health Care REIT Inc. (HC) of the Maestro Retirement Residences Portfolio (Maestro). The Bureau issued a No Action Letter in respect of the acquisition.

Both Chartwell and Maestro operate retirement residences in Canada, while Ohio-based HC operates retirement residences in the United States. The Bureau’s review focused on the different types of retirement residences and the local nature of competition among retirement residences. The relevant product markets were defined as Independent Supportive Living programs (ISL) and Assisted Living programs (AL), due to differences in the services offered and demand considerations for each.

The Bureau examined the level of care provided by each type of program. ISL programs can range from providing minor additional services to higher end services such as assistance with meals and personal care. AL programs, on the other hand, provide residents with services such as administering medication, rehabilitation and memory care services. However, many retirement residences offer a mix of both ISL and AL services. As a result, the Bureau concluded that there was likely a degree of supply side substitutability between the programs which could counter an exercise of market power post-merger.

The relevant geographic market was defined as local, with each retirement residence having a catchment area of 5 to 20 km. In total, the review consisted of 21 local markets in cities throughout Alberta, British Columbia, Ontario and Quebec. The Bureau examined market shares based on retirement residences generally, and then used the information regarding individual residences to determine the likely degree of supply side substitutability within each geographic market.

The Bureau issued a No Action Letter given the level of effective remaining competition, low barriers to entry by new players and expansion by existing ones, and high vacancy rates in many overlap markets, in addition to the ability of retirement residences to substitute ISL and AL services.

Competition Bureau releases statement on Cardinal Health's acquisition of Futuremed

Stikeman Elliott LLP — Thu, 19 Apr 2012 10:00:11 -0500

Ashley Weber and D. Jeffrey Brown -

On April 16, 2012, Canada’s Competition Bureau issued a statement outlining the analysis it had undertaken of Cardinal Health’s then-proposed acquisition of Futuremed to conclude that, despite some concerns expressed by certain customers, the transaction was unlikely to result in a substantial prevention or lessening of competition in any relevant Canadian market. Stikeman Elliott acted on behalf of Cardinal Health.

Cardinal Health and Futuremed were both distributors of a broad range of medical supplies and surgical equipment to various healthcare facilities in Canada, supplying products from hundreds of global manufacturers. The Bureau noted that prices in the healthcare products distribution industry are typically set through a tendering process between manufacturers and customers, whereby manufacturers sell direct to the individual healthcare facility or, alternatively, to a buying group acting for several healthcare facilities. As such, authorized distributors of manufacturers, such as Cardinal Health and Futuremed, do not compete on price, but rather compete through the use of distribution fee rebates, quality of service and technical expertise offered to customers.

In its analysis, the Bureau focused on the Province of Quebec, where over 90% of products are purchased through this tendering process (a requirement dictated by provincial legislation), and where the Bureau stated there is currently only one smaller competitor with the same type of “full-line” product offering as the parties. According to the Bureau, certain customers expressed concern that the transaction could result in a loss of distribution rebates, product variety and quality of service. Larger customers, in particular, expressed concern that they would face high transaction costs of dealing with numerous suppliers if forced to switch to other partial-line distributors or to direct supply by manufacturers. Customers also raised concerns that service quality would be affected if they had to begin to rely on distributors without local warehouse facilities or service personnel.

Despite such concerns, the Bureau found that the barriers to expansion by full-line distributors, e.g., from other provinces, were likely surmountable. The Bureau highlighted several factors that drove its conclusion:

Full-line distributors already distribute a broad range of products, and are well-positioned to expand their operations;
A sufficient proportion of the parties’ distribution agreements with manufacturers will be contestable in the near future, creating opportunities for new and existing competitors;
The sunk costs in the healthcare distribution industry are not substantial;
A sizeable customer base can be developed with a relatively limited number of trained or experienced local sales representatives, which the parties argued is readily available.

Based on these factors, the Bureau concluded that expansion from new or existing competitors from the relevant or adjacent markets was likely to occur, and, as such, would likely constrain an exercise of market power by the merged entity. The transaction closed in early March.

Competition Tribunal maintains interim supply order despite third party objections in Used Car Dealers case

Stikeman Elliott LLP — Wed, 18 Apr 2012 13:38:24 -0500

Michael Laskey -

On March 16, the Competition Tribunal rejected a motion by the Insurance Bureau of Canada for the rescission of an interim supply agreement in its ongoing dispute with the Used Car Dealers Association of Ontario despite objections from one of IBC’s members, holding that the industry association had also bound its members when it agreed to the interim supply agreement. The decision, which has the effect of maintaining a mandatory supply order despite the objections of an IBC member which had directed IBC not to supply its confidential information, has important implications for industry associations and their members.

UCDA is a not-for-profit trade association representing motor vehicle dealers in Ontario. Among other services, it provides a service called “Auto Check”, which allows dealers to verify accident history information about vehicles they intend to sell. IBC, which collects and provides the data for the Auto Check service, is a not-for-profit corporation made up of 139 member insurance companies. On June 17, 2011, IBC terminated UCDA’s access to its insurance data, and UCDA was forced to suspend its Auto Check service. The reasons for the termination, and UCDA’s allegations that the termination constituted a “refusal to deal” contrary to section 75 of the Competition Act, are described in our earlier article. Meanwhile, the parties agreed to an interim supply agreement pursuant to which IBC would continue to supply UCDA with claims data while the case was before the Tribunal, and the agreement was formalized by an order of the Tribunal.

Two weeks after the interim supply order was issued, State Farm (a member of IBC) directed IBC not to supply its data to UCDA. State Farm claimed in a letter that, as a matter of business policy, it had chosen not to make claims information available to third-party commercial operations. IBC thereafter sought to rescind the interim supply order on the grounds that, because of technological limitations, the only way it could implement State Farm’s direction would be to remove UCDA’s access entirely (and thereby breach the interim supply order) or remove State Farm’s data from its service, diminishing the service’s effectiveness for all users.

