The Canadian Bar Association2010 Annual Fall Conference

Recent Reforms to Canada's Competition Act: The First Year (and a Half)

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Adam FanakiDavies Ward Phillips & Vineberg LLP

(Toronto, Ontario)

September 30, 2010Gatineau, Quebec

RECENT REFORMS TO CANADA'S COMPETITION ACT:THE FIRST YEAR (AND A HALF)

Adam Fanaki*

"When we look around at the monopolies and near-monopolies in Canada which dominate so much of our economy, Mr. Mackenzie King's Combines Act resembles nothing so much as the bleating of a pathetic vegetarian lamb in the midst of a carnivorous jungle. That is just it. Mr. King never quite got it that our civilization is dominated by carnivorous animals. He was meant to be a professor safe in the study, not a statesman out in the jungle. For sooner or later the statesman must clear out the jungle and make it habitable."

-- F.A. Underhill, In Search of Canadian Liberalism1

INTRODUCTION

A year-and-a-half has passed since Parliament enacted sweeping reforms to the Competition Act

(the "Act").2 The amendments passed into law on March 12, 2009 were the most significant

changes to the Act since it was first enacted in 1986 and include substantial alterations to core

provisions, such as amendments to the conspiracy provision to create a per se criminal offence

for cartel agreements, a new two-stage merger review process, the introduction of administrative

monetary penalties for abuse of dominance and the repeal of a number of criminal offences

dealing with pricing practices.

Significant concerns were expressed by commentators in the periods leading up to and following

the amendments, including apocalyptic predictions of paralyzing uncertainty for businesses,

criminalization of common and legitimate forms of commercial arrangements, increased risks of

unmeritorious class actions and significantly more burdensome merger reviews. Commentators

argued that the reforms would introduce a "considerable risk that socially benign or even

* Adam Fanaki is a partner in the Competition & Foreign Investment Review and Litigation Groups of Davies Ward Phillips & Vineberg LLP. Prior to joining Davies, he was the Acting Senior Deputy Commissioner of Competition, the head of the Mergers Branch at the Canadian Competition Bureau. The author wishes to acknowledge, with gratitude, the assistance of Davit Akman, a partner at Davies, and Erika Douglas, an articling student at Davies, in the preparation of this paper. The views expressed herein are those of the author alone, as are any errors or omissions.

1 F.A. Underhill, In Search of Canadian Liberalism (Toronto: Macmillan, 1960) at 114-15. 2 R.S.C. 1985, c. C-34.

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beneficial agreements could be criminalized with serious consequences for Canadian businesses

and those who run them"3 and "surely only provide a de-stimulus to useful merger activity and

aggressive competition, and thus to the Canadian economy as a whole".4

Now that approximately a year-and-a-half has passed since the enactment of the majority of the

legislative amendments to the Act, it seems appropriate to begin to consider the actual impact of

these reforms on competition law enforcement in Canada. This paper provides an overview of

significant developments in competition law enforcement since the Act was amended and

considers whether these developments have unfolded as predicted by commentators.

As discussed more fully below, while it may still be too early to draw firm conclusions,

preliminary indications are that the substantive reforms to the Act have not resulted in the

negative outcomes predicted by certain commentators. For example, the changes to the

conspiracy provision have not led to the criminalization of legitimate forms of agreements or

increased private actions. Further, the inclusion of administrative monetary penalties in the abuse

of dominance provision does not appear to have deterred Canadian firms from engaging in

aggressive competition. In fact, more significant developments in competition law enforcement

during the past year-and-a-half are attributable to changes unrelated to the recent reforms, such

as an apparent lowering (at least in two provinces) of the threshold for certifying indirect

purchaser class actions and a shift in the Bureau's approach to joint dominance.

OVERVIEW OF REFORMS

In January 2009 the Canadian Government tabled a series of amendments to Canada's

competition legislation in the Budget Implementation Act, 2009 ("Bill C-10").5 Bill C-10 was

passed into law on March 12, 2009, implementing the most significant reforms to the Act since

1986, including the following principal amendments:

3 Shawn Neylan, "Making Business Relationships a Crime", National Post (February 12, 2009), online: <http://network.nationalpost.com/np/blogs/fpcomment/archive/2009/02/12/making-business-relationships-a-crime.aspx>.

4 Peter Foster, "Tory bill de-stimulates competition" National Post (February 9, 2009), online: <http://network.nationalpost.com/np/blogs/fullcomment/archive/2009/02/09/peter-foster-tory-bill-de-stimulates-competition.aspx>.

5 S.C. 2009, c. 2.

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(i) amendments to the criminal conspiracy provision to create a per se criminal

offence for certain agreements among competitors with substantial increases to the

applicable fines and potential terms of imprisonment, as well as a civil provision to deal

with other forms of strategic alliances and joint ventures;

(ii) creation of a two-stage merger review process that is more closely aligned with

the merger review process in the United States, including a new information gathering

mechanism similar to a U.S. "Second Request";

(iii) repeal of criminal offences dealing with pricing practices, and the creation of a

civil review mechanism for resale price maintenance;

(iv) introduction of administrative monetary penalties that may be imposed by the

Competition Tribunal on firms which are found to have engaged in abuse of dominance;

and

(v) significant increases to fines and other sanctions for misleading advertising and

deceptive marketing practices, as well the introduction of a process to allow the

Competition Tribunal to provide restitution to victims of deceptive marketing.

This paper focuses upon developments in three areas of competition law enforcement: cartels,

mergers and abuse of dominance, each of which is discussed in turn below.

CARTELS

The conspiracy provision of the Act was fundamentally changed with the enactment of the recent

reforms. Specifically, Bill C-10 created a new civil provision to deal with joint ventures and

other forms of competitor collaborations that do not constitute hard core cartel agreements.

These forms of collaboration are now subject to review under section 90.1 of the Act in

circumstances where the agreement is likely to substantially lessen or prevent competition. In

addition, parties are entitled to defend such agreements on the basis that the efficiencies likely to

be generated are greater than any anti-competitive effects. Remedies that may be imposed by the

Competition Tribunal under section 90.1 are limited to prohibition orders and do not include

fines or other punitive sanctions.

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Bill C-10 also amended the conspiracy provision in section 45 of the Act to limit the criminal

offence to those agreements between competitors to fix prices, allocate markets or restrict output.

Consistent with the treatment of such agreements under section 1 of the Sherman Act, it is no

longer necessary for the Crown to demonstrate an anti-competitive effect (i.e., proof that the

conspiracy would prevent or lessen competition unduly) in order to secure a criminal conviction.

The amendments also significantly increased the criminal sanctions available under the cartel

provision to a maximum fine of $25 million and/or terms of imprisonment of up to 14 years,

thereby making the conspiracy offence among the most serious in Canada.

The amendments to the conspiracy provision can be viewed as part of a global trend towards

stricter laws and increased sanctions for cartel conduct. For example, a recent study by the

International Competition Network ("ICN") found that of 45 countries surveyed, 43 (or more

than 95%) had either introduced or increased penalties against cartel conduct in the past ten

years.6 During that same period, six jurisdictions, including Canada, amended their national

competition legislation to impose per se prohibitions, making cartel conduct unlawful without

proof of any anti-competitive effect.7

(a) Impact to Date of Reforms to the Conspiracy Provision

When Bill C-10 was enacted, a number of commentators expressed concerns regarding the

potential criminalization of common and legitimate forms of commercial arrangements, as well

as the increased risk of class actions with respect to agreements which do not have a material

impact on competition.8 For example, one commentator stated:

With respect to private actions commenced under the conspiracy provisions of the Act, private action activity may increase following the coming into force of new U.S.-style "per se" criminal cartel rules in March, 2010. This is because, whereas formerly private plaintiffs, as well as the Competition Bureau (the "Bureau"),

6 See International Competition Network, Cartel Working Group, "Trends and Developments in Cartel Enforcement", presented at International Competition Network Annual Conference (Istanbul, Turkey) April 29, 2010.

