The Competitions Act in Canada:
How Does the Government of Canada Protect Consumers from Deceptive and Illegal Business Practices?
Doing business in Canada requires Compliance with competition and marketing laws. Matters related to competition are regulated by the Federal government of Canada under the Competition Act. The purpose is to ensure that a merger resulting in the control of a business or corporation in Canada does not violate rules relating to fair competition and marketing practices. The Act covers acquisitions from either Canadian or foreign entities.
The Competition Act deals with five broad categories of provisions:
- merger provisions including pre-merger notification
- conspiracies, cartels, bid-rigging, and deceptive marketing practices that are criminal offenses
- restrictive trade practices including abuses of dominant position
- Deceptive marketing practices that are civil offenses
- Private right of action for damages resulting from criminal or civil violations of the competitions act.
A. Merger Provisions and Pre-Merger Notification:
When businesses or corporation (whether domestic or foreign), which exceeds a certain “size of parties” threshold” seeks to acquire or merge with a business or corporation in Canada exceeding a “size of transaction” threshold, then it must provide a pre-merger notification, which is submitted along with a $75,055. 68 fee (effective April 1, 2020). The types of mergers in question include asset acquisitions, share purchases, amalgamations, combinations, and acquisitions of interests in combinations.
This notification alerts the Commissioner of Competition and triggers a waiting period of 30 days, which commences when all the prescribed information is received. This information must include a statement that addresses the substantive competitive impact of the proposed transaction. The commissioner reviews the proposed merger to determine if it will likely prevent or substantially lessen competition.
The commissioner may make a supplementary information request (SIR) at any time within that initial 30-day waiting period. An SIR triggers an additional 30-day waiting period commencing on the date that all of the SIR information is received by the commissioner.
In addition to the 30-day waiting period, the commissioner observes a “service standard,” a time period within which the commissioner strives to complete a competitive assessment of a proposed transaction, which runs parallel to the waiting period. Depending on the complexity of the transaction, these service-standard periods may range from 14 days to 45 days. At any time, the commissioner may seek an interim order from the tribunal for more time to complete a review and can prevent the completion of the merger until the review is complete.
As a result of the review, the commissioner may order that the merger not proceed or if the merger already exists, he/she may order the merger’s dissolution or the divestiture of its assets. Or commissioner may decide to terminate the waiting period early indicating that he/she does not currently intend to challenge the merger before the tribunal.
In certain cases, an advanced ruling certificate (ARC) may be obtained, which exempts the requirement for a pre-merger notification, since an ARC is only granted when substantially similar information regarding the competition impact of the proposed transaction has already been provided. The commissioner will then waive the requirement for a pre-merger notification and any 30 -day review that would ensue.
So how large do the parties and the transaction need to be to warrant a pre-merger notification under the Competitions Act?
If the merging parties and their affiliates have assets in Canada with a value that exceeds $400 million or has gross revenue from sales in Canada exceeding $400 million and also meets any of the following criteria:
- In the case of an acquisition of assets, the asset value being acquired or the gross revenue generated from the sale of the assets being acquired exceeds $96 million (as of April 2020). This threshold changes each year according to the changes in Canada’s GDP.
- In the case of a purchaser of shares of a public company, the acquirer and its affiliates would hold more than 20% of the voting shares as a result of the merger. If the acquirer already holds more than 20% of the voting shares, then the threshold increases to 50% of the voting shares.
- If the acquisition is of a private company, the acquirer and its affiliates would hold more than 35% of the voting shares as a result of the merger. If the acquirer already holds more than 35%, then the threshold increases to 50% of the voting shares.
- In the case of amalgamation of two or more corporations that carry on a business in Canada, the aggregate book value of the assets being acquired or the gross revenue from sales exceeds the transaction size threshold.
- In the case of a partnership, the aggregate book value of the assets being acquired or the annual gross revenue from sales of the assets being acquired exceeds the size-of-transaction threshold.
- In the case of an acquisition of an interest in a combination other than a corporation that carries on an operation business in Canada, the acquirer(s) would hold an interest entitling them to receive more than 35% of the profits or 35% of the assets on dissolution. If the acquirer already is entitled to these, then the threshold increases to 50%.
B. Conspiracies, Cartels, & Bid-rigging
Canada’s Competition Act contains several provisions that prohibit cartels, conspiracies, bid rigging. Section 45 is the cornerstone of the Competitions Act, which applies to agreements and arrangements among competitors to fix prices, allocate markets, or restrict output for that product. This offense, knows as a “conspiracy,” is punishable by a fine of up to $25 million and/or imprisonment for up to 14 years. This subsection will apply to all forms of agreements between competitors, regardless of the degree of formality or enforceability and regardless of whether it has been implemented.
