Competition Bureau Recommends Significant Changes To Competition Act - Antitrust, EU Competition

On November 17, 2022, the Honourable François-Philippe Champagne, Minister of Innovation, Science and Industry, launched the much anticipated public consultation for potential amendments to the Competition Act (the "Act"). As discussed in our previous blog post, this consultation was intended to serve as a wide-ranging review of existing competition policy in Canada, including whether the Act is fit for purpose in a modern economy that continues to evolve quickly.

On March 15, 2023, the Competition Bureau (the "Bureau") provided a detailed submission in response to this ongoing consultation. This submission includes over 50 recommendations on a variety of topics intended to "modernize and strengthen" the Act, which the Bureau currently considers to be "outdated, weak, complex, slow and out of touch". If implemented, these recommendations would fundamentally reshape competition policy in Canada.

The Bureau's submission builds on the submission it made to Senator Howard Wetston on February 8, 2022, with a focus on those areas of reform that were not addressed through the amendments to the Act in June 2022. Many of the Bureau's key and noteworthy recommendations, which are organized around the topics included in a discussion paper issued by the Department of Innovation, Science and Economic Development (the "Discussion Paper"), are discussed below.

Merger Review

Oral Examinations: The Commissioner's supplementary information request ("SIR") powers are currently limited to requesting documents, data and written returns from the merging parties. The Bureau has recommended that these powers be expanded to include oral examinations under oath or solemn affirmation, together with appropriate extensions to statutory timeframes. According to the Bureau, the use of oral examinations would "allow for more effective and timely review, particularly in industries that are emerging, changing rapidly or where the Bureau has limited or no experience", ultimately allowing for "better informed enforcement decisions". From a timing perspective, the Bureau's recommendation would extend the post-SIR compliance waiting period from 30 days to as many as 90 days.
Limitation Period: Section 97 of the Act currently prevents the Commissioner from challenging a merger more than one year after it has been substantially completed. The Bureau is of the view that this limitation period is too short and has recommended that it be extended to three years for both notifiable and non-notifiable mergers. In this regard, the Bureau notes that merger review is "an imperfect, forward-looking exercise", that "markets sometimes evolve in dramatic and unexpected ways" and that "a merger that was thought to be competitively benign at the time of a review may, after a year, be revealed to be anti-competitive". While the Bureau acknowledges that extending the limitation period to three years "would lead to some incremental commercial uncertainty", it believes that this uncertainty would be "negligible" for the vast majority of transactions that do not raise substantive competition issues.
Injunctions: The Act includes provisions that allow the Competition Tribunal ("Tribunal") to issue temporary injunctions in the mergers context. However, the Bureau is of the view that the legal standards for injunctive relief are "impractical" and has recommended that the Act include "more workable standards" for the issuance of temporary injunctions. In particular, the Bureau has recommended that in cases where it is seeking an injunction to prevent closing (whether under section 100 or section 104), the Act should provide automatic short-term interim relief until the injunction application can be heard and decided. In addition, the Bureau has recommended that the test for an injunction under section 104, which could remain in place until a merger challenge is heard and decided, should not require either the quantification demanded by current case law or a case-specific "balance of convenience" assessment that considers whether the harm to competition is outweighed by the harm to parties from delaying the transaction (e.g. in terms of delayed realization of efficiencies). If these recommendations are implemented, it would become relatively easy for the Commissioner to secure temporary injunctions going forward.
Structural Presumptions: In order to obtain a remedy under section 92 of the Act, the Bureau must establish that a merger prevents or lessens, or is likely to prevent or lessen, competition substantially (an "SPLC"). The Bureau acknowledges that proving an SPLC involves the use of "complex economic tests" and suggests that "simplification is required". To achieve this simplification, the Bureau has recommended the use of structural presumptions, which would shift the burden onto the merging parties to prove why a merger that significantly increases concentration would not result in an SPLC. According to the Bureau, this approach "follows the economics-based conclusion that mergers in highly concentrated markets are more likely to be anti-competitive" and "ensures that the Bureau's investigative and litigation resources are used efficiently in cases where the presumption is met". That said, many commentators, including US Circuit Judge Douglas Ginsburg of the US Court of Appeals for the DC Circuit, have questioned (pay wall) the benefit and utility of structural presumptions.
Competition Tests: In Canada, remedies are only available when the Commissioner can identify, on a balance of probabilities, "concrete market opportunities" that an emerging competitor is likely to exploit. According to the Bureau, "such a task is particularly difficult - or even impossible - when it involves the acquisition of a firm that is still developing the products that would challenge other competitors". In light of these concerns, the Bureau is of the view that the standards for evaluating an SPLC should be recalibrated to focus on harm to the competitive process. In this regard, the Bureau has suggested that one way of accomplishing this would be to specify that an SPLC "may be inferred from a merger that appears reasonably capable of having anti-competitive effects or of making a significant contribution to the creation, maintenance, or enhancement of the ability to exercise market power" (emphasis added).
Remedial Standard: As noted above, the Tribunal is able to order remedies where it finds that a merger results in an SPLC. The Supreme Court of Canada has stated that it "hardly needs arguing that the appropriate remedy for a substantial lessening of competition is to restore competition to the point at which it can no longer be said to be substantially less than it was before the merger". However, the Bureau is of the view that this standard is too lax and has recommended that Act be amended to provide that the Tribunal's remedial order must restore competition to the level that would have prevailed but for the merger. Significantly, not only does this recommendation involve challenging appellate jurisprudence in Canada, it is also inconsistent with international principles, such as the International Competition Network's recommended practice of "[requiring] the least intrusive [effective] remedy while permitting, if possible, the realization of the merger's efficiencies".
Efficiencies Defence: Section 96 of the Act, commonly known as the efficiencies defence, provides that the Tribunal cannot make a remedial order where it finds that the efficiencies likely to arise from a merger are greater than, and will offset, the anti-competitive effects of the merger. According to the Bureau, the efficiencies defence "permits anti-competitive mergers that are harmful to Canadians", "is inconsistent with international best practices", "is difficult - if not impossible - to properly implement" and "suffers from a misguided original policy intent". For these reasons, the Bureau has recommended that the efficiencies defence be repealed and that efficiency gains be incorporated into the list of factors that the Tribunal can consider in determining whether a merger results in an SPLC. Ultimately, treating efficiencies as one of several factors considered during the merger review process could result in efficiencies becoming a non-factor - even in transactions that result in significant efficiencies - particularly given the Bureau's apathy for the efficiencies defence.