The Tribunal first considered whether there were “changed circumstances” which justified reconsidering the supply order. The Tribunal noted that State Farm had been made aware of UCDA’s application for an interim supply order, and found that State Farm knew or ought to have known about the proceedings; nonetheless, State Farm took no steps to object and did not intervene or participate in the present motion. It further found that IBC had known about the technical limitations of its system and nevertheless agreed to the interim supply order; IBC was therefore the “maker of its own mischief”. Moreover, the Tribunal noted that State Farm had provided no evidence of its corporate policy, and in fact continued to supply data to another third party commercial enterprise, Carproof (a competitor of UCDA’s Auto Check service), purportedly in violation of such a policy. In denying IBC’s motion for rescission of the order, the Tribunal found that State Farm’s “new-found” objection was “unduly convenient in frustrating the Interim Supply Order” and that, in the circumstances, “a change of mind is not a change of circumstances.”

The Tribunal further found that even if State Farm’s instructions to IBC had been enough to constitute a “change of circumstances”, the circumstances did not meet the tripartite test for injunctive relief established in RJR-MacDonald v. A.G. Canada. The Tribunal found that UCDA would suffer irreparable harm if its Auto Check service had to be discontinued, while IBC would lose only some goodwill in its relationship with State Farm.

The Tribunal’s decision has important implications for industry associations (such as IBC) and their members. The Tribunal explicitly made clear that “where an industry association purports to act on behalf of and to bind itself and, as a consequence, its members,” the Tribunal’s orders are as binding on the association’s members as they are on the association itself. In this case, because State Farm had at least constructive knowledge of the dispute among IBC and UCDA and because it failed to object at the time the interim supply order was made, it is effectively compelled to continue to provide its insurance data to IBC and UCDA even though it is not a party to the proceedings among them and even though it apparently maintains a corporate policy of not supplying such data to third party commercial operations. Trade associations should take heed of the risks inherent in purporting to act on behalf of their members. Members should take heed as well, lest they be subject to court orders demanding more than they bargained for.

Supreme Court of Canada: average consumer is "credulous and inexperienced" for misleading advertisement purposes

Stikeman Elliott LLP — Wed, 18 Apr 2012 11:12:29 -0500

Ashley Weber -

In February 2012, the SCC released its decision in Richard v. Time Inc., a case brought forward from the Quebec Court of Appeal, which considered the “general impression” test in relation to the misleading advertising provisions of the Quebec Consumer Protection Act (CPA). Given the recently increased enforcement activity of the Competition Bureau with respect to deceptive marketing practices, companies that advertise to consumers anywhere in Canada should take heed of the SCC decision. The misleading advertising provisions of the Quebec CPA are based, to a large extent, on what is now the federal Competition Act, and similar types of consumer protection laws exist in the other Canadian provinces. Accordingly, the impact of the SCC decision will go beyond the CPA, affecting enforcement of deceptive marketing practices under both federal and provincial consumer protection laws in Canada.

The SCC decision provides clear guidance on how to assess an advertisement’s target audience for purposes of the “general impression” test, and clarifies that both the layout of the advertisement and the meaning of the words, taken in their entirety, form the general impression of an advertisement. As such, regulators and companies now have a firmer understand of what test to consider when determining whether an advertisement is misleading in a material respect.

The case began in 1999 when Richard, a native French speaker and resident of Quebec, received an English letter in the mail addressed to him, alleging that he had won a sweepstakes. The layout of the letter, with certain sentences bolded and in a larger font than others, was designed to catch the reader’s attention by suggesting that he or she had won a large cash prize. There were also certain graphic details on the letter that led him to believe the letter came from Time magazine. Upon closer scrutiny of the letter, it became clear that the letter was in fact notifying the recipient of a chance to enter to win the grand prize. The instructions also provided that, if the recipient subscribed to Time magazine for a period of time, he became eligible to receive a free camera and photo album. After reviewing the letter carefully, and seeking input from colleagues at work about its content, Richard concluded that he had in fact won the grand prize. Accordingly, he sent in the required response (which in fact was the entry ballot), and subscribed to Time magazine. A short time later, he received his free camera and photo album, but did not receive anything with respect to the grand prize. After several failed attempts to contact officials at Time magazine, Richard launched an action before the Quebec Superior Court.

The Quebec Superior Court decided in favour of Richard, arguing that the general impression of the letter contained misleading and even false representations contrary to the Quebec CPA. The decision was then appealed to the Quebec Court of Appeal, where it was overturned on the basis that the letter did not contain false or misleading representations, and that the average Quebec consumer would not have been given the general impression that the recipient was the grand prize winner. The decision was further appealed to the SCC. In hearing the case, the SCC considered the proper approach in Quebec for determining whether an advertisement constitutes a false or misleading representation for purposes of the CPA.

The SCC held that the letter was in fact false or misleading in a material respect. In its decision, it explained that both the “literal meaning” of the words that are simply interpreted in their ordinary sense, and the “general impression” given by a representation must be considered when making this determination. The SCC held that the general impression test is one of first impression, which is distinct from a rushed or partial reading of an advertisement. The general impression is the one a person has after an initial contact with the entire advertisement, and incorporates both the physical layout and the meaning of the words used.

The SCC further explained that the general impression must be analyzed from the perspective of the average consumer, without considering his/her personal attributes, who is “credulous and inexperienced” and takes “no more than ordinary care to observe that which is staring him or her in the face”. The method for assessing the general impression is therefore two-fold: (1) describe the general impression that the representation is likely to convey to a credulous and inexperienced consumer; and (2) determine whether that general impression is true to reality. The court also confirmed that there is a presumption of prejudice to the consumer such that the consumer does not have to prove that the merchant intended to mislead.

