Executive Summary

This publication outlines the significant Canadian developments in the areas of competition and foreign investment law since January 2011 and identifies what to watch for in 2012.

• The Competition Bureau (Bureau) issued new guidance materials, including interpretation guidelines on waiting periods for hostile transactions, guidance on "no action" letters in merger review and revised Merger Enforcement Guidelines (MEGs).
• The Commissioner of Competition (Commissioner) challenged the first transaction since 2005, a completed merger in the hazardous waste industry in British Columbia (CCS Merger). The Commissioner is seeking dissolution of the transaction as the primary remedy.
• The Commissioner challenged a proposed joint venture and three "coordination agreements" between Air Canada and United Continental under the new civil competitor collaboration provision of the Competition Act (Act).
• In June 2011, the Bureau reached an agreement with Bell Canada (Bell) requiring Bell to refrain from making certain representations about the prices of certain services, and to pay an administrative monetary penalty of $10 million, the maximum allowed under the Act for this type of conduct.
• In November 2010, the Commissioner commenced legal proceedings against Rogers Communications (Rogers) and its subsidiary, chatr wireless (Chatr), for alleged misleading advertising. In her application, the Commissioner is seeking various orders against Rogers, including an administrative monetary penalty of $10 million and an order requiring payment of restitution to affected customers.
• In December 2010, the Bureau filed an application with the Competition Tribunal (Tribunal) under the new price maintenance provisions of the Act, challenging the rules that Visa and MasterCard apply to merchants who accept their credit cards.
• In May 2011, the Commissioner commenced proceedings against the Toronto Real Estate Board (TREB) alleging abuse of dominance for restricting how the TREB member agents can provide information from the Toronto Multiple Listing Service system (MLS system) to their customers.
• The British Columbia Court of Appeal found that indirect purchasers do not have a claim for damages resulting from anticompetitive conduct. Leave to appeal was granted by the Supreme Court of Canada. In November 2011, the Quebec Court of Appeal ruled that indirect purchaser claims are an evidentiary matter to be decided at trial.

Policy Development

A. Legislative developments

• On March 13, 2012, Bill C-10 received royal assent. Among other things, Bill C-10 includes reforms designed to restrict the use of conditional sentences. A conditional sentence is a sentence of imprisonment of less than two years that may be served in the community — for example, under house arrest — provided certain conditions are met. The list of offences for which conditional sentences will no longer be available includes indictable offences with a maximum prison term of 14 years or life. Further to the 2009 amendments to the Act, such offences include cartels and bid-rigging. This means that individuals sentenced to a jail term under the applicable provisions of the Act will now have to serve their term in jail.
• In February 2012, the Government of Canada introduced Bill C-30. This legislation would require telecommunications service providers to implement and maintain systems capable of lawfully intercepting communications in order to support Canadian law enforcement authorities, including the Bureau. When requested, telecommunications service providers would have to provide customer information (including name, address, phone number, email address and ISP address) to Canadian law enforcement authorities without the need for a warrant.

B. Bureau’s policies

• In October 2011, the Bureau issued its revised MEGs, which reflect current Bureau practices with respect to merger review. Although the MEGS were revised to better align with the recently amended U.S. Horizontal Merger Guidelines, they do not significantly change the Bureau’s substantive approach to merger review.

Notably, the revised MEGs state that market definition is an analytical tool rather than an end in itself, potentially reducing its role for determining the competitive effects of a merger. The revised MEGs also eliminate the two-year criteria for assessing potential entry, and explain that the Bureau will assess whether entry is likely to occur "in a reasonable period of time" and "quickly enough" so that competition is not likely to be substantially harmed. The revised MEGs also include an expanded and updated discussion of competitive effects, minority interests, countervailing power, non-horizontal mergers and efficiencies. Finally, they also discuss the Bureau’s treatment of interlocking directorates and minority interests.

• In August 2011, the Bureau released a summary of its internal study on the effectiveness of merger remedies obtained between 1995 and 2005. The Bureau found that structural remedies (i.e., divestitures) were the most common type of remedy sought for anticompetitive effects, but that an increasing number of behavioural remedies were also observed. The Bureau also announced its intention to use the results of the study to update the Bureau's Information Bulletin on Merger Remedies in Canada and its template for consent agreement.
• The Bureau also issued new guidance regarding the standard language parties can expect to see in a "no action" letter issued by the Bureau in the context of a merger review. The Bureau clarified that a "no-action" letter issued for a proposed transaction will no longer refer to the sufficiency of grounds to challenge. The revised language is intended to more accurately reflect the distinction between the discretionary issuance of an advance ruling certificate under section 102 of the Act and a "no-action" letter.
• In July 2011, the Bureau published three new interpretation guidelines relating to its merger review process into in relation to unsolicited or hostile transactions. The guidelines discuss the Bureau’s approach to the disclosure of confidential information and the application of waiting periods in the context of unsolicited bids.