Unilateral Conduct

Definition of Abuse of Dominance: Section 79 of the Act currently establishes a three-part test for abuse of dominance: dominance; a practice of anti-competitive acts; and an SPLC. The Bureau maintains that the requirement to demonstrate both anti-competitive intent and effects "significantly frustrates the Commissioner's ability to intervene against anti-competitive conduct and is out of step with most international counterparts". To address this, the Bureau proposes that proof of dominance and either anti-competitive effect or anti-competitive purpose should be sufficient to establish abuse of dominance. Alternatively, the Bureau suggests that if it proves either anti-competitive intent or anti-competitive effect, the burden of proof should shift to the dominant firm to prove the absence of anti-competitive effect or anti-competitive intent, as the case may be. Significantly, the Bureau has not recommended "bright-line" rules or presumptions for abuse of dominance by certain firms or platforms - an issue that is expressly raised in the Discussion Paper and is being discussed in other jurisdictions.
Business Justification: A legitimate pro-competitive or efficiency-enhancing justification may counter-balance evidence of anti-competitive intent in the assessment of the "overall character" of the alleged anti-competitive act. The Bureau argues that "recent case law has given too much deference to the asserted justifications of the dominant firm that may not be borne out in reality". In order to address this, the Bureau proposes that the dominant firm should be required to prove that a business justification is "objectively valid". The Bureau also suggests replacing the current "overall character" test with a "substantial" purpose standard for assessing whether conduct qualifies as an "anti-competitive act".
Competition Tests: As in the mergers context, the Bureau maintains that the SPLC test should be recalibrated to focus on the competitive process. According to the Bureau, the current focus on outcomes is particularly problematic in the context of abuse of dominance and is the most serious problem with these provisions. The Bureau argues that predicting future competitive outcomes is "particularly problematic in industries characterized by rapid technological progress" and in prevention cases, but is not limited to these circumstances. Consistent with its proposal for mergers, the Bureau suggests that an SPLC "be inferred from conduct that appears reasonably capable of making a significant contribution to the creation, maintenance, or enhancement of the ability to exercise market power".
Dominance Test: The Bureau recommends that the following elements of the test for dominance be retained: joint dominance; the concept established by case law that firms with "gatekeeping power" can be dominant; and the principle that dominance can be attained through the alleged anti-competitive conduct. Although the Bureau acknowledges that joint dominance cases have been rare and the test for joint dominance has not been clarified by the case law, the Bureau expects that joint dominance cases may arise more often in the future in light of the recent amendment to the statutory definition of "anti-competitive act" to include acts that harm competition, in addition to acts that have a negative effect on competitors. The Bureau is not proposing new "de facto" tests for dominance.
Interim Relief: As with the merger provisions, the Bureau proposes to streamline the process for and duration of interim orders preventing the continuation of conduct pending completion of the Bureau's investigation. At present, the Bureau can seek an ex parte order preventing the conduct for a 10-day period, which can be extended for two additional periods of 35 days if the Bureau demonstrates that certain requested information has not been provided or that it requires more time to review information that has been received. The Bureau states that its abuse of dominance investigations typically last 18 months, with the result that these time periods are too short. In addition, the requirement to obtain extensions is a "significant distraction from the investigation". The Bureau suggests that the interim relief provision be amended to give the Tribunal the discretion to determine the appropriate time period for an interim order, either by making the process one that may be contestable by the parties at the outset or by adopting a two-pronged approach that retains an initial ex parte process, followed by a contested one with greater discretion.
Other Unilateral Conduct Provisions: In addition to the general abuse of dominance provisions, the Act contains provisions addressing specific practices such as delivered pricing, refusal to deal, exclusive dealing and price maintenance. The Bureau acknowledges that some of these provisions have never been enforced and others have not been successfully enforced in recent years. The Bureau cautions, however, against removal of any of these provisions unless the abuse of dominance provision is "properly calibrated" to address the conduct so as to ensure that there is no reduction in the scope of the Act.
Simultaneous Applications: The Act currently permits the Commissioner to bring simultaneous applications for relief under the refusal to deal, exclusive dealing, tied selling, market restriction and abuse of dominance provisions, but bars the Commissioner from bringing applications based on common facts under the price maintenance, abuse of dominance, civil anti-competitive agreements and merger provisions. The Commissioner argues that the inability to bring merger and abuse proceedings based on the same facts is "unnecessarily restrictive" and asks that he be permitted to apply for relief under any combination of the civil provisions simultaneously based on common facts.