7 See ibid. at 9.8 See, e.g., McCarthy Tétrault, "Government Enacts Sweeping Changes to Canada's Competition and

Foreign Investment Laws" (13 March 2009), online: McCarthy Tétrault <http://www.mccarthy.ca/article_detail.aspx?id=4420>.

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were required to establish anti-competitive effects as a key element of a conspiracy offence (i.e., that the alleged illegal conduct prevented or lessened competition "unduly" in one or more relevant markets), this competitive effects test has now been removed from three forms of "hard core" criminal cartel offences as follows: price fixing, market allocation and output restriction agreements. The key impact of this amendment is that both private plaintiffs and the Bureau will have a lower burden to establish these three forms of "hard core" criminal cartel conduct.9

While it may still be too early to draw firm conclusions, given that the amendments to the

conspiracy provision have only been in force for six months, preliminary indications suggest that

the amendments have not resulted in the negative outcomes predicted by certain commentators.

At the time of writing, the changes to the conspiracy provision have not led to the criminalization

of legitimate forms of agreements or increased private actions. As outlined below, changes

unrelated to the recent reforms, such as the apparent lowering (at least in two provinces) of the

threshold for certification of indirect purchaser class actions, have had a more significant impact

on private actions in this area.

Indeed, there is a valid debate on the issue of whether the amendments to the conspiracy

provision have actually expanded or restricted the category of agreements which can be subject

to private civil actions in Canada. Prior to the amendments, a broad range of agreements could

potentially contravene the criminal conspiracy provision, including merger agreements, joint

ventures and vertical arrangements, in circumstances where such agreements unduly lessened

competition. The recent amendments narrow the conspiracy provision to specific types of

agreements, namely agreements between competitors to fix prices, allocate markets and restrict

output and which are naked restraints on competition and not ancillary to other lawful

arrangements.

Further, to make out the offence, the Crown is still required to establish beyond a reasonable

doubt that the accused entered into an agreement with a competitor or potential competitor.

Proving an agreement is not an insignificant hurdle, as the recent decision of the Quebec

9 Canadian Competition Law, "Competition Act Private Actions: The Rules, Recent Amendments & Class Action Cases" (22 November 2009), online: Canadian Competition Law <http://www.ipvancouverblog.com/2009/11/torontocompetitionlawyer-competitionlaw-privateactions/>.

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Superior Court in R. v. Électromega Limitée10 demonstrates. In that case, the Court acquitted the

accused of bid-rigging under section 47 of the Act on the basis that the Crown had failed to

establish an agreement to rig bids. Although the Crown had introduced circumstantial evidence

of the alleged agreement, including statements consistent with the existence of an agreement said

to have been made by a representative of the accused and evidence that the parties to the alleged

agreement had submitted identical bids, the Court was not persuaded beyond a reasonable doubt

that the accused had entered into the alleged agreement.

In addition, the amended conspiracy provision includes an explicit defence for ancillary

restraints in subsection 45(4) of the Act. The ancillary restraints defence shields agreements from

criminal prosecution where they are merely ancillary to, and reasonably necessary for, a broader

legitimate collaboration. For example, a non-compete clause in a merger agreement could be

viewed as an agreement between competitors to allocate markets that would, strictly speaking,

violate the per se prohibitions in section 45. However, because it is ancillary to a broader merger

agreement, it may be insulated from criminal prosecution through the application of the ancillary

restraints defence.

At the same time, the amendments potentially expand the scope of the conspiracy provision to

capture agreements that are naked restraints on competition but which are not likely to unduly

lessen competition. The amendments therefore introduced the risk that private actions may be

commenced with respect to agreements that technically violate the conspiracy provision, but

which are unlikely to have material anti-competitive effects. Although the amendments removed

from section 45 the requirement to establish that the agreement resulted in a significant anti-

competitive effect, proof of loss or harm is still required to establish liability in private actions

under section 36 of the Act. As such, proving some degree of anti-competitive effect will remain

necessary in private actions under section 36 of the Act, even with respect to the amended

conspiracy provision.

As of the date of this paper, there is no jurisprudence interpreting the amended section 45.

However, the decision of the Ontario Superior Court in Rogers Communications Inc. v. Shaw

10 (May 25, 2010) Québec 200-73-005617-066 (Que. S.C.).

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Communications Inc.11 provides a good example of the types of arguments that are likely to be

considered by a court in proceedings brought under the amended conspiracy provision. That case

concerned an application for an interlocutory injunction preventing Shaw from purchasing a

cable business on the basis that it was bound by a restrictive covenant which prohibited it from

acquiring a cable business in Ontario, Quebec or Atlantic Canada. Shaw argued, among other

things, that the restrictive covenant was not enforceable as it contravened the conspiracy

provision in section 45 of the Act. Although the amendments to section 45 were not in force as at

the date of the hearing, the parties also made submissions on whether the agreement would

violate the new conspiracy provision. On this issue, Justice Newbould stated that even if the

agreement violated the per se prohibitions found in the new conspiracy offence, the Court would

also have to consider whether the restrictive covenant would benefit from the ancillary restraints

defence found in section 45:

Rogers asserts that the non-competition covenants will not be contrary to the new legislation. It refers to an "ancillary agreement" defence to section 45 that states that it is not an offence if the agreement under attack is ancillary to a separate agreement and reasonably necessary for giving effect to the objective of that separate agreement. Shaw says that defence is not available because the non-competition covenants were not necessary to give effect to the objectives of the agreement to swap cable assets. Rogers also contends that it is much more likely that the non-competition covenants would be considered by the Bureau under the civil review provisions of section 90.1 and that the covenants would not contravene those provisions because of an "efficiency defence" when it is found that the gains in efficiency will be greater than, and will offset, the effects of any prevention or lessening of competition. Shaw says that the provisions of section 90.1 would be breached.12

Newbould J. declined to determine the issue of whether the ancillary restraints defence applied,

but did find that the submissions on this issue raised a serious issue to be tried. However, His

Honour found that there was "a good case" that the restrictive covenant contravened section 45

as it existed prior to amendment. In this regard, Justice Newbould held that the restrictive

covenant not only unduly restrained competition between the parties in the purchase of cable

television businesses, it "eliminated" competition contrary to then section 45(1)(d) of the Act.

11 [2009] O.J. No. 3842 (S.C.J.).12 Ibid. at para. 58.

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Although further jurisprudence will clarify these issues, the arguments considered by Justice

Newbould are consistent with the view that the recent amendments to section 45 have narrowed

the scope for potential civil liability by focusing the provision on certain types of agreements and

by introducing a statutory defence for ancillary restraints that did not exist in the predecessor

provision.

(b) Private Class Actions

As stated above, the changes to the conspiracy provision have not yet resulted in an increase in

private actions. However, recent decisions by certain Canadian courts regarding the certification

of indirect purchaser class actions may result in an increased number of class actions in the

competition law area.

Historically, Canadian class actions were commonly of a "follow-on" nature, meaning that they

were typically initiated in response to an announcement that the Bureau and, in some cases,

foreign competition authorities, were investigating possible anti-competitive conduct. Further,

these cases did not proceed in earnest until the successful conclusion of such investigations,

either by way of a guilty plea or conviction. Of late, however, there has been a discernible trend

away from such deferred follow-on class actions, with plaintiffs' lawyers bringing and

aggressively pursuing class proceedings in the absence of convictions or guilty pleas and, in

some cases, even where the matter in question has never been investigated by competition

authorities in Canada or elsewhere.