Given the recently increased enforcement activity of the Competition Bureau with respect to deceptive marketing practices, companies should take heed of the SCC decision. To avoid running into problems once an advertisement has been put to market, companies should implement appropriate checks and balances in their advertising review process to ensure their marketing and legal teams understand both the general impression test, as it has now been defined, and that the lens used to interpret the test is that of the credulous and inexperienced consumer.

Ottawa wouldn't block foreign takeover of RIM

Stikeman Elliott LLP — Tue, 17 Apr 2012 08:00:16 -0500

Susan M. Hutton and Kim Lawton

On March 30, 2012, Federal Finance Minister Jim Flaherty said his government would not block a foreign takeover of Research In Motion, and RIM would be the master of its own destiny. The Minister of Finance is not responsible for the Investment Canada Act (that is the purview of the Minister of Industry), and the comment was made without reference to precisely what kind of deal would be on the table, nor presumably what impact such a takeover would have on Canada. That being said, it was welcome news to investors as the share price reportedly rose 7% on the news.

Ottawa did intervene to stop a bid by Australian mining giant BHP Billiton for Potash Corporation of Saskatchewan Inc. in late 2010 following stiff opposition by Saskatchewan Premier Brad Wall, several other provinces and even business leaders. Stikeman Elliott acted for PotashCorp in that transaction.

Minister Flaherty’s comments appear to indicate that, in the post-Potash world of foreign investment review, the federal government is taking a more pro-active approach to demonstrate that Canada is still open for business. Still, they come on the heels of Prime Minister Harper’s comments in February to the effect that hostile transactions and bids for technology companies in which the government had invested might face a rough ride.

Since the ICA came into force a quarter of a century ago, over 99% of reviewable transactions have been approved. In fact, the bid for PotashCorp was just the second time that a proposed foreign acquisition has been turned down by the Canadian government (other than when a “cultural business” was involved). The first such rejection involved Alliant Techsystems Inc.’s bid for the information systems division of MacDonald Dettwiler and Associates Ltd. That bid was reasonably well-understood by the investment community as having been based on national security grounds, because of the military use of some of the technology involved.

Prime Minister Harper’s comments had led some to speculate whether a bid for RIM would be rejected out of hand by Ottawa, speculation that Minister Flaherty’s comments appear designed to quell.

Competition Bureau releases additional Pre-Merger Interpretation Guideline for consultation

Stikeman Elliott LLP — Mon, 16 Apr 2012 09:24:49 -0500

Susan M. Hutton & Kim Lawton -

Competition Bureau (the Bureau) has published a draft new Pre-Merger Interpretation Guideline for public consultation (Guideline #15), providing details as to how the Bureau calculates the value of “assets in Canada” and “gross revenues from sales” for purposes of the merger notification thresholds. It will be open for comment from interested parties until June 13, 2012.

The purpose of the guideline is to assist parties and their counsel in interpreting and applying the provisions of theCompetition Act (the Act) relating to notifiable transactions. This guideline sets out the general approach taken by the Bureau and may assist businesses in determining whether the parties-size and transaction-size thresholds under sections 109 and 110 of the Act are exceeded.

As previously covered on this blog, on March 23, 2012 the Bureau announced the publication of two other new Pre-Merger Notification Interpretation Guidelines for public consultation. Those publications were Guideline #12: "Requirement to Submit a New Pre-Merger Notification and/or ARC Request Where a Proposed Transaction is Subsequently Amended" and Guideline #14: "Duplication Arising From Transactions Between Affiliates".

What's in Guideline #15?
Guideline #15 focuses on three key areas of inquiry:

what is an asset "in" Canada?;
what are gross revenues from sales “in, from or into” Canada; and
what revenues are considered to be “generated from those assets”?

The Bureau notes that the audited financial statements are the starting point for analysis, but cautions that "it is incumbent on parties to look beyond these segmented results to ensure that threshold calculations are consistent with the requirements of the Act and the Notifiable Transactions Regulations."

(1) Assets “In” Canada
Unless an exception applies, all assets on the audited financial statements of a Canadian entity (e.g., incorporated in Canada or formed pursuant to a Canadian statute) are assets “in” Canada. For tangible assets, the determination typically turns on where the asset is physically located. For an intangible asset (e.g., intellectual property rights), location is usually determined by the statute conferring the legal rights and privileges associated with the asset. Similarly, the location of a financial asset is usually determined by the statute conferring the legal rights and privileges associated with that asset.

(2) Gross Revenues From Sales “In, From or Into” Canada
Guideline #15 notes that merging parties should consider whether the audited financial statements provide a reasonable approximation of the value of revenues “in”, “from” and/or “into” Canada before relying on them. For example, some financial statements reflect both sales “in” Canada and sales “into” Canada, but exclude sales “from” Canada. [Author’s note: this reflects the European idea of turnover.]. Therefore, the Bureau states, it may be necessary to consult working papers or other records to determine the total value of all three categories of sales. Since only sales “in or from Canada generated by” the assets in Canada are relevant to the “size of target” threshold, whereas sales “in, from or into” Canada generated by assets anywhere in the world are relevant to the “size of parties” threshold, the distinction is important.

Whether gross revenues from sales are considered to be “in, from or into” Canada depends on the location of the seller and/or purchaser. The Guideline states that whether gross revenues are from sales “in, from or into” Canada can often be determined as follows:

gross revenues from sales “in” Canada: "revenues from sales to a purchaser located in Canada that are booked in the audited financial statements of a Canadian party or Canadian affiliate of a party";
gross revenues from sales “from” Canada: "revenues from sales to a purchaser not located in Canada that are booked in the audited financial statements of a Canadian party or Canadian affiliate of a party"; and
gross revenues from sales “into” Canada: "revenues from sales to a purchaser located in Canada that are booked in the audited financial statements of a foreign party or foreign affiliate of a party".