Merger Review

• In the CCS Merger, the Commissioner brought her first merger challenge to the Tribunal since 2005. The case involves a completed merger in the hazardous waste industry in British Columbia which did not reach the notification threshold under the Act. The Commissioner alleges a prevention (not a lessening) of competition and is seeking dissolution as a remedy. In November 2011, the Tribunal dismissed a preliminary motion for a summary disposition filed by the vendor respondents. The case was heard in November 2011, and the Tribunal has reserved its decision.
• In June 2011, the Commissioner applied to the Tribunal to block a proposed joint venture between Air Canada and United Continental. According to the Commissioner’s application, the proposed joint venture would monopolize 10 passenger routes between Canada and the United States, and substantially reduce competition on nine additional routes, leading to increased prices and reduced consumer choice on passenger routes. As noted below, the Commissioner has also challenged certain agreements between Air Canada and United Continental under the new competitor collaboration provision of the Act. The respondents are opposing the application and the case is ongoing.
• With respect to the acquisition of Alcon, a company involved in the sale of ophthalmic products, by Novartis, the Bureau entered into a consent agreement with merging parties requiring certain divestitures.
• The pre-merger notification transaction-size threshold for 2012 increased to $77 million from the 2011 threshold of $73 million.

Criminal Matters

A. Conspiracy

• Further to the charges that were laid in June 2008 and July 2010, a number of individuals and companies pleaded guilty and were fined in relation to retail gas price-fixing in the Province of Québec. The case is ongoing.
• Pleas were also entered into in relation to a conspiracy to allocate customers for the sale of refrigeration and food service equipment components in Canada and the U.S. The Canadian company involved in the cartel was fined $250,000 by the Canadian Federal Court.
• In January 2012, the Bureau announced that a company and its affiliate pleaded guilty and were fined a total of $12.5 million for participating in a price-fixing cartel for polyurethane foam. Both companies admitted that they had agreed with competitors to fix the price of polyurethane foam products manufactured at their plants in Brampton, Ontario; Delta, British Columbia; and Montréal, Québec, over a period of 11 years. This is the first conviction under the new conspiracy provision of the Act, which came into force in March 2010.

B. Bid-rigging

• A company pleaded guilty to three charges of bid-rigging, and was fined $425,000 for its role in an agreement to rig bids for private sector ventilation contracts for residential highrise buildings in the Montréal area.
• In November 2011, charges were laid against six companies and five individuals accused of rigging bids for municipal and provincial contracts for sewer services in the greater Montréal area. One of the six companies charged pleaded guilty for its role in the bid-rigging scheme, and was fined $75,000.

C. Deceptive telemarketing

• In August 2011, five individuals were sentenced by an Alberta court for their involvement in a cross-border deceptive telemarketing scheme promoting business directories. The individuals were convicted of deceptive telemarketing under the Act and of committing fraud over $5,000 under the Criminal Code.
• In September 2011, five individuals and four companies were charged with deceptive telemarketing and misleading representations under the Act, and fraud under the Criminal Code for their role in a scheme that marketed directories, subscriptions to online directories, office supplies and medical kits at inflated prices.

Reviewable Matters

A. Competitor collaborations

• In addition to challenging the joint venture between Air Canada and United Continental under the merger provisions of the Act, the Commissioner is challenging three "coordination agreements" between the same parties under section 90.1, the new civil competitor collaboration provision of the Act; this is the first case brought under that provision. According to the Commissioner’s application, the agreements allow Air Canada and United Continental to coordinate price, inventory, marketing and scheduling across their networks, share net revenues, and provide reciprocal access to each of their respective frequent flyer programs; therefore allowing the companies to set prices above competitive levels on 19 passenger routes between Canada and the United States. The respondents are opposing the Commissioner’s application.

B. Price maintenance

• In December 2010, the Bureau filed an application with the Tribunal under the new price maintenance provisions of the Act, challenging the rules that Visa and MasterCard apply to merchants who accept their credit cards. The Commissioner alleges that these rules have lessened competition between Visa and MasterCard for merchants' acceptance of their credit cards, and have resulted in increased costs to businesses and consumers owing to the merchants’ practice to pass along the costs they pay to accept credit cards. The respondents dispute these allegations and the case is scheduled for hearing in May 2012.