Until last year, virtually no competition class actions had been certified on a contested basis in

Canada. Indeed, Canadian courts had repeatedly refused to certify indirect purchaser, price-

fixing class actions. The seminal case in Canada on indirect purchaser class actions is the

decision of the Ontario Court of Appeal in Chadha v. Bayer Inc.13 That case involved a proposed

class action alleging that the defendant manufacturers had, inter alia, conspired contrary to

section 45 of the Act to fix the price of iron oxide pigments – additives used to colour concrete

13 Chadha v. Bayer Inc. (2003), 223 D.L.R. (4th) 158 (Ont. C.A.), aff'g (2001), 200 D.L.R. (4th) 309 (Ont. Div. Ct.), rev'g (1999), 45 O.R. (3d) 29 (S.C.J.), leave to appeal to S.C.C. denied [2003] S.C.C.A. No. 106. [Chadha].

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bricks and paving stones used in home construction – over an approximately six year period. The

proposed class consisted of an estimated 1.1 million indirect purchasers (i.e., persons who were

not direct purchasers of the iron oxide pigment, but who had purchased buildings and other

products which contained the pigment from someone other than a defendant). In concluding that

the proposed class action should not have been certified at first instance, the Court of Appeal

found that the plaintiffs had not shown that there was a "method [that] could be used at a trial to

prove that all end-purchasers of buildings constructed using some bricks or paving stones that

contain the respondents' iron oxide pigment overpaid for the buildings as a result".14 In the

Court's view, the absence of an acceptable methodology meant that individual trials would be

needed to establish loss (and therefore liability), with the result that the proposed class action

would become unmanageable, and was therefore not the preferable procedure.15

On September 28, 2009, the Ontario Superior Court of Justice issued the first decision by a

Canadian court in a contested case certifying a price-fixing class action on behalf of a class that

included indirect purchasers. In Irving Paper Limited v. Atofina Chemicals Inc. et al.,16 the Court

certified a class action on behalf of all persons in Canada who purchased hydrogen peroxide,

products containing hydrogen peroxide, or products using hydrogen peroxide in Canada.

Contrary to Chadha, the Court in Irving Paper concluded that "rigorous scrutiny" of conflicting

expert opinions as to the existence of a means of proving class-wide harm was not necessary at

the certification stage. Rather, according to the certification judge, plaintiffs need only satisfy a

certification motion judge that a methodology may exist for the calculation of damages, and

therefore attempts to postulate a plausible methodology which in theory might be able address

class-wide loss are sufficient. The defendants sought leave to appeal these decisions to certify,

but leave was denied.17

14 Chadha, supra at para. 30.15 See ibid. at para. 56.16 [2009] O.J. No. 4021 (S.C.J.) (Q.L.) [Irving Paper].17 2010 ONSC 2705 (Div. Ct.).

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Shortly thereafter, on November 12, 2009, in Pro-Sys Consultants Ltd. v. Infineon Technologies

AG,18 the British Columbia Court of Appeal certified a class action on behalf of a class of direct

and indirect purchasers of semiconductor memory chips (known as dynamic random access

memory (or "DRAM")), overruling a lower court decision denying certification. DRAM

provides high-speed electronic storage and retrieval of information and is a component of

virtually all electronic products used today. Given the vast number of products containing

DRAM, the class is potentially enormous.19 It was also acknowledged at the certification hearing

that the proposed class consisted largely of indirect purchasers.20

The decision in Pro-Sys represents the first decision by a Canadian appellate court certifying an

indirect purchaser, price-fixing class action on a contested basis. The B.C. Court of Appeal's

decision in Pro-Sys (like Irving Paper) constitutes a radical departure from the principles

established in Chadha. The appellate court found that it may be possible for a plaintiff to prove

that the defendants benefited from their unlawful conduct, and therefore also prove liability,

without the need for statistical evidence. The Court of Appeal also criticized the certification

judge's "rigorous scrutiny" of the Plaintiff's expert's proposed methodology as setting the bar

"too high", and concluded that the evidentiary burden on the Plaintiff was a low one, requiring

only "a minimum evidentiary basis".21 The Court found that this burden could be and had, in

fact, been satisfied by showing that there was "a credible or plausible methodology" for the

determination of damages using regression techniques which "in theory" might be able to

address class-wide loss.22 Finally, the Court of Appeal concluded that because the Defendants'

gain will be the mirror image of the total loss suffered by the class, the aggregate damages

provisions could be used to prove the class members' damages in respect of the conspiracy

claims.23

18 [2009] B.C.J. No. 2239 (C.A.) (Q.L.) [Pro-Sys (C.A.)], rev'g [2008] B.C.J. No. 831 (S.C.) (Q.L.) [Pro-Sys]19 See Pro-Sys, supra at para. 121.20 See ibid. at para. 11.21 See Pro-Sys (C.A.), supra at paras. 63-65.22 See ibid. at paras. 63-68.23 Ibid. at para. 70.

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On June 3, 2010, the Supreme Court of Canada denied leave to appeal from the B.C. Court of

Appeal's decision in Pro-Sys.24 It is well-recognized that the denial of leave to appeal cannot be

taken as approval or endorsement of the Court of Appeal's reasoning as leave may be denied for

a variety of reasons which may have nothing whatsoever to do with the merits of the decision in

respect of which leave was sought. Nevertheless, the decision of the B.C. Court of Appeal

remains undisturbed as the first and only decision of a senior Canadian appellate court approving

a contested certification in the competition law context.25

The long-term impact of these recent decisions remains to be seen but could potentially be

dramatic. At a minimum, these decisions put class action law in Ontario and British Columbia

out of step with U.S. federal law which bars indirect purchasers from asserting claims of this

nature. Much will depend on how broadly certification motion judges interpret and apply these

decisions.

MERGER REVIEW PROCESS

In 2007, the Ministers of Finance and Industry announced the creation of the Competition Policy

Review Panel, comprised of senior business leaders charged with reviewing Canadian

competition and foreign investment policies, with a view to making Canada more competitive

globally. In its report, entitled "Compete to Win",26 the Panel identified a number of

shortcomings in the merger review process in Canada, including the process used by the Bureau

to secure information relevant to the assessment of mergers:

24 [2010] S.C.C.A. No. 32 (Q.L.).25 Recently, the Ontario Court of Appeal in 2038724 Ontario Ltd. v. Quizno's Canada Restaurant Corp.,

[2010] O.J. No. 2683 (C.A.) (Q.L.) upheld a decision of the Divisional Court to certify a class consisting of Quizno's franchisees alleging, among other things, that the franchisor had engaged in price maintenance that resulted in substantially higher prices for products that the franchisees were required to purchase for use at their Quizno's restaurants. The Court of Appeal affirmed the Divisional Court's decision reversing the certification motion judge who had refused to certify on the basis that the franchisees could not establish damages in the aggregate on a class wide basis and therefore, a class proceeding was not the preferable procedure.

26 Competition Policy Review Panel, Compete to Win: Final Report – June 2008 at 53, online: Industry Canada <http://www.ic.gc.ca/epic/site/cprp-gepmc.nsf/vwapj/Compete_to_Win.pdf/$FILE/Compete _to_ Win.pdf> [hereinafter Compete to Win].

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Merger analysis needs to be conducted on a timely basis in the fast-paced world of modern business. At the same time, the Competition Bureau needs relevant information and a reasonable period of time to analyse transactions that raise complex issues. Seeking court orders to obtain more information or obtain an extension of the review period is unsatisfactory, for both the private and public sectors, because it diverts time and attention away from consideration of the substantive issues arising in connection with proposed merger transactions.27

To address these issues, the Panel recommended that the merger provisions of the Act be aligned

more closely with the U.S. merger review process, including by granting the Commissioner the

power to request additional information through a mechanism similar to the U.S. Second Request

process.