Guideline #15 cautions that where the jurisdiction of incorporation of the seller is not the origin of the sale, the general principles set out above may not apply.

(3) “Generated From Those Assets”
Under Guideline #15, revenues are considered to be generated from assets in Canada if "any of the revenue-generating assets of the target business are located in Canada”. "Revenue-generating assets” is defined to include assets that "contribute in any way and at any stage" to the sale of the asset. This typically consists of things like manufacturing or sales, but omits ancillary functions like human resources.

Guideline #15 notes that merging parties should consider whether the audited financial statements provide a reasonable approximation of the value of revenues "generated from those assets" before relying on them. For example, if the audited financial statements of a party to the proposed transaction have to be adjusted (as a result of certain assets being considered either “in” or “not in” Canada), then similarly, the entries in the financial statements that correspond to gross revenues generated from those assets, may also have to be adjusted.

Commentary:

The draft Guideline #15 provides some hypothetical examples to illustrate the finer points made regarding some of the issues raised. Not all of the interpretations will be without controversy. For example, if a physical revenue-generating asset (such as a cruise ship) is located in Canada at any time during the year, the Bureau will apparently count all of the revenues generated by that asset as having been earned “in” Canada, even if the asset is foreign-registered and was physically located outside of Canada for the majority of the period in question.

The Interpretation Guidelines are not legally binding, but in the absence of court decisions interpreting the Notifiable Transactions Regulations, provide guidance as to the Bureau’s interpretation.

New interpretation guidelines on pre-merger notification released by Competition Bureau

Stikeman Elliott LLP — Tue, 27 Mar 2012 07:45:15 -0500

Susan M. Hutton & Robert Mysicka -

On March 23, 2012, the Competition Bureau announced its publication of two draft Pre-Merger Notification Interpretation Guidelines for public consultation.

The publications, dubbed Pre-Merger Notification Interpretation Guideline Number 12 and Number 14 relate respectively to the requirement to submit a New Pre-merger Notification and/or ARC Request Where a Proposed Transaction is Subsequently Amended, and Duplication Arising from Transactions Between Affiliates.

Guideline # 12: Amended Transactions

Under the Competition Act, parties to a proposed transaction that exceeds the monetary thresholds set out in sections 109 and 110 are required under section 14 to notify the Commissioner and supply the Bureau with information prescribed by the Regulations.

In situations where a proposed transaction is amended after the parties have notified the Bureau and/or submitted an ARC request to the Commissioner, the Bureau may require a new notification or ARC to be submitted to reflect the changes made to the transaction. The new draft Interpretation Guideline No. 12 is intended to clarify the Bureau’s policy with respect to such revised notifications/ARC requests. In particular, the Guideline states that the Bureau will take the following considerations into account prior to requesting a new notification and/or ARC request in circumstances where a proposed transaction has been amended:

a) The correctness of the information contained in the notification in respect of the amendments made to the proposed transaction; and

(b) Whether the amendments to the proposed transaction that is the subject of the ARC request will result in the Bureau having to conduct a more in-depth or revised competitive effects analysis.

Interpretation Guideline # 12 describes certain amendments to a transaction and the likelihood that a revised notification and/or ARC request will be required:

New Notifications

Addition of a New Party: Where a transaction is amended to add a new party, a new notification with the prescribed information for the added party will be required. However, pursuant to subsection 109(2) of the Act, a new vendor in a share transaction is not a “party” to the transaction, and the Guideline also states the Bureau’s view that a mere guarantor is also not required to file. New notification will also not be required in cases where an affiliate of a notifying party is added except where there is an addition of a significant affiliate whose information was not supplied, in which case an amended filing will be required (and a new waiting period will commence).
Addition of a New Asset: Whether adding a new asset to a transaction will require a new notification will depend on whether the information contained in the existing notification will be correct “in all material respects”. In cases where the asset being added is ancillary to the existing assets, the information contained in the existing notification may be accurate and the Bureau will not require a new submission, but the Guideline states the view that addition of a material new asset will typically require a new notification. In determining whether an asset is ancillary the Bureau states that it will evaluate both quantitative and qualitative factors, e.g. book value of the added asset, relation to existing assets, and relative size.
Addition of New Voting Shares or Redistribution of Assets, Voting Shares or Ownership Interests: Normally, any of these amendments will require a new notification in order to ensure material accuracy. However if a party acquiring the additional voting shares was previously acquiring more than a 50% voting interest in the target corporation, a new notification will not be required. In addition, where an amendment is made such that an existing party acquires less than an additional 5% of the voting interests of the target, a new notification will not be required unless the additional acquisition will trigger the subsection 110(3) threshold (each of 20% and 50% for public corporations, or 35% and 50% for privately-held corporations or non-corporate entities).
Removal of an Asset or Party: This will not normally trigger the requirement for a new notification. However, if the removal of a party will result in an increase in the ownership interest of another purchaser, new notification may be required.

New ARC Requests

Generally speaking, the Bureau will require a new ARC request where an amendment to a proposed transaction will result in a different competitive effects analysis or will require a more in-depth analysis of the transaction. Factors that the Bureau will consider in this regard include:

Description of the proposed transaction and the parties;
Whether the complexity designation and the information required to commence the service standard for the amended transaction is different from the initial proposed transaction;
The relationship of an added party to the existing parties in the proposed transaction (e.g. affiliate, customer, supplier, or competitor);
Whether the existing ARC request contemplated the redistribution of assets or ownership interests among the parties, if any;
Where a new asset has been added, whether or not that asset is ancillary to the existing assets.

The Bureau has clarified that where a new notification is required in respect of an amended proposed transaction, the 30 day waiting period will begin to run from the date that the Commissioner receives the new notification. Furthermore, parties submitting a new notification will be required to pay the applicable filing fee, unless they have filed both a notification and an ARC request and the amendment to the transaction only requires one of them to be updated.

