Recognizing the critical role of the Competition Act (the “Act”) in promoting dynamic and fair markets, Canada’s Minister of Innovation, Science and Industry, the Honourable François-Philippe Champagne, announced on February 7, 2022 that he would carefully evaluate potential ways to improve its operation. This included, among other things, adapting the law to today’s digital reality to better tackle emerging forms of harmful behaviour in the digital economy; tackling wage-fixing agreements; modernizing the penalty regime to ensure that it serves as a genuine deterrent against harmful business conduct; more clearly addressing drip pricing; increasing access to justice for those injured by harmful conduct; and fixing loopholes that allow for harmful conduct. During an interview with the Toronto Star, the Minister suggested that this was the first step in a “comprehensive” review of the Act.
The Minister has followed through on his promise, with several proposed amendments to the Act being included in the Budget Implementation Act, 2022, No. 1 (the “BIA”), which was introduced earlier this week. Based on our experience, we expect that these amendments will likely be passed in their current form in the coming weeks as a significant portion of the bill relates to spending in the Federal Government’s budget.
To assist our readers, this blog post provides an overview of the proposed amendments to the Act, summarizes the impact these amendments are likely to have on businesses going forward, and discusses what may be coming next.
Overview of Proposed Amendments
The proposed amendments to the Act address, for the most part, the areas identified by the Minister in his prior announcement. More specifically:
- So-called Wage-Fixing and No-Poach Agreements: The proposed amendments would add a new criminal provision for so-called wage-fixing and no-poach agreements between employers, which would come into effect a year after the BIA receives royal assent. As with the existing cartel provisions, this new provision would potentially allow wage-fixing and no-poach agreements to be inferred from circumstantial evidence and would include both an ancillary restraints defence and a regulated conduct defence. This change is intended to align Canada’s approach to these types of agreements with the highly controversial approach recently adopted by the United States Department of Justice. Unlike the framework that applies to the general conspiracy provisions in the Act, these amendments do not appear to require that the employers be competitors or potential competitors.
- Penalties: The proposed amendments would significantly increase certain penalties available under the Act. First, the fines available under the criminal cartel provisions (including the new provision relating to wage-fixing and no-poach agreements) would increase from a maximum of $25 million to a fine in the discretion of the court. Second, the administrative monetary penalties (“AMPs”) that could be awarded against a corporation under the deceptive marketing practices and abuse of dominance provisions would increase from a maximum of $10 million (and $15 million for each subsequent order) to the greater of (a) $10 million (and $15 million for each subsequent order) and (b) three times the value of the benefit derived from the conduct in question or, if that amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenues. Finally, the AMPs that could be awarded against an individual under the deceptive marketing practices provisions would increase from a maximum of $750,000 (and $1 million for each subsequent order) to the greater of (a) $750,000 (and $1 million for each subsequent order) and (b) three times the value of the benefit derived from the conduct in question, if that amount can be reasonably determined. This change is intended to address the perception by some that the penalties available in Canada pale in comparison to those available in other jurisdictions around the world, including, most notably, the United States and Europe.
- Drip Pricing: The proposed amendments would explicitly recognize that, for the purpose of both the civil and criminal false and misleading advertising provisions, the making of a representation of a price that is not attainable due to fixed obligatory charges or fees constitutes 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. This change is intended to decrease the resources needed to address what the Competition Bureau (the “Bureau”) has described as a “harmful practice”.
- Abuse of Dominance: The proposed amendments would define the term “anti-competitive act” to mean “any act intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, or to have an adverse effect on competition”. This would close a perceived loophole in which dominant firms could escape scrutiny when their conduct softens competition but does not have a negative effect on a competitor. The proposed amendments would also expand the list of anti-competitive acts in the Act to include “a selective or discriminatory response to an actual or potential competitor for the purpose of impeding or preventing the competitor’s entry into, or expansion in, a market or eliminating the competitor from a market”. This change is intended to address concerns by some regarding the impact of alleged anti-competitive conduct on emerging businesses.
- Private Access: The proposed amendments would expand rights to private access to the Competition Tribunal (the “Tribunal”) to abuse of dominance claims. Currently, only the Commissioner of Competition can commence an abuse of dominance claim, which is unlike the US context, where private monopolization claims can be brought. As with existing rights of private access under the Act, applicants would need to obtain leave from the Tribunal in order to have an application adjudicated by the Tribunal. Historically, it has been challenging for prospective applicants to obtain leave of the Tribunal, and it is unknown to what extent leave applications for abuse of dominance will be granted in the future. This change is intended to complement public enforcement by the Bureau in an area that appears particularly relevant to the digital economy. Historically, private access to the Tribunal has been restricted to refusal to deal, price maintenance, exclusive dealing, tied selling and market restriction.