Consistent with the Panel's recommendations, the Government enacted reforms to the merger

regime to create a two-stage review process. Under the amended process, the Bureau reviews the

vast majority of transactions within an initial 30-day waiting period during which the parties may

not close their intended transaction. For transactions that raise material competition issues, and

for which additional information is required, the Commissioner may issue a Supplementary

Information Request, or "SIR", to the merging parties seeking additional information relevant to

the assessment of the proposed transaction. As with the Second Request process in the United

States, the issuance of an SIR triggers a second waiting period that expires 30 days after the

parties have supplied the information listed in the SIR.

On September 18, 2009, the Competition Bureau also released its new Merger Review Process

Guidelines.28 The Merger Review Process Guidelines describe the Bureau's approach to

administering the two-stage merger review process, including certain practices and procedures

that the Bureau will institute in an effort to limit the burden on parties responding to a SIR. The

Merger Review Process Guidelines also introduce practices that distinguish the Canadian merger

review process from the process in the United States. For example, the Merger Review Process

Guidelines state that the Bureau will generally share a draft of the SIR in advance of issuance

and engage the parties in a dialogue in advance of issuing the SIR. In addition, the scope of

27 Ibid. at 56. 28 Competition Bureau of Canada, Merger Review Process Guidelines (18 September 2009), online:

Competition Bureau <http://www.bureaudelaconcurrence.gc.ca/eic/site/cb-bc.nsf/vwapj/merger_review_ process-e.pdf/$FILE/merger_review_process-e.pdf> .

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questions and document requests found in an SIR has, at least thus far, typically been narrower

than those found in the model Second Request.

(a) First 18 Months Under the Revised Merger Review Process

Although harmonization of the Canadian and U.S. merger review processes may allow for

greater coordination and consistency in the review of multi-national transactions, Canada's

adoption of an information-gathering process similar to the U.S. Second Request prompted

significant concern at the time the reforms were introduced. Much has been written regarding the

potential burdens of the Second Request process in the United States, including the high cost of

compliance and potential delays.29 Similar concerns were expressed by Canadian businesses and

their advisors regarding the SIR process in the periods leading up to and following the

amendments.30

It is often difficult to compare merger enforcement over time, given differences in overall

economic conditions. This is especially true during the atypical period for merger review that

began in late 2008 with the financial crisis and resulting economic decline. Although the number

of transactions notified in the past 18 months is lower than in previous years, the Bureau has

received an unprecedented number of highly substantive and complex transactions, which

provide a meaningful basis for assessing the new regime.

29 See, e.g., comments by the American Bar Association Section of Antitrust Law, Submission Regarding the Hart-Scott-Rodino Second Request Process (7 December 2005), online: Antitrust Modernization Commission:<http://govinfo.library.unt.edu/amc/public_studies_fr28902/merger_pdf/051207_ABA_Mergers_HSR.pdf>, as well as the International Chamber of Commerce, Comments on selected issues for study by the US Antitrust Modernization Commission (5 September 2005), online: Antitrust Modernization Commission: <http://govinfo.library.unt.edu/amc/public_studies_fr28902/enforcement_pdf/050905 _ICC_revised.pdf>.

30 See, e.g., J. William Rowley, Letter to the Commissioner of Competition from the Merger Streamlining Group (29 May 2009), online: Competition Bureau <http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/Submission%20re.%20Draft%20Merger%20Review%20Process%20Guidelines-McMillan. PDF/$FILE/Submission%20re.%20Draft%20Merger%20Review%20Process%20Guidelines-McMillan. PDF> and The Canadian Chamber of Commerce, Submission to the Competition Bureau (26 May 2009), online: Competition Bureau <http://competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/mergers %20review%20process-CCC-%20May-09%28FINAL%29.pdf/$FILE/mergers%20review%20process-CCC-%20May-09%28FINAL%29.pdf>.

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In the Merger Review Performance Report published on May 31, 2010,31 the Bureau disclosed

statistics relating to merger reviews conducted during the first year of the amended merger

regime. Not surprisingly, given the prevailing economic conditions, these statistics show a

significant decline in the number of transactions notified to the Competition Bureau.

Specifically, for the period April 1, 2009 to March 31, 2010, the Bureau reviewed 216

transactions, which is approximately 36% less than the equivalent period in 2008 to 2009. What

is perhaps more surprising is the number of consensual remedies in mergers cases, including six

Consent Agreements registered during the first year of the amended merger regime.32 As a point

of comparison, the Bureau secured the same number of merger remedies in its first year under

the new regime as it did in all of 2006, 2007 and 2008 combined. These cases ranged from multi-

national pharmaceutical mergers (Pfizer/Wyeth and Merck/Schering) to mergers involving local

waste disposal sites (Clean Harbors/Eveready). This trend has continued into the 2010 fiscal

year with the registration of three additional Consent Agreements (Novartis/Alcon, IESI-BFC

Ltd. (BFI)/Waste Services Inc. (WSI) and Teva Pharmaceutical Industries Ltd./Ratiopharm

(Merckle Group)).

Indeed, the number of merger remedies in the past year-and-a-half have led some to suggest that

the changes to the merger review process give the Bureau greater leverage in negotiating

divestitures or other consensual remedies. One commentator, referring to the registration of a

recent Consent Agreement in the Teva/Ratiopharm transaction, stated:

31 Competition Bureau, "Merger Review Performance Report" (May 2010), online: <http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/Merger-Performance-Report-May-2010-e.pdf/$FILE/Merger-Performance-Report-May-2010-e.pdf> [hereinafter Merger Review Performance Report]

32 See the registered consent agreements in the following cases: The Commissioner of Competition v. Suncor Energy Inc. and Petro Canada (22 July 2009); The Commissioner of Competition v. Clean Harbors, Inc.(28 July 2009); The Commissioner of Competition v. Pfizer Inc. and Wyeth (14 October 2009); The Commissioner of Competition v. Schering-Plough Corporation and Merck & Co., Inc. (29 October 2009);The Commissioner of Competition v. Agrium Inc. (4 November 2009); and The Commissioner of Competition v. Ticket Master Entertainment Inc. and Live Nation Inc. (25 January 2010) each available online: Competition Tribunal of Canada <http://www.ct-tc.gc.ca/CasesAffaires/CasesDateDecided-eng.asp>.

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This [Consent Agreement] suggests negotiating leverage may have shifted in favour of the Bureau … It appears to be better able under the new regime to force parties to settle or divest.33

As noted above, it is difficult to draw broad comparisons regarding the merger review process

across time given the impact of changes in macroeconomic conditions. The work of the Bureau's

Mergers Branch is largely determined by the transactions proposed in a given year. As a

consequence, the greater number of consensual remedies is more likely to be the result of an

increased proportion of "strategic" transactions that raise material competition concerns, as

opposed to any actual change in the relative bargaining power of the Bureau and merging parties

resulting from the amendments to the merger review process. In fact, many of the transactions

which were subject to remedies in Canada during the first year of the revised merger regime (i.e.,

the Pfizer/Wyeth, Merck/Schering and Ticket Master/Live Nation transactions) were also subject

to similar remedies in other jurisdictions.

With respect to the question of whether the revised merger review process has resulted in

significant delays, the Bureau's own Merger Performance Report suggests that the amended

merger review regime did not increase the length of time required to complete reviews. For

example, the Bureau continues to review the vast majority of transactions within 14-days of

notification. For very complex transactions, the Merger Performance Report indicates that the

Bureau completed the review of all but one of six very complex transactions within five months.

This is a slight improvement from the previous year during which the Bureau's review of two of

five complex mergers took more than five-months.34 Anecdotal evidence also appears to indicate

that the implementation of the amended merger review process has not resulted in significant

delays to mergers. As counsel for the merging parties in respect of a recent complex merger

stated:

It shows how the new system can work, as the deal was done in four months, contrary to many pundits sceptical of the new law. ... That is the answer to those

33 Ron Knox, "Canada Requires Divestiture in Pharma Deal" Global Competition Review (August 2, 2010), Global Competition Review online: <http://www.globalcompetitionreview.com/news/article/28851/canada-requires-divestiture-pharma-deal/>.