Interestingly, the draft Guideline seems to deal only with situations in which the Bureau’s review continues, and does NOT address the situation in which an ARC has been issued, and the transaction subsequently changes prior to closing, and the question arises as to the continued validity of the ARC to the modified transaction.

Guideline # 14: Duplication Arising from Affiliate Transactions

The thresholds for notifiable transactions set out in sections 109 and 110 of the Act are measured by either the monetary value of the parties’ assets in Canada or the gross revenues derived from sales “in, from, or into” Canada generated by the assets. Subparagraph 4(1)(a) and subsection 5(2) of the Notifiable Transactions Regulations provide that in determining the amounts under sections 109 and 100, any amount that represents duplication arising from transactions between affiliates shall be deducted.

The draft Interpretation Guideline No. 14 establishes that, in considering whether there is a duplication that may be deducted pursuant to the Regulation, the Bureau will consider the accounting principles normally used by the party (or its affiliates) as well as those that are generally accepted for the type of business carried on by that party or its affiliates. Simply stated, the purpose of deducting duplicated amounts is to avoid double counting. When evaluating the party size or transaction size for determining whether the thresholds of the Act have been exceeded, subsection 5(2) of the Regulations provides the parties with the ability to deduct revenue from the sale of a product only if it duplicates an equivalent amount of revenue from another sale of that product that is already included in the party size or transaction size calculation.

For more information on interpretation issues in respect of notifiable transactions, please contact the authors or your usual counsel at Stikeman Elliott.

Competition Bureau releases new draft guidelines on abuse of dominance

Stikeman Elliott LLP — Fri, 23 Mar 2012 07:56:55 -0500

D. Jeffrey Brown & Robert Mysicka -

The Competition Bureau announced yesterday that it has released its long-awaited revised draft Abuse of Dominance Guidelines outlining the Bureau’s approach to reviewable matters under sections 78 and 79 of the Competition Act. The newly released Guidelines are intended to replace the draft guidelines released in January, 2009, which was the first time the Bureau had updated its enforcement approach to abuse of dominance since 2001.

Abuse of dominance occurs when a dominant firm (or group of firms) in a market engage in a practice of anti-competitive acts that result, or are likely to result, in a substantial prevention or lessening of competition. Sections 78 and 79 of the Competition Act allow the Competition Tribunal, on application by the Commissioner of Competition, to prohibit dominant firms from engaging in anti-competitive practices, or to order such further remedial action as is reasonable and necessary to restore competition in the market.

To prove abuse of dominance, three principal elements must be established:

1. one or more persons substantially or completely controls, throughout Canada, a class or species of business;

2. the person or persons have engaged in a practice of anti-competitive acts; and

3. the practice has had, is having, or is likely to have the effect of preventing or lessening competition substantially in a market.

As regards the Bureau’s approach to these basic elements, the 2009 Guidelines did not represent a fundamental shift. Rather, they merely updated some of the Bureau’s practice in light of recent jurisprudence, most notably, the Canada Pipe case, which provided the first opportunity for the Federal Court to consider the application of the abuse of dominance provisions in sections 78 and 79 of the Act.

The new Guidelines, which replace the previous publications on abuse of dominance, are considerably shorter and more concise. Highlights include the following:

The new Guidelines state explicitly that, unlike certain other jurisdictions that prohibit supra-competitive pricing by dominant firms, “charging higher prices to customers, or offering lower levels of service than would otherwise be expected in a more competitive market, will not alone constitute abuse of a dominant position.”
The new Guidelines reiterate the view that market share is one of the most important determinants of potential market power. They also expand in several ways upon the Bureau’s approach to market shares in assessing whether market power exists.
While reiterating that a market share of less than 35 percent will generally not prompt further examination, the Bureau’s approach where a market share above 35 percent exists is now more nuanced. In the 2009 Guidelines, the Bureau said that where market share is above 35 percent it “will normally continue its investigation.” The new Guidelines state that a market share between 35 and 50 percent will not give rise to a “presumption” of dominance “but may be examined by the Bureau depending on the circumstances,” while a market share of 50 percent or more will generally prompt further examination. Such an approach appears to suggest an acceptance that dominance at shares less than 50 percent will be a relatively uncommon occurrence.
The new Guidelines state that, in addition to an individual firm’s market share, distribution of the remaining market among competitors is relevant: while greater market share is likely to increase a single firm’s ability to sustain a price increase, such an exercise of market power also increases with the disparity between its market share and those of its competitors. The Bureau will also look at the durability of a firm’s market share. If shares have fluctuated significantly among competitors over time (e.g., as a result of the intermittent exploitation of new technology that allows firms to “leapfrog” their rivals), a higher current market share may be less relevant to establishing market power.
The new Guidelines state that, although “anti–competitive act,” as described in section 78 of the Act, is defined in relation to its purpose—an intended negative effect on a competitor – the Federal Court of Appeal and the Competition Tribunal have acknowledged that paragraph 78(1)(f) (which deals with buying up of products to prevent the erosion of existing price levels) is “one” exception to the requirement that an anti-competitive act be directed at a competitor. Whether use of the word “one” is intended to indicate that the Bureau believes there may be other exceptions is unclear.
In assessing whether a particular act is likely to be anti-competitive, the new Guidelines reiterate that the Bureau generally views conduct described in section 78 of the Act as falling into two broad categories: (i) exclusionary conduct; and (ii) predatory conduct. Unlike the 2009 Guidelines, however, details regarding the Bureau’s approach with respect to specific anti-competitive acts have been removed, including raising rivals’ costs, exclusive dealing, tying, bundling, bundled rebates and denial of access to a facility or service. What this means about the Bureau’s current thinking on these acts is unclear, the effect of which is to diminish rather than enhance understanding of the Bureau’s approach to the enforcement of section 79.
As with the 2009 Guidelines, the Bureau notes the inherent difficulty of distinguishing between predatory and competitive pricing. In the new Guidelines it states that one of the methods it will use to overcome some of these difficulties is an examination of whether the alleged predatory price can be matched by competitors without incurring loss, and whether the alleged predatory price is merely “meeting competition” in the sense that it is a reaction to match a competitor’s pricing strategy. How the Bureau’s consideration of whether a price can be matched by competitors without incurring a loss relates to the other requirements of predatory pricing, such as sale by the alleged predator below some level of cost and recoupment, is unclear.
The Bureau has reaffirmed that, in considering whether an impugned act prevents or lessens competition substantially, the question is not whether the absolute level of competition in a market is substantial or sufficient. Rather, the Bureau considers the relative level of competitiveness in the presence and absence of the impugned practice such that it can satisfactorily determine ‘but for’ the practice at issue, would there likely be greater competition in the market?