Section 46 makes it a criminal offence for a company carrying on business in Canada to implement any foreign directive intended to give effect to a conspiracy entered into outside of Canada. This provision targets international cartel activity affecting Canada.
Section 47 addresses bid rigging, which prohibits two or more bidders to agree, upon a call or request for bids or tenders, that one party will refrain from bidding or withdraw a submitted bid. Bid rigging may also involve bidders agreeing among themselves with respect the bids submitted without informing the person calling for the bids. Penalties for bid rigging include a fine at the discretion of the courts and/or a prison sentence of up to 14 years.
Sections 36 allows for victims of cartel activity to take private legal action against participants for damages.
Deceptive Marketing Practices
The Competition Act contains provisions addressing false or misleading representations and deceptive marketing practices in promoting the supply or use of a product or any business interest. All representations, in any form whatever, that are false or misleading in a material respect are subject to the Act. If a representation could influence a consumer to buy or use the product or service advertised, it is material. To determine whether a representation is false or misleading, the courts consider the “general impression” it conveys, as well as its literal meaning.
The Act provides two adjudicative regimes to address false or misleading representations and deceptive marketing practices. Under the criminal regime, the general provision prohibit false or misleading representations made knowingly or recklessly. These provisions include deceptive telemarketing, deceptive notices of winning a prize, double ticketing, and pyramid selling or multi-level marketing provisions that prohibit representations relating to compensation.
Under the civil regime, the general provision prohibits all materially false or misleading representations. These provisions include representations related to performance based on inadequate or improper testing, misleading warranties and guarantees, false or misleading representations relating to the ordinary price; and false, misleading, or unauthorized use of tests and testimonials; bait and switch selling, and the sale of a product above its advertised price. The civil regime also covers promotional contest provisions that do not disclose required information.
Under the criminal regime, proof of violations are brought before the criminal courts and must require proof of an offense beyond a reasonable doubt. Persons convicted are liable to a fine of up to $200,000 and/or imprisonment for up to one year. If convicted on indictment, the person is liable to a fine at the discretion of the court and/or imprisonment for up to 14 years.
Under the civil regime, certain practices may be brought before the Competition Tribunal, the Federal Court or the superior court of a province and require that each element of the conduct be proven on a balance of probabilities. The court may order a person to cease the activity, publish a notice and/or pay an administrative monetary penalty. On first occurrence, individuals are liable to penalties of up to $750,000 and corporations are liable to penalties of up to $10,000,000. For subsequent occurrences, the penalties increase to a maximum of $1,000,000 for individuals and $15,000,000 for corporations.
n situations where a person has made materially false or misleading representations about a product to the public, the court may also make an order for restitution, requiring the person to compensate consumers who bought such products, and an interim injunction to freeze assets in certain cases.
C. Abuse of Dominant Position
Abuse of dominance occurs when a dominant firm or group of firms in a market, engages in a practice of anti-competitive acts, with the result that competition has been or is likely to be lessened or prevented substantially. When this occurs, the Competition Bureau may rely upon the abuse of dominance (and other) provisions of the Act to address specific conduct and restore the competitive process.
Three elements must be established to constitute an abuse of dominance under section 79 of the Act:
- One or more persons must substantially or completely control a class or species of business throughout Canada or any area thereof, evaluating evidence for the existence and magnitude of market power, such as market shares and barriers to entry
- That person or those persons must have engaged in (within the previous three years) or be engaging in a practice of anti-competitive acts that have an predatory effect, such as setting prices below cost; exclusionary effect, such as increasing costs on competitors; or disciplinary effect that intend to dissuade and disrupt potential competitors from entering the marketplace.
- The practice must have had, be having or be likely to have the effect of preventing or lessening competition substantially in a market.
Where all three elements of section 79 are present, the Tribunal may prohibit the person (or persons) who engaged in the conduct from continuing to do so. In addition, or alternatively, if the Tribunal concludes that a prohibition order is not likely to restore competition, it may make an order directing the person (or persons) who engaged in the conduct to take any action that is reasonable and necessary to overcome the anti-competitive effects of the practice, including the divestiture of assets or shares.
Finally, if the Tribunal issues a remedial order, it may also order the respondent to pay an administrative monetary penalty of up to $10 million (or $15 million for each subsequent order) to promote practices by that person (or persons) that are in conformity with the purposes of section 79.
D. Amendments to the Competitions Act in 2009
Section 76 of the Competitions Act was introduced in 2009, addressing common business practices such as minimum resale pricing, manufacturer-suggested resale pricing (MSRP), and minimum advertised pricing (MAP). These acts, which were formerly criminalized under section 61, are now under a new non-criminal provision, where it is necessary to demonstrate that price maintenance conduct has had, is having, or is likely to have an adverse effect on competition in a market.
Shira Kalfa, BA, JD, Partner and Founder
© Kalfa Law, 2020
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.