34 See Merger Review Performance Report, supra at 9.

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who are still debating whether the new law will inevitably delay the completion of mergers - there was no such delay in this case.35

Indeed, the Centre for European Law and Economics recently compared the institutional

efficiency of merger review systems in a number of jurisdictions worldwide, having regard to

factors such as predictability, transparency, reliability and technical competence, and based on

survey results collected for 2009.36 Of the 60 jurisdictions reviewed, Canada received the highest

score and was considered the most efficient merger review system.

A more difficult issue is whether the revised merger review process has increased the cost of

merger reviews in Canada. From the Bureau's perspective, the revised merger regime did not

materially increase the cost of merger reviews. The direct and indirect costs of the merger review

process during the first year of the amended regime was approximately $14.6 million, or slightly

higher than the costs incurred in each of the 2007 and 2008 fiscal years. Unfortunately,

equivalent data relating to the costs imposed on merging parties is not available, although it

would be valuable to undertake a study of these costs.

Nevertheless, it may be assumed for the purpose of the present discussion that the costs to

merging parties of the merger review process have continued to increase following the

implementation of the amendments, and in particular, merging parties likely face significant

costs in responding to SIRs. The issue is whether these costs are wholly or mainly attributable to

the revisions made to the merger review process. The cost of merger review is likely due, at least

in part, to a number of different factors unrelated to the amendments, such as: a movement from

structural presumptions to a more nuanced, facts-based analysis of competitive effects; growing

reliance on more sophisticated methods of analysis, such as merger simulations; and, changes in

the nature of products and services themselves. Other factors that may increase the cost to

merging parties of merger reviews, such as the need to respond to SIRs under tight deadlines in

some cases and an increased use by the Bureau of SIRs as compared with section 11

35 Emily Gray, "Canada imposes petrol remedies" Global Competition Review (22 July 2009), online: Global Competition Review <http://www.globalcompetitionreview.com/news/article/18355/canada-imposes-petrol-remedies/>.

36 See Centre for European Law & Economics, "The Global Merger Control Index: GMCI 2010", online: <http://www.mergerdata.net/doc/gmci2010/GMCI2010_100622_prepublication.pdf>.

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investigatory orders (as had been the practice under the predecessor regime), are more directly

attributable to the revised merger review process. These factors are discussed in greater detail

below.

The type of analysis employed by the Bureau in recent merger reviews requires more significant

amounts of information. In recent years, the Bureau has used simulations and other analytical

tools as methods of evaluating the competitive effects of mergers. However, use of simulations is

wholly dependent on data availability and on the mathematical characterization of the market or

markets at issue. Insufficient or inaccurate information requires enforcement agencies to apply a

larger number of assumptions, thereby decreasing the simulation's overall accuracy and

effectiveness, and reducing the confidence with which the Bureau and parties may rely on the

results.

In addition to the increasing complexity of merger analysis, the products and services offered by

merging firms are becoming increasingly differentiated across multiple dimensions. In the

current marketplace, consumers are faced with a panoply of different characteristics when

purchasing even the most common products. Increasing product differentiation has implications

for merger analysis and, in particular, the manner in which product markets are defined.37 As

product differentiation increases, it becomes more difficult to define which products fall within a

relevant product market and which do not. In addition, relevant markets that are defined on the

basis of differentiated characteristics may seem artificially narrow for the purpose of evaluating

the anti-competitive effects of a merger.

A related factor increasing the cost of compliance with information requests may also be

technological advancements, which have dramatically improved the ability of corporations to

retain and catalogue large amounts of data. Merging parties are faced with an increasingly

greater burden of identifying information in their possession which is relevant to the assessment

of a transaction.

37 See Thomas O. Barnett, "Current Issues in Merger Enforcement: Thoughts on Theory, Litigation Practice, and Retrospectives" Lewis Bernstein Memorial Lecture, Washington, D.C. (June 26, 2008), online: <http://www.justice.gov/atr/public/speeches/234537.htm>.

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The analysis of mergers has also shifted from simply proving market concentration to

establishing that the merger will likely lead to a reduction in competition:

This change towards an effects-based approach profoundly affected the review process. While the market structure is still an important starting point, the real focus is now on facts and data, which suggest the future action of the merged firm. This has led to changes in the tools used in the analysis and to changes in the fact finding process as well.38

Movement away from structural presumptions, use of merger simulations and changes in the

nature of products and services have all contributed to a more complex merger analysis which

requires information that goes beyond simply defining the basic boundaries of relevant markets

or levels of concentration to the more data-intensive exercise of predicting anti-competitive

effects. As discussed below, the movement away from structural presumptions regarding the

competitive impact of a merger towards a less formulaic approach is evident in the recent

revisions to the U.S. Horizontal Merger Guidelines.39

In terms of factors that may increase the cost of merger reviews but which are more directly

attributable to the revised merger review process, merging parties likely have strong incentives to

comply with SIRs as quickly as possible (as compared with section 11 orders) in many

transactions because the proposed transaction may not close until after all the information

requested in an SIR has been supplied or the parties otherwise resolve any competition concerns

with the Bureau. Complying with an SIR under a truncated schedule can often require the

expenditure of significant resources. For example, to proceed expeditiously, the task of locating

and reviewing relevant records that are stored electronically is often outsourced to third party

suppliers or conducted by legal counsel for the merging parties.

Another factor is the number of SIRs issued. Prior to the implementation of the amended merger

review process, the Bureau relied upon orders issued under section 11 of the Act to gather

information relevant to the assessment of proposed transactions that raised significant

38 S. Boland et al., "Remarks on Mergers, Cartels, and Single Firm Conduct – Panel Discussion, George Mason Law Review Antitrust Symposium, Washington, D.C., September 13, 2006" (2007) 14:4 Geo. Mason L. Rev. 879 at 880.

39 See U.S. Department of Justice and the Federal Trade Commission, Horizontal Merger Guidelines (August 19, 2010), online: <http://ftc.gov/os/2010/08/100819hmg.pdf> [hereinafter Horizontal Merger Guidelines].

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competition issues. Although SIRs have largely replaced the use of section 11 orders with

respect to gathering information from the merging parties, it appears that SIRs have been issued

twice as often as section 11 orders under the predecessor merger review process. In the period

2003 to 2007, section 11 orders were issued in approximately 1.3% of all mergers reviewed by

the Bureau.40 In the first year of the merger review regime, SIRs were issued with respect to

approximately 2.8% of all mergers reviewed.41 As noted above, this may be a reflection of the

number of highly substantive and complex transactions notified during the first year of the

regime.

Overall, the revised merger review regime has not yet resulted in the increased delays predicted

by certain critics, despite the high number of complex transactions, nor is there any evidence to

suggest that the amendments have acted as a "de-stimulus to useful merger activity". The cost of

merger review is difficult to determine, however several factors make it likely that these costs are

increasing, such as a shift in merger analysis to a more effects-based approach and the use of

analytical techniques, such as critical loss analysis and simulations. Although these factors may

increase the cost of merger reviews, they may also contribute to a more sophisticated assessment

of the likely competitive effects of mergers.

(b) Revisions to the Merger Enforcement Guidelines

While the recent amendments to the Act significantly altered the procedures applicable to merger

reviews, they did not change the substantive approach the Bureau uses in reviewing mergers.

However, on September 7, 2010, the Bureau announced that consultations would be held to

40 See B. Gover, "Review of Section 11 of the Competition Act" (August 12, 2008), online: <http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02709.html#24>, which shows section 11 orders were issued in 18 of the 1,393 mergers reviewed by the Bureau in the period between 2003 and 2007.