Competitor Collaborations

Civil Provisions

Remedies: Currently, remedies under section 90.1 of the Act are limited to prohibition orders (prohibiting a person from doing anything under the agreement or arrangement) and, on consent, other remedial orders (requiring a person to take any other action). The Bureau is of the view that these remedies "may fail to overcome the negative effects of an anti-competitive agreement" and has recommended that "prescriptive remedies aimed at restoring competition and administrative monetary penalties should be available in appropriate cases". This recommendation echoes Minister Champagne's focus on "modernizing the penalty regime to ensure it serves as a genuine deterrent against harmful business conduct". As such, it is likely that this recommendation will be seriously considered.
Past Agreements and Past Harm: Section 90.1 of the Act currently applies only to "existing or proposed" agreements or arrangements. The Bureau has recommended that this temporal limit be broadened to include past agreements and past harm. The Bureau notes that this recommendation would close a perceived loophole, whereby parties to an agreement could merely terminate it to avoid the application of section 90.1. Importantly, the Bureau supports the use of a limitation period within which the Commissioner must bring an application in respect of past agreements, similar to the three-year limitation period that applies to abuse of dominance applications where a practice has ceased. If adopted, this recommendation would result in all of a company's past agreements with competitors potentially being subject to scrutiny, and simply terminating an anti-competitive agreement would be insufficient to avoid a challenge to the agreement prior to the end of the applicable limitation period.
Competition Tests: Just as it did in the mergers and abuse of dominance context, the Bureau has recommended that the standards for evaluating whether an agreement or arrangement between competitors has resulted in an SPLC should be recalibrated to focus on harm to the competitive process. While the Bureau did not suggest any language, it would presumably want this test to align with the test that would apply in the merger review and abuse of dominance context.
Efficiencies Defence: Section 90.1 of the Act is currently subject to various exemptions, including an efficiencies defence. The efficiencies defence is available where the efficiencies likely to arise from an agreement or arrangement will be greater than, and will offset, the anti-competitive effects of the agreement or arrangement. Just as it did with respect to section 96 of the Act, the Bureau has recommended that the efficiencies defence be repealed and that efficiency gains be incorporated into the list of factors that the Tribunal can consider in determining whether an agreement results in an SPLC. Ultimately, treating efficiencies as one of several factors considered during the review process could result in efficiencies becoming a non-factor - even in the case of collaborations that result in significant efficiencies - particularly given the Bureau's apathy for the efficiencies defence.
Private Access: Private access to the Tribunal is available for some civilly reviewable provisions of the Act, including abuse of dominance, refusal to deal, exclusive dealing, tied selling, market restriction and price maintenance. The Bureau has recommended that the Act be amended to allow private parties to bring an application to the Tribunal for a remedial order under the civil competitor collaboration provisions of the Act. As noted elsewhere in the blog post, the Bureau has also recommended that the test for leave to commence a private application be lowered.