- Factors to be Considered: The proposed amendments would add or expand on the factors that the Tribunal may consider under the abuse of dominance, merger and non-criminal competitor collaboration provisions when determining whether a practice, merger or agreement prevents or lessens competition substantially. Many of these factors, including the existence of network effects, the impact on non-price competition (such as quality, choice and consumer privacy) and the entrenchment of the market position of leading incumbents, are particularly relevant in the context of the digital economy.
- Evidence Gathering Powers: The proposed amendments would expand the scope of the Bureau’s evidence gathering powers under section 11 of the Act. In particular, the proposed amendments would permit a judge to (a) make an order against a person outside Canada who carries on business in Canada or sells products into Canada and (b) order that a corporation make and deliver a written return of information in the possession of an affiliate, whether located in Canada or outside Canada. These changes are intended to clarify and safeguard the Bureau’s ability to obtain all of the information necessary to support its enforcement investigations, including information held by foreign affiliates.
- Anti-Avoidance: The proposed amendments would add an anti-avoidance provision to Canada’s pre-merger notification regime. Pursuant to this change, if a transaction is structured so as to avoid application of the pre-merger notification provisions, the pre-merger notification provisions would apply to the transaction.
Impact of Proposed Amendments
The proposed amendments discussed above have been described as “low-hanging fruit” and are viewed as far less controversial than other potential amendments in the pipeline. That being said, these amendments would still have a tremendous impact on businesses going forward. For example:
- Businesses that engage in anti-competitive conduct under the criminal cartel, abuse of dominance, deceptive marketing practices and/or competitor collaboration provisions will potentially be subject to significantly greater fines and penalties than was the case in the past – in some cases up to 3% of their annual worldwide gross revenues.
- Employers that utilize no-poach agreements, including in the franchise context, will need to consider whether such agreements can be justified based on the ancillary restraints defence, failing which they may be considered per se illegal
- Retailers may need to revisit their pricing practices in order to ensure that they are not engaging in conduct that may be captured by the new drip pricing prohibition, as drip pricing would be deemed to constitute a false or misleading representation.
- Firms that can be considered dominant in one or more relevant markets could face increased scrutiny and the risk of costly private actions under the abuse of dominance provisions, which would potentially be compounded by the broader definition of “anti-competitive act”.
The proposed amendments suggest that Canada may be prepared to embrace more vigorous competition law enforcement than it has in the past. Given the consequences that can arise from the failure to comply with the Act and the significant expense associated with enforcement proceedings, businesses would be well advised to carefully review their existing practices and to either implement or update a competition law compliance program. This is particularly the case for businesses in the digital economy, given that most of the proposed amendments to the Act will impact them.
Next Steps
The proposed amendments discussed above represent the first step in a “comprehensive” review of the Act. The next step will likely include consideration of a package of much more controversial amendments that, if implemented, would fundamentally reshape competition policy in Canada. As discussed in more detail in the context of Senator Howard Wetston’s ongoing consultation on Canada’s competition policy framework, including in the discussion paper authored by Professor Edward Iacobucci and the submissions received from interested stakeholders, these could include, among others things, (a) changing the purpose clause of the Act; (b) further strengthening the merger review process, including adopting structural presumptions, revising the approach to the treatment of efficiencies and lowering the burden with respect to emerging competitor acquisitions in the digital economy; (c) further strengthening the abuse of dominance provisions for the digital economy, including adding provisions to deal with dedicated gatekeepers, self-preferencing and serial emerging competitor acquisitions; and (d) adding provisions allowing for market studies.
It is disappointing that the Government opted to proceed with the proposed amendments as part of an omnibus bill and without sufficient consultation and debate involving all relevant stakeholders. We hope that the Government is willing to engage in such consultation and debate as part of any further review of Act, particularly given the nature and scope of the changes that could be on the horizon.
If you have questions about the proposed amendments to the Competition Act, you can reach out to any member of Fasken’s Competition, Marketing & Foreign Investment group. Our group has significant experience advising clients on all aspects of Canadian competition law.
The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Competition, Marketing & Foreign Investment group.