As noted in a previous post, section 79 of the Act was amended in 2009 to include administrative monetary penalties (AMPs). In cases where it finds that an abuse of dominance has occurred, the Competition Tribunal may impose a maximum AMP of C$10 million for a first infraction and C$15 million for subsequent infractions. While AMPs were introduced after the publication of the 2009 draft guidelines, it is unfortunate that the new guidelines are silent on how the Bureau will incorporate AMPs into its section 79 enforcement approach. Indeed, the new Guidelines provide no guidance on remedies at all.

The new Guidelines are open for comment by interested parties until May 22, 2012.

Canadian government to loosen foreign ownership restrictions in telecommunications sector

Stikeman Elliott LLP — Thu, 15 Mar 2012 13:29:38 -0500

Susan M. Hutton, T. Gregory Kane & David Elder -

As part of its plan to auction rights for the 700 MHz spectrum band, the Canadian government announced yesterday that it plans to amend the Telecommunications Act to lift foreign investment restrictions for telecommunications companies holding less than a 10 per-cent share of the total Canadian telecommunications market.

The Honourable Christian Paradis, Minister of Industry, announced the following commitments designed to provide Canadians with greater choice and lower prices in the market for wireless services

The foreign investment restrictions in the Telecommunications Act will be amended in order to allow non-Canadian investors to control 100% of domestic wireless firms that have a market share of 10 per-cent or less;
The government will support an upcoming spectrum auction by applying caps so as to guarantee new wireless competitors as well as incumbents access to the spectrum up for auction;
Specific measures will be introduced in the 700 MHz auction to ensure that rural Canadians have equal access to telecommunications services;
Improvements and extensions for the existing policy on roaming and tower sharing to support competition and limit the proliferation of new cellphone towers;
Reserving a portion of the 700 MHz spectrum for public safety users including police and firefighter services across Canada.

In 2008, the government auctioned Advanced Wireless Services spectrum in order to set aside spectrum for new entrants, while the Canadian Radio and Telecommunications Commission (CRTC) established policies to support the entry of new competitors in the market for wireless services. In the upcoming spectrum auction, which is set to take place in 2013, the government has said it will apply caps enabling four or more service providers in each region to obtain spectrum in both the 700 MHz and the 2500 MHz bands.

Revising Foreign Ownership Restrictions

Under the existing legislative regime, non-Canadian wireless service providers are subject to ownership restrictions found in the Telecommunications Act, the Radiocommunication Act, and the Canadian Telecommunications Common Carrier Ownership and Control Regulations. At present, the rules may be summarized as follows:

at least 80% of the members of the board of directors of the carrier must be Canadian;
non-Canadians may not beneficially own, directly or indirectly, more than 20% of the carrier's voting shares;
non-Canadians may not beneficially own directly or indirectly more than 33 ^1/3 % of the voting shares of the carrier's holding company; and
the carrier or the holding company may not otherwise be controlled by non-Canadians (i.e., "control in fact" – a test set out by the National Transportation Agency (now the Canadian Transportation Agency) in the Canadian Airlines decision and discussed by the CRTC in Telecom Decision CRTC 2010-226).

The government has said that the proposed amendments will apply to the Telecommunications Act and will create a threshold exemption whereby no foreign ownership restrictions will apply to telecommunications providers with revenue representing less than 10% of the total Canadian telecommunications market. In addition, the planned changes are designed to encourage long-term investment in Canada’s telecommunications industry by allowing foreign-controlled companies that are successful in growing their market shares beyond 10 percent - other than by merger or acquisition - to continue to be exempt from the restrictions.

It should be noted, however, that in spite of the government’s commitment to reform ownership restrictions under the Telecommunications Act, restrictions will remain in place under the Broadcasting Act and direct foreign investment will continue to be subject to the controls found in the Investment Canada Act.

For more background on the Canadian governments’ plans to liberalize the telecom sector and the implications for foreign ownership please see our backgrounder and our previous blog post on this topic.

Canadian court comes down hard on misleading business directory scam

Stikeman Elliott LLP — Thu, 15 Mar 2012 09:14:19 -0500

Ashley Weber -

On March 1, 2012, the Ontario Superior Court put an end to a deceptive marketing scam that had resulted in thousands of Canadians falling victim to false and misleading representations, to the tune of an estimated $7 million. In response to an application filed by the Commissioner of Competition, the court held that representations made to the public about a business directory service with a similar name and website to the well-established Yellow Pages business directory were false or misleading in a material respect, contrary to Section 74.01(1)(a) of the Competition Act. The court imposed an administrative monetary penalty (AMP) of $8 million on the related companies, and AMPs of $500,000 on each of the companies’ two principals. The court also ordered that restitution be paid to the individuals that had been victimized by the scam.