Criminal Provisions

Buy-Side Cartels: In its submission to Senator Wetston, the Bureau recommended that harmful buy-side conspiracies should be subject to criminal provisions in the Act. The Bureau's recommendation was addressed, in part, through the recent amendments to the Act, which added a new criminal offence prohibiting wage-fixing and no-poaching agreements between employers. While the Bureau views this as a "positive step", it notes that "workers are not unique in deserving protection from buy-side cartels" and that "there are myriad other industries and groups whose livelihood depends on there being competitive downstream markets in which to offer their goods and services". Accordingly, the Bureau has recommended that policymakers should consider defining and treating hard core buyer cartels the same way as hard core supplier cartels under the Act. Importantly, the Bureau recognizes that other types of buy-side agreements "can be pro-competitive or benign and should not be subject to per se criminal sanction".
Bid-Rigging "Made Known" Element: Section 47 of the Act applies to bid-rigging, which is a form of collusion where bidding companies agree that a specific supplier will win a contract. For example, as part of an agreement with another company or companies, one company might agree not to submit a bid, to withdraw a bid or to submit an agreed upon bid. However, section 47 is contravened only if the Crown can prove beyond a reasonable doubt that the agreement or arrangement was not "made known" to the person calling for or requesting the bids or tenders at or before the time when any bid or tender was submitted or withdrawn. In the Bureau's view, this approach places an "extraordinary burden" on the Crown. In order to address this concern, the Bureau has recommended, among other things, that the Act be revised to establish "made known" as a defence that would have to be asserted and proved by the parties.

Deceptive Marketing

Consumer General Impression Standard: Under the general false or misleading representation provisions in the Act, both the literal meaning as well as the general impression of the representations are relevant. The consumer standard for evaluating the general impression has not been prescribed in the Act, and the matter has been left to the courts to adjudicate. While the leading Supreme Court of Canada case on this matter, Richard v Time, sets out the "credulous and inexperienced consumer" standard, lower courts have disagreed with this standard, and, in certain cases, imputed a higher level of knowledge or experience to a consumer. The Bureau recommends that the Act should be revised to articulate the standard set by Richard v Time as the appropriate threshold, noting that the other standards are either too high (and do not adequately protect consumers) or are difficult to apply.
Reverse Burden for Ordinary Selling Price: False discount claims are prohibited under the civil ordinary selling price ("OSP") provisions of the Act. Currently, the Commissioner bears the burden of proving that the advertised OSP (or regular price) does not satisfy the required tests. The Bureau's submission characterizes this as a "hefty" burden, and the Bureau has recommended that the burden of proof for OSP matters be reversed, so that advertisers bear the burden of proving that advertised discounts are, in fact, truthful.
Further revisions to Drip Pricing Prohibitions: Explicit drip pricing prohibitions came into force in June 2022. Pursuant to these provisions, offering a product or service at a price that is unattainable due to fixed obligatory charges or fees will be deemed to constitute a false or misleading representation, unless the obligatory charges or fees represent only an amount imposed by or under an Act of Parliament or the legislature of a province, such as sales taxes. However, the Bureau believes that "the exemption, as it currently stands, has created a loophole allowing advertisers to drip their own costs for complying with various laws onto Canadian consumers in a way that consumers would not expect". As such, the Bureau recommends further clarifying amendments be made to these provisions.
Electronic Messages: The Act currently includes a number of provisions governing the use of electronic messages, which where included in the Act to reflect Canada's Anti-Spam Legislation. The Bureau recommends various minor amendments which would fix certain alleged drafting oversights and inconsistencies, including clarifying in the civil provisions that, similar to the criminal provisions, the Commissioner need not prove that a person was deceived or misled.
Harmonizing Criminal and Civil Provision: The Act applies to a wide-range of deceptive marketing practices, which can be subject to civil provisions of the Act, criminal provisions of the Act, or both. The Bureau recommends that the Act be amended to provide both criminal and civil tracks for all types of deceptive marketing conduct (currently, such a dual-track is only available in some instances). This would allow the Bureau to choose in each case whether to pursue civil or criminal enforcement based on the "seriousness of [the] deceptive conduct".
Interim Orders: The Bureau recommends a number of changes to section 74.11(1) of the Act, including, most importantly, revising this provision to apply to conduct that is not currently occurring. As drafted, this provision allows for the issuance of temporary orders only where it appears to the court that a person "is engaging" in conduct that is reviewable under the Act. The Bureau recommends this be broadened to allow temporary orders against conduct that is not currently occurring to avoid, for example, companies from simply stopping and restarting advertising campaigns to avoid temporary orders.