41 In the 2009 fiscal year, SIRs were issued in between 5 and 7 mergers of 216 mergers reviewed by the Bureau. See: "Roundtable Conference with Enforcement Officials", American Bar Association Section of Antitrust Law Spring Meeting, Washington, D.C. (April 23, 2010) at 15, online: Antitrust Source, <http://new.abanet.org/antitrust/Searchable%20Antitrust%20Library/Jun10-EnforcerRT6-24f.pdf> and "Remarks by Melanie L. Aitken, Commissioner of Competition", 2010 Competition Law and Policy Conference, Cambridge, Ontario (February 3, 2010), Competition Bureau, online: <http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03205.html>.

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consider potential revisions to the Merger Enforcement Guidelines (the "MEGs")42. The MEGs

were last updated in 2004 and describe the principal analytical techniques and evidence on which

the Bureau relies to review mergers. The announcement was not unexpected, following the recent

completion of a similar consultation process in the United States and the issuance of the revised

U.S. Horizontal Merger Guidelines in August 2010.

The analytical approach set out in the MEGs was clearly influenced by the 1992 version of the

U.S. Horizontal Merger Guidelines, as is apparent from their close alignment on issues such as

the use of the hypothetical monopolist test for defining markets, the emphasis placed on

evaluating barriers to entry and a number of other common analytical factors. Nevertheless, there

remain points of divergence in the analysis applied in Canada and the U.S. which are reflected in

the current version of the MEGs, largely due to differences in the governing legislation and

jurisprudence. For example, the Act includes an explicit efficiencies defence that allows merging

parties to defend a merger on the basis that the efficiencies likely to be generated by the

transaction are greater than and offset any anti-competitive effects, unlike in the United States

where efficiencies are a factor to be considered in the overall competitive assessment of a

transaction.

Among the issues that will certainly be discussed as part of the consultative process is whether

the Canadian MEGs should be revised to reflect changes in the analytical approach made to the

U.S. Horizontal Merger Guidelines, such as a more fact-specific and less formulaic approach to

reviewing mergers; explicit recognition of a number of analytical tools and economic concepts

that may be applied to review a merger, such as diversion ratios, critical loss analysis and an

analysis of margins; as well as the removal of the 35% safe-harbour threshold under the

unilateral effects analysis.

One of the more heavily debated revisions to the U.S. Horizontal Merger Guidelines was the

concept of explicitly recognizing that unilateral competitive effects may be evaluated through the

examination of "upward pricing pressure" or "UPP", and a corresponding de-emphasis on the

42 See Competition Bureau of Canada, (1 September 2004), online: Competition Bureau <http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/01245.html>.

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role of market definition, particularly with respect to mergers involving differentiated products.

The final version of the Horizontal Merger Guidelines describe an economic model that draws

upon the UPP analysis in the assessment of a merger:

… In some cases, where sufficient information is available, the Agencies assess the value of diverted sales, which can serve as an indicator of the upward pricing pressure on the first product resulting from the merger. Diagnosing unilateral price effects based on the value of diverted sales need not rely on market definition or the calculation of market shares and concentration. The Agencies rely much more on the value of diverted sales than on the level of HHI for diagnosing unilateral price effects in markets with differentiated products. If the value of diverted sales is proportionately small, significant unilateral price effects are unlikely.43

Proponents of the UPP test point out two aspects of the test which can make it more useful than

the traditional market definition approach. First, by directly measuring the unilateral price

impacts of a merger, the UPP test may be more effective even where market shares do not

accurately reflect the close substitutability of the merging firms' respective products.44 In

addition, unlike the traditional market definition test, the UPP test does not hinge on the (often

contentious) issue of where to draw the boundaries of a relevant market.45 However, there

remains a concern that use of the UPP test will result in more mergers being subject to review

and an increased burden on merging parties. Those mergers which would not have been caught

based on a market definition approach could be subject to scrutiny where they result in "upward

pricing pressure". For example, transactions where the merging firms have a relatively small pre-

merger market share, but their products are considered close substitutes by consumers may raise

concerns under a UPP analysis. The other concern is that the complex modeling required by the

UPP analysis could significantly increase the cost of merger review, in comparison to the more

structural approach endorsed in the prior version of the Horizontal Merger Guidelines.

The revised Horizontal Merger Guidelines address the analytical tools and economic concepts

that may be applied to review a merger, such as diversion ratios, critical loss analysis and an

43 Horizontal Merger Guidelines, supra at 21.44 See Gopal Das Varma, "Will Use of the Upward Pricing Pressure Test Lead to an Increase in the Level of

Merger Enforcement?" (2009) 24 Antitrust 1 (Fall) at 1.45 Ibid; See also Horizontal Merger Guidelines, supra at 20-22.

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analysis of margins, to a greater extent than the prior version of the Guidelines, for example by

outlining the way in which a diversion ratio is determined and used.46 Among the key issues to

be considered as part of the Canadian consultation process is what impact any changes to the

MEGs will have on the process for reviewing mergers, particularly whether explicitly

recognizing the analytical techniques described in the revised U.S. Horizontal Merger

Guidelines and the continued movement away from a structural approach to a more fact-specific

analysis of competitive effects will require more, not less, information from merging parties and

increase, not reduce, the burden on merging parties in those relatively few transactions subject to

in-depth review.

ABUSE OF DOMINANCE

Recent years have witnessed significant convergence among competition regimes regarding the

appropriate treatment of anti-competitive conduct by dominant firms. In particular, convergence

has occurred with respect to the appropriate analytical framework to be applied in evaluating

abuse of dominance cases, including the central role of economics in the analysis of unilateral

conduct, and through a shared commitment to an increased emphasis on enforcement. As an

example, the decision of the European Commission in May 2009 to impose a 1.06 billion euro

fine against Intel Corporation under the abuse of dominance provision – the highest fine ever

imposed on a single company for competition violations – demonstrates the Commission's

commitment to enforcement in this area. Enforcement action against Intel by the U.S. Federal

Trade Commission, coupled with the withdrawal of the U.S. Department of Justice's report

regarding the analysis of single firm conduct under Section 2 of the Sherman Act, also signal a

renewed focus on unilateral conduct in the United States.

Recent developments in Canada are consistent with the trend towards more aggressive

enforcement in the area of abuse of dominance. In March 2009, Parliament enacted changes to

the abuse of dominance provisions to allow the Competition Tribunal to impose administrative

monetary penalties of up to $10 million against firms that abuse their dominant position. In a

46 A diversion ratio is described as measuring the sales lost by one merging firm's product due to a price increase, which are then diverted to the second merging firm's product.

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number of public statements, the Commissioner of Competition has expressed the view that the

amendments provide the Competition Bureau with a "reinvigorated mandate" to effectively

enforce the laws in respect of anti-competitive conduct.47 Also, there have been a number of

enforcement and related activities under the abuse of dominance provisions in the last year-and-

a-half since the amendments came into force. For example, in February 2010, the Commissioner

commenced proceedings against the Canadian Real Estate Association ("CREA") under the

abuse of dominance and market restriction provisions of the Act, alleging that CREA has used

the Multiple Listing Service to impose exclusionary restrictions on brokers that offer less than

full package of brokerage services.48 This is the first contested case filed before the Tribunal

under the abuse of dominance provisions since 2002. Further, in July 2009, the Commissioner

entered into a Consent Agreement to address the allegedly abusive conduct of two waste

collection firms on Vancouver Island, British Columbia.49

In addition to the introduction of the administrative monetary penalties and recent enforcement

activities described above, the trend towards an increased focus on the abuse of dominance

provisions can also be seen in two related developments during the past 18 months: the issuance

of draft Updated Enforcement Guidelines on the Abuse of Dominance Provisions50 and the shift

in the Bureau's approach to examining joint or collective dominance. These developments are

discussed below, as are the potential implications of the recent proceedings against U.S. Steel for

the constitutional validity of the newly enacted administrative monetary penalties.

47 See "Remarks by Melanie L. Aitken, Commissioner of Competition", 2010 Competition Law and Policy Conference, Cambridge, Ontario (February 3, 2010), Competition Bureau, online: <http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03205.html>.