Playing on Canadians’ familiarity with the Yellow Pages business directory operated by the real Yellow Pages Group, the respondents had been marketing themselves under a similar name and offering online business directory services to Canadians since January 2010, leading many Canadians to believe that they were receiving communications from the established Yellow Pages Group. Through those communications, recipients were asked to “update” their existing records in order to obtain an additional free Google advertisement. A review of the fine print, however, revealed that it was actually an agreement to sign a new two-year contract for a fee of $2,856. If recipients did not respond and/or pay the requested fee, they were subsequently sent as many as three additional invoices, reminder notices or letters. The communications contained a logo similar to that of the real Yellow Pages Group, and referenced “Yellow Page” (no “s”) in large font. In reality, the communications were coming from companies and individuals that were in no way related to Yellow Pages Group or its business directory service.

In its decision, the court held that the communications had intentionally been designed to mislead recipients to believe that they were updating information on their existing Yellow Page Group listing. This was evidenced by the language in the communication that instructed recipients to “correct and add any additional information”, and also referenced an alleged account number that signalled an existing business relationship. In its decision, the court considered both the materiality of the misrepresentations, as well as the general impression, finding that the communications were clearly designed to appear to have been sent by Yellow Pages Group, and that the majority of recipients would not have paid had they known the entities were not affiliated. The court noted that the reference in the legislation to promoting any “business interest” should be given wider meaning than just reference to sales, such that threats made in relation to collecting fees met the threshold of a “business interest”. The court also found that the fine print, which stated that the recipient would be entering into a two-year contract, did not reduce the false or misleading nature of the representation in the broader communication.

In the court’s order for AMPs, an important aggravating factor was that the companies had engaged in identical conduct in other jurisdictions, including Australia (where the Federal Court imposed a $2.7 million (Australian) AMP, and with which the companies have yet to comply), and continued to engage in offensive conduct in Canada even after an interim injunction was issued in July 2011. The scam also targeted charities and other non-profit organizations, which the court described as vulnerable individuals likely to be adversely affected. These factors, coupled with its scepticism that the responsible persons would self-correct their behaviour in the marketplace, led the court to impose the largest AMPs ordered to date in contested proceedings under the Competition Act.

The international aspect to this case is noteworthy, particularly given the breadth of foreign authorities and consumer organizations that were involved in related investigations. The Competition Bureau acknowledged working with the U.S. Federal Trade Commission, The Australian Competition and Consumer Commission, and the National Fraud Intelligence Bureau of the UK, in addition to the International Consumer Protection and Enforcement Network and consumer protection organizations in almost 40 countries. These investigations were directly referenced in the court decision in Canada as evidence of the extent and severity of the offensive conduct. The case clearly evidences both a willingness of competition and consumer protection authorities to work together when investigating misleading marketing and advertising practices in multiple jurisdictions, and a willingness of courts to consider a company’s conduct and compliance record in other jurisdictions when assessing potential fines under Canadian law.

For more information, see Commissioner of Competition v. Yellow Page Marketing.

Federal Court of Appeal addresses limitation period under the Competition Act

Stikeman Elliott LLP — Thu, 15 Mar 2012 07:56:10 -0500

Sultana L. Bennett -

The Federal Court of Appeal, in a recent decision under the Competition Act, (the Act), has confirmed that the effects of a conspiracy do not have the effect of extending the limitation period under the Act, but also declined to close the door against the extension of the limitation period by the application of the discoverability principle in future cases.

In August 2008, Garford Pty Ltd. (Garford) sued Dwyidag Systems International, Canada, Ltd. (DSI) and others for patent infringement and alleged breaches of the Act. Garford claimed that DSI, having entered into three purchase agreements to acquire the assets of certain entities in the cablebolt market, breached subsection 45(1) of the Act, which prior to its amendment in 2010 prohibited conspiracies, agreements and arrangements that unduly lessened competition.

DSI defended the suit on the ground that pursuant to the two year limitation period under subsection 36(4) of the Act, which provides that an action must be brought within two years of the date of the conduct complained of, had expired several months before Garford had commenced its claim. The Federal Court agreed and in 2010 granted summary judgment to DSI, rejecting Garford’s argument that the limitation for private actions under the Act was subject to the discoverability rule, effectively delaying the running of a limitation period under until a plaintiff discovers the cause of action. That court also rejected Garford’s “continuous offence” argument, holding that ongoing effects of an alleged conspiracy do not extend the limitation period.

The Federal Court of Appeal on February 13, 2012, affirmed the Federal Court’s holding that the effects of a price fixing conspiracy do not form part of the conspiracy offence under section 45, because at the relevant time, “the offence was complete upon the finalization of an agreement that, if carried into effect, would unduly limit competition.” However, the Court did not go so far as to hold that the discoverability principle is not applicable to the section 36 limitation period, but rather decided that the issue of discoverability simply did not arise on the facts of the case. The Court’s ruling, stating that the Federal Court judge’s findings of fact preclude any argument based on discoverability, “assuming without deciding, it is legally available” suggests that future plaintiffs are not necessarily precluded from claiming that the principle could apply.

Internet Predators bill would expand investigative powers in the Competition Act

Stikeman Elliott LLP — Mon, 12 Mar 2012 08:37:43 -0500

Michael Laskey -

On February 14, 2012, the Minister of Public Safety tabled Bill C-30, the government’s most recent proposal for so-called “lawful access” legislation which would enhance its online surveillance powers. Titled the Protecting Children from Internet Predators Act, the bill has faced considerable criticism from privacy advocates and legal scholars, and the government announced on February 24 that it would delay consideration of the bill while it contemplated changes to address privacy concerns.