Administration and Enforcement

Preservation of Commissioner's Independence: The Bureau asserts that independence of the Commissioner is a prerequisite for the effective administration and enforcement of competition rules. It enables the Commissioner to take decisions based solely on legal and economic grounds rather than on political considerations, consistent with the rule of law. As a result, the Bureau discourages Ministerial vetoes or public interest overrides over the Bureau's work, or new governance frameworks that would provide external direction over Bureau enforcement priorities and use of formal powers. We agree. Ministerial vetoes and public interest overrides reduce predictability and transparency and, as a consequence, confidence in the regime.
Formal Market Study Powers: The Bureau recommends that a formal market study regime with information-gathering powers be added to the Act, "consistent with international best practice". It also recommends that regulators and other implicated government bodies should be required to respond to Bureau recommendations within a reasonable time period. The Bureau claims that this would strengthen its ability to examine and publicly report on government policy, regulations or market participant behaviour that may inhibit competition. It also claims that formal market study powers could be designed in a way that addresses legitimate stakeholder concerns surrounding burden, procedural fairness and confidentiality. We reserve judgment with respect to this recommendation. Questions remain as to whether the Bureau, as an independent law enforcement agency, is the correct entity for conducting policy studies.
Civil Information Gathering Powers: In the Bureau's view, the requirements for obtaining production orders have become disproportionate and are unduly delaying investigations. The Bureau maintains that the Commissioner should have access to streamlined information gathering powers in civilly reviewable matters in order to ensure that the Bureau can access relevant evidence in a timely, effective and simple way. The Bureau's concerns relate primarily to section 11 of the Act, which provides the Commissioner with the power to seek ex parte court orders compelling a person to provide oral testimony, records or written returns. The Bureau notes that obtaining a section 11 order was historically a routine and efficient exercise, but that over the years the courts have required significantly more information to be provided and procedures to be followed before agreeing to issue these orders.
Civil Litigation: The Bureau notes that competition litigation in Canada can be a time-consuming and resource-intensive process that can take several years. It asserts that litigation should be simplified and accelerated wherever possible, while maintaining procedural fairness and due process, so that both the Commissioner and private businesses can quickly obtain the certainty necessary to operate in a rapidly changing world. It's hard to disagree with this sentiment. We look forward to reviewing the precise proposals that are advanced.
Cost Awards: The Bureau notes that the Commissioner, who acts in the public interest, faces the same cost risks as a private litigant. The Bureau recommends that the Act should explicitly immunize the Commissioner against cost awards. We disagree, as there would be no consequence to an over-zealous Commissioner despite potentially enormous costs imposed on respondents as a consequence of any reckless or ill-advised processes by the Commissioner. The Tribunal and other courts have discretion in the awarding of costs and it may be that the public interest factor could be cited as a factor to be taken into account in the cost award.
Leave Requirements:The Bureau notes that when applying for leave to make an application under the refusal to deal, exclusive dealing, tied selling, market restriction and abuse of dominance provisions of the Act, the applicant must demonstrate that they are "directly and substantially affected in the applicant's business" by the conduct. The Bureau further notes that this means that only businesses can seek leave to bring a case to the Tribunal, not other groups that can be directly harmed by anti-competitive conduct like consumers or workers. Moreover, the test has been interpreted to require an examination of whether the business as a whole has been substantially affected rather than simply examining whether a particular product or product line of that business has been materially affected. This stands in contrast to the leave test for applications under the price maintenance provisions of the Act, which only requires applicants to establish that they are "directly" affected by the conduct. In light of these concerns, the Bureau argues that the test to obtain leave for private access to the Tribunal is unduly restrictive and recommends that it be eased to ensure that applicants can appropriately obtain leave. The Bureau also recommends that a damages regime should be considered so that persons injured by anti-competitive conduct can seek compensation. These are proposals that in our view merit further study.

It will be interesting to see which of the Commissioner's recommendations are included in the next round of proposed amendments to the Act.

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Canada: Competition Bureau Recommends Significant Changes To Competition Act