48 See Commissioner of Competition v. The Canadian Real Estate Association (CT-2010/002), online: Competition Tribunal <http://www.ct-tc.gc.ca/CMFiles/CT-2010-002_Notice%20of%20Application_1_45_2-8-2010_2541.pdf>.

49 Commissioner of Competition v. Waste Services (CA) Inc. and Waste Management of Canada Corporation(CT-2009-03) (July 16, 2009), online: Competition Tribunal of Canada <http://www.ct-tc.gc.ca/CMFiles/CT-2009-003_Registered%20Consent%20Agreement _001_61_6-16-2009_7583.pdf> [hereafter "Waste Services"].

50 See online: <http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02942.html> [hereinafter, the "Draft Abuse Guidelines"].

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(a) Draft Abuse of Dominance Guidelines

On January 16, 2009, the Competition Bureau issued Draft Abuse Guidelines which describe the

Bureau's intended approach to evaluating alleged practices of abuse of dominance in terms

largely consistent with those outlined by the Federal Court of Appeal in Canada (Commissioner

of Competition) v. Canada Pipe Co.51 At the time, the publication of the Draft Abuse Guidelines

was consistent with an apparent trend among competition authorities towards public

pronouncements regarding the enforcement of monopolisation or abuse of dominance provisions.

The release of the Draft Abuse Guidelines occurred in the short window of time after the

publication of the U.S. Department of Justice's controversial report regarding the analysis of

single firm conduct under Section 2 of the Sherman Act in September 2008, but before the

Section 2 report was ultimately withdrawn by the then newly-appointed Assistant Attorney

General for the Antitrust Division in May 2009. The release of the Draft Abuse Guidelines also

followed the publication by the European Commission of guidance on the application of then-

Article 82 to exclusionary conduct by dominant undertakings in December 2008.

The new Abuse Guidelines were revised to reflect changes to the Bureau's enforcement approach

in light of recent jurisprudence, as well as current economic thinking. The Draft Abuse

Guidelines provide guidance in a number of additional areas, such as the Bureau's approach to

assessing whether firms are jointly dominant and its intended methodology for determining

whether anti-competitive conduct is likely to substantially lessen or prevent competition.

Further, the Draft Abuse Guidelines discuss specific forms of anti-competitive conduct, such as

exclusive dealing, tying and bundling, as well as denial of access.

Among the issues addressed in the Draft Abuse Guidelines is the circumstances where the

Bureau may accept that the alleged anti-competitive practices were adopted in furtherance of a

valid business justification. In Canada Pipe, the Federal Court of Appeal found that the

Competition Tribunal had erred in determining that the alleged anti-competitive conduct in that

case was undertaken in furtherance of a valid business objective as, among other things, the

51 Commissioner of Competition v. Canada Pipe Company Ltd./Tuyauteries Canada Ltée., 2006 FCA 233 [hereinafter "Canada Pipe"].

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Tribunal had treated the proffered business justification as an "independent" consideration and

"absolute defence for paragraph 79(1)(b)".52 The Court of Appeal found that a business

justification is not an independent defence, but an additional factor in the determination of

whether the impugned conduct was undertaken with the requisite anti-competitive intent. The

Draft Abuse Guidelines recognize that to overcome the deemed intention resulting from the

effects of impugned conduct, a business justification must be more than a self-interested

explanation for the conduct in issue. As such, merely establishing that a practice has resulted in

a higher volume of sales or greater profits for the dominant firm would not be sufficient to

support a finding that the practice in question constitutes a valid business justification. Rather,

as the Draft Abuse Guidelines state, a valid business justification must "be a credible efficiency

or pro-competitive rationale" for the conduct in question.53

The Draft Abuse Guidelines also provide certain examples of valid business justifications, such

as exclusive dealing that "may allow a firm to achieve more efficient distribution of its products,

or protect its incentives to provide service or support to retailers and/or customers".54 As such,

the Draft Abuse Guidelines recognize that in some cases, exclusivity by the customer may be

necessary to incent a supplier to make a relationship-specific investment with that customer.

(b) Joint Dominance

Among the more contentious issues addressed in the Draft Abuse Guidelines is the Bureau's

approach to examining joint or collective dominance. Section 79 of the Act allows the Tribunal

to issue a remedy against "one or more persons [that] substantially or completely control,

throughout Canada, or any area thereof, a class or species of business". The reference to "one or

more persons" in section 79 contemplates that a group of unaffiliated firms may be found to be

collectively or jointly dominant, even if no single firm is by itself dominant. The 2001 version

of the Enforcement Guidelines on the Abuse of Dominance Provisions55 discussed the issue of

52 Ibid. at para. 87. 53 Draft Abuse Guidelines, supra at 17. 54 Ibid. at 34.55 See online, Competition Bureau: <http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/aod.pdf/

$FILE/aod.pdf>.

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joint dominance and stated that in addition to the elements necessary to establish dominance,

cases of joint dominance also require proof of either an explicit agreement among the allegedly

jointly dominant firms or that the firms engaged in "some form of coordinated activities" that

amounted to "something more than mere conscious parallelism".56 Ultimately, to find joint

dominance, the predecessor Guidelines provided that the Bureau required some evidence that

"members of the group acted to inhibit intra-group rivalry".57 The requirement for a degree of

coordination was reaffirmed by the Bureau in its assessment of cases involving alleged joint

dominance. For example, in a 1999 review of alleged anti-competitive conduct in the

Saskatchewan gasoline industry, the Bureau stated:

Since the allegation was to the effect that one or more vertically integrated gasoline firms control a market, this raises the issue of joint dominance under section 79. In the case of joint dominance, it is a group of firms together which may be exercising the control or market power. While high joint market share is indicative of market power, it alone is insufficient. Evidence of co-ordinated activity between the group members to facilitate this market power is also required. Furthermore, it must be established that barriers to entry are such that no one will challenge this market power within a reasonable period of time.

While the Tribunal has not considered this specific issue in any contested case, the leading case law under the predecessor monopoly provision of the Combines Investigation Act stated that the joint control of a class or species of business "foresees a combination of circumstances whereby one or more persons, inclusive of independent corporations, through the coordination of their activities work together as a unit." Based on a review of related Canadian decisions regarding abuse of dominance and jurisprudence from other antitrust jurisdictions, a Tribunal finding that one or more parties jointly control a market would likely require evidence of some communication between the parties as well as some coordinated conduct beyond conscious parallelism resulting in a lack of competition between the parties. Conscious parallelism is defined as firms in an industry acting in a similar but independent fashion. 58 [emphasis added]

The Draft Abuse Guidelines substantially revise the Bureau's approach to joint dominance such

that the assessment of joint dominance no longer requires proof of an agreement or coordination

56 Ibid. at 17. 57 Ibid.58 Competition Bureau, "Report on the Saskatchewan Gasoline Industry" (November 15, 1999), Competition

Bureau, online: <http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/01613.html>.

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between the allegedly dominant firms. Rather, the new Guidelines state that the Bureau

examines "joint dominance similarly to single-firm dominance", so that two or more firms can be

found to be jointly dominant where they engage in similar anti-competitive practices and appear

to "hold market power based on their collective share of the market, barriers to entry or

expansion, and other factors".59

Although there have been three cases involving potential joint abuses of dominance in Canada,

each of these cases has been resolved consensually and, as a result, the Tribunal has not had an

opportunity to address joint abuse of dominance in a contested proceeding. Further, the first two

cases – Canada (Director of Investigation and Research) v. Bank of Montreal60 and Canada

(Director of Investigation and Research) v. AGT Directory Ltd. et al.61 – both involved an

agreement between the allegedly dominant firms such that joint dominance would exist even

under the approach outlined in the 2001 Abuse Guidelines. The exception is the Consent

Agreement registered in June 2009 by the Competition Bureau to address the allegedly anti-

competitive conduct of two unaffiliated waste collection firms on Vancouver Island, British

Columbia.62 This Consent Agreement and the Bureau's press release indicate that the firms

collectively held a share exceeding 80 percent, and jointly engaged in a practice of anti-

competitive acts; namely, the use of long-term contracts that "included similar, and highly-

restrictive, terms such as automatic renewal clauses, liquidated damages (significant penalties for

early contract termination) and rights of first refusal".63 Notably, in light of the foregoing

discussion, there is no indication that there was any agreement or coordination between the

firms. Rather, consistent with the approach to joint dominance set out in the Draft Abuse

Guidelines, the Consent Agreement states only that the firms were engaged in "similar anti-

competitive contracting practices".