Notwithstanding the risks to personal privacy raised by Bill C-30, the bill would also expand the powers of the Commissioner of Competition when investigating companies and individuals suspected of having contravened or engaged in reviewable conduct under the Competition Act. Among other changes, the Protecting Children from Internet Predators Act would:

oblige telecommunications service providers to provide the Commissioner of Competition (or a designee) with identifying information about their users upon written request of the Commissioner in the performance of her duties;
authorize the Commissioner (or a designee) to make demands requiring persons to preserve data in their possession or control in certain circumstances when investigating potential offences under the Deceptive Marketing Practices and Civil Matters provisions of the Act and when investigating potential contraventions of sections 32 to 34 of the Act;
on an ex parte application by the Commissioner (or a designee), authorize a judge to order a financial institution to prepare and produce a document setting out account information about a person being investigated under the Deceptive Marketing Practices or Civil Matters provisions of the Act and when investigating potential contraventions of sections 32 to 34 (certain Special Remedies) of the Act; and
expand the definition of “record” in section 2(2) of the Act to include any medium on which information is registered or marked.

Wiretaps may only be used as investigative tools by the Commissioner and officials at the Competition Bureau after obtaining a court order authorizing what would otherwise violate constitutional rights. Interestingly, some of the proposed reforms, which the government says have the objective, among other things (no-doubt related to the title of the bill), of “ensur[ing] that telecommunications service providers have the capability to enable national security and law enforcement agencies to exercise their authority to intercept communications” require no such judicial authorization. In particular, orders to oblige telecommunications service providers to provide subscriber information and to require persons to preserve data can be made by the Commissioner (or a designee) directly, while other measures (e.g., orders to compel banks to provide account information) require judicial authorization on an ex parte application by the Commissioner.

The debate over lawful access measures – proposed in several bills over the past few years – extends well beyond the Competition Act.

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

Stikeman Elliott LLP — Fri, 02 Mar 2012 11:00:40 -0500

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

Stikeman Elliott LLP — Fri, 02 Mar 2012 08:34:17 -0500

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.

Quebec construction companies plead guilty to bid-rigging in Chicoutimi hospital expansion project

Stikeman Elliott LLP — Sat, 18 Feb 2012 14:04:31 -0500

Susan Hutton and Robert Mysicka -

On February 17, the Competition Bureau announced that three construction companies—Construction G.T.R.L. (1990) Inc., Acoustique JCG Inc., and Entreprises de Construction OPC Inc.—have pled guilty to charges of bid-rigging in a construction project involving the expansion of the Chicoutimi hospital. The case comes less than half a year after a similar bid-rigging scheme involving ventilation companies in Montreal was uncovered and prosecuted, resulting in the imposition of a substantial fine and a prohibition order.

The companies involved in the Chicoutimi hospital bid-rigging scheme were handed down the following fines by the Quebec Superior Court of Justice:

Construction G.T.R.L. was ordered to pay a CDN $ 50,000 fine.
Acoustique JCG Inc. and Entreprises de Construction: were each ordered to pay a CDN $ 25,000 fine.

In addition to the foregoing, the companies will be subject to a court order for 10 years following the date of conviction.

Bid-rigging, which is defined in section 47 of the Competition Act, prohibits bidders from entering into an agreement not to submit bids or to submit pre-arranged bids when responding to a bid or tender call. The criminal sanction under section 47 applies if the person calling for the bids is not made aware of the agreement at or before the time when the bid or tender is submitted or withdrawn. In this case, the Bureau’s investigation revealed that the parties entered into an agreement that pre-determined the winner of the contracts for the expansion of the emergency room at the Chicoutimi hospital in 2003.

The Commissioner of Competition, Melanie Aitken, commented on the harmful effects of bid-rigging, saying “in this case, the bid-rigging scheme ultimately harmed the Chicoutimi Hospital and Saguenay residents, by preventing the hospital from obtaining a competitive price for its renovation.”

We will continue to monitor civil and criminal enforcement actions under the Competition Act as they arise. For more information on Canada's Competition Act and Investment Canada Act, see our primer here.

Bureau's decision to launch merger register raises confidentiality issues under the Competition Act.

Stikeman Elliott LLP — Thu, 09 Feb 2012 08:58:05 -0500

Susan Hutton & Robert Mysicka -

On February 6, 2012, the Competition Bureau announced that as part of its efforts to increase transparency in the merger review process it will begin publishing monthly reports of concluded mergers. The first report, for the month of February, will be published in March and will appear as a table with information on the parties to the transaction, the industry, and the result (i.e. whether the merger was concluded following the issuance of an Advanced Ruling Certificate (ARC) under section 102 of the Competition Act, the issuance of a “No-action Letter”, the registration of a consent agreement, or a judicial decision).

The Bureau’s decision to publish a list of completed merger reviews comes after its previously announced decision to discontinue issuing detailed backgrounders on the facts of particular cases. Such backgrounders had been sporadic, and subject to permission by the parties to reveal non-public information, but had been helpful in shedding light on the Bureau’s enforcement approach to mergers – no such details of individual cases will be provided in the merger register.

The monthly reports will list all closed mergers where a pre-merger notification was supplied to the Bureau under section 114 of the Act, and/or a request was made for an ARC (or no-action letter and waiver of the requirement to pre-notify).

In a letter to the Senior Deputy Commissioner of Competition, the Canadian Bar Association (CBA) expressed concern with the publication of information that, for various reasons, has not been made public.

As noted by the CBA, section 29 of the Competition Act establishes a statutory confidentiality scheme designed to protect information supplied to the Bureau in confidence, including the fact that a merger was reviewed by the Bureau. While the Bureau does routinely contact market participants in conducting its review of a proposed transaction, it is not apparent that consent by merging parties to discrete market contacts implies consent to the much broader publication of information envisioned in the merger register. Indeed, this conclusion is supported by section 10(3) of the Act which requires that all inquiries be conducted by the Commissioner in private. Whether the merger register will be seen to be necessary for the “administration or enforcement” of the Act (an exception to the confidentiality requirements), appears to be an open question.

We will continue to monitor the Bureau’s response (if any) to the concerns expressed by the CBA in relation to the merger register as well as any legal challenges that may arise by parties challenging disclosure of a concluded transaction in the merger register pursuant to section 29 of the Act.