59 Draft Abuse Guidelines, supra at 15.60 (1996), 68 C.P.R. (3d) 527 (Comp. Trib.). 61 [1994] C.C.T.D. No. 24. 62 See Waste Services, supra.63 "Competition Bureau Cracks Down on Joint Abuse of Dominance by Waste Companies" (June 16, 2009),

online, Competition Bureau <http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03081.html>.

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As noted above, section 79 explicitly recognizes that "one or more persons" may be found to be

dominant, without referencing any form of agreement or coordination between these firms. In

this way, section 79 may be similar to section 77 of the Act which allows the Tribunal to issue a

remedy with respect to exclusive dealing, tied selling and market restrictions where, among other

preconditions, the conduct is engaged in by a major supplier or is "widespread in a market".

Sections 77 and 79 appear to recognize that anti-competitive conduct by jointly dominant firms

or conduct that is widespread in a market can have the same negative effects on competition as

anti-competitive conduct by a single dominant firm.

Although the approach to joint dominance in the Draft Abuse Guidelines introduces greater

flexibility and adopts an approach that is arguably more consistent with the language of the

abuse provisions, this change comes at some cost in terms of predictability for Canadian

businesses. With the elimination of the need for coordination or "something more" than mere

conscious parallelism to establish joint dominance, the range of firms now potentially subject to

the abuse of dominance provisions in the Act has potentially been broadened considerably.

Specifically, under the Bureau's revised approach, the abuse provisions may apply to Canadian

businesses that are not themselves dominant, and may even hold a small share of the relevant

market, but which are engaged in anti-competitive practices that are widespread throughout a

given industry or similar to the practices of competitors in the same industry. It may be difficult

for Canadian businesses to determine in advance whether an intended course of conduct is

widespread or similar enough to the practices engaged in by competitors to constitute jointly

dominant conduct or, more broadly, to determine the anticipated impact of conduct if similar

practices are subsequently adopted by rivals.

However, there remain limitations on the scope of the conduct that could be subject to review

under the abuse of dominance provisions, even where joint dominance is established. For

example, the Bureau would still have to establish that the conduct at issue amounted to an anti-

competitive act and was likely to have (or did have) the effect of preventing or lessening

competition substantially.

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(c) Administrative Monetary Penalties

Prior to the recent amendments, remedies under the abuse of dominance provisions, like many of

the other reviewable practices under the Act, were largely limited to orders requiring the

dominant firm to cease engaging in the offending anti-competitive practices. However, the recent

amendments to the Act substantially changed the nature of the remedies available for abuse of

dominance by allowing the Tribunal to award administrative monetary penalties ("AMPs") of up

to $10 million in the first instance against a company found to have abused its dominant position,

and $15 million for each subsequent order. The introduction of AMPs was strongly criticized by

some on the basis that such significant penalties would likely "chill" aggressive competition

among Canadian businesses and were unconstitutional.64 Specifically, commentators suggested

that AMPs of such magnitude constituted "true penal consequences" and as such, could only be

imposed in accordance with the principles of fundamental justice as guaranteed under section 11

of the Canadian Charter of Rights and Freedoms, including the presumption of innocence and

proof beyond a reasonable doubt.

The recent decision of the Federal Court in Canada (Attorney General) v. United States Steel

Corporation65casts doubt on the position that high AMPs, in and of themselves, amount to penal

consequences. In 2007, U.S. Steel gave undertakings under the Investment Canada Act related to

employment and production as a condition of its acquisition of Stelco Inc. The Attorney General

of Canada alleged that these undertakings were subsequently breached by U.S. Steel, leading to

an application for a remedy under section 40 of the Investment Canada Act. That provision

permits a court to impose penalties of up to $10,000 per day for failure to comply with an

undertaking, as well as directing the investor to dispose of shares or assets that are used by it in

carrying on the Canadian business.66 In response to this application, U.S. Steel argued, among

64 See, e.g., P. Hogg, "Opinion Letter written on behalf of Diane J. Brisebois, President and Chief Executive Officer, Retail Council of Canada" (October 17, 2005); A. Tait, "The Use of Administrative Monetary Penalties in Consumer Protection", Public Interest Advocacy Centre (May 2007); and L. Milton "The Great Amendments Debate: AMPS for Abuse", presented at The Canadian Bar Association, 16th Annual Fall Competition Law Conference, Gatineau, Quebec (September 24, 2009), online:<http://www.cba.org/cba/cle/PDF/COMP09_Milton_paper.pdf> at 4.

65 [2010] F.C.J. No. 902 (T.D.). [U.S. Steel] 66 Investment Canada Act, R.S. 1985, c.28 (1st Supp.).

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other things, that the magnitude of the potential monetary penalties under section 40 was

sufficient to render the proceedings penal in nature and therefore, subject to the presumption of

innocence and other protections under section 11 of the Charter.

The Federal Court rejected U.S. Steel's arguments finding that the administrative monetary

penalties available under the Investment Canada Act did not constitute penal consequences

despite their potentially significant magnitude. The Court found that "the purpose of the

monetary penalty is to encourage and promote timely compliance and to enforce compliance

with any undertakings and provisions of the legislation" and that they are not, by virtue of their

magnitude alone, penal in nature.67 The Court observed that it is the context in which a fine is

imposed which determines whether its dollar value renders it punitive, and that "the enormity of

a monetary penalty cannot be assessed in isolation".68 The Court also concluded that a

proceeding under section 40 "is not by nature a penal proceeding".69 U.S. Steel has appealed the

decision.

Assuming the decision is left undisturbed on appeal, it suggests that those seeking to challenge

the constitutionality of AMPs under the abuse provisions should focus on the broader framework

and context in which the fine in issue is imposed, as opposed to merely arguing that the

magnitude of the potential fines makes them penal in nature.

CONCLUSION

The March 2009 reforms substantially altered core provisions of the Act, including conspiracy,

merger reviews and abuse of dominance. Each of these changes was the subject of criticisms in

the period leading up to and following the amendments, much of which appears, to date, to be

unfounded. At the time of writing, the changes to the conspiracy provision have not led to the

criminalization of legitimate forms of agreements or increased private actions. The inclusion of

administrative monetary penalties in the abuse of dominance provision does not appear to have

67 Ibid. at para. 42.68 Ibid. at para 58. 69 Ibid. at para 50.

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deterred Canadian firms from engaging in aggressive competition. Further, the revised merger

review process has not created a "de-stimulus to useful merger activity".

While the recent reforms have not resulted in the negative outcomes predicted by critics, it may

be too early to reach firm conclusions regarding the impact of these changes. Until the new

provisions are the subject of judicial interpretation, it is difficult to discern the long-term impact

of the reforms and whether unintended consequences will emerge as the new provisions are

applied and developed in future cases. However, it is clear that in the past year-and-a-half since

the amendments were passed into law, more significant developments in competition law

enforcement are attributable to changes unrelated to the recent reforms, such as an apparent

lowering (at least in two provinces) of the threshold for certifying indirect purchaser class actions

and changes to the Bureau's enforcement policies, such as the approach to joint dominance.