C. Abuse of dominance

• In May 2011, the Commissioner initiated abuse of dominance proceedings against the TREB for allegedly restricting how TREB member agents can provide information from the Toronto MLS system to their customers. According to the Commissioner's application, TREB member agents are not permitted to provide their customers with direct access to the complete TREB MLS system, nor to disseminate the more detailed information to their customers via searchable websites. The Commissioner alleges that TREB’s rules deny TREB member agents the ability to provide innovative brokerage services over the Internet. TREB disputes these allegations and the case is scheduled for hearing on September 10, 2012.

D. Deceptive marketing

• In June 2011, the Commissioner entered into a consent agreement with Bell, requiring Bell to refrain from making certain representations about the prices of certain services, and to pay an administrative monetary penalty of $10 million, the maximum allowed under the Act for this type of conduct. The Bureau alleged that Bell had advertised prices that were not in fact available, as additional mandatory fees were in fine print disclaimers, and that such representations contravened the misleading advertising provisions of the Act.
• In November 2010, the Commissioner commenced legal proceedings against Rogers and its subsidiary Chatr for alleged misleading advertising relating to Rogers’ marketing materials and advertising that the service had "fewer dropped calls than new wireless carriers." The Commissioner’s application is scheduled to be heard by the Superior Court of Ontario in June 2012. The Superior Court’s decision will likely provide an important precedent for applications under the reviewable matters provisions of the Act, given that the Commissioner is seeking payment of an administrative monetary penalty of $10 million, the maximum allowed under the civil provisions of the Act. The Commissioner is also seeking, for the first time since the Act was amended in 2009, an order requiring restitution to affected customers. In defence, Rogers has asked the Court to strike down the provision which requires that "adequate and proper" tests of a product's performance be conducted before advertising performance claims, on the grounds that it violates its freedom of expression. Rogers is also challenging the constitutionality of the sections of the Act that provide for administrative monetary penalties in civil reviewable matters.
• Under the terms of a consent agreement, Nivea, a beauty product company, agreed to remove its products from Canadian shelves, to pay an administrative monetary penalty of $300,000, and to refund the purchase price and shipping costs to Canadian customers with respect to false and misleading claims in relation to slimming and reshaping products.
• The Commissioner entered into two additional consent agreements in relation to false and misleading representations made by spa retailers in relation to energy efficiency claims.

Class Actions

• In December 2011, the Supreme Court of Canada granted leave to appeal from two companion class action certification decisions of the British Columbia Court of Appeal, the Microsoft and Sun-Rype cases, which involve claims for damages brought by indirect purchasers of products affected by alleged anticompetitive conduct. The central issue to be decided by the Supreme Court is whether indirect purchasers have a right of action. The appeal also includes other issues in relation to economic torts. The majority of the British Columbia Court of Appeal ruled that indirect purchasers do not have a right of action, adopting the reasoning of the U.S. Supreme Court in its 1977 decision Illinois Brick Co. v. Illinois. Canadian jurisprudence on this subject is currently in conflict as other recent decisions out of British Columbia, Québec and Ontario have certified classes that include indirect purchasers.
• In November 2011, the Québec Court of Appeal reversed the trial judge and certified a class action in the DRAM case. The Court held that indirect purchaser claims are an evidentiary matter to be decided at trial. Leave to appeal is being sought to the Supreme Court of Canada.
• In the Québec class action against retail gas operators and employees, which was authorized in November 2009, the Superior Court issued a number of rulings, including sealing orders preventing the disclosure of statements of defence and transcripts of discovery for examination conducted by the parties. The Court also ordered the Director of Public Prosecution to communicate to the plaintiff all public documents included in the disclosure file, and to implement a filtering process to review the other non-public documents, with the exception of wiretap records. The class action is ongoing.

Foreign Investment

• Industry Canada announced that the Investment Canada Act threshold for 2012 applicable to most direct acquisitions of Canadian businesses by non-Canadian investors from World Trade Organization (WTO) member countries is $330 million (an increase from last year’s $312 million-threshold). The threshold applies to the gross book value of the target’s assets. Under the Investment Canada Act, a non-Canadian includes a Canadian-incorporated entity that is ultimately controlled outside of Canada. The lower threshold of $5 million continues to apply to direct investments that relate to cultural businesses or where none of the non-Canadian parties comes from a WTO member country. On a date still to be fixed, new regulations under the Investment Canada Act will come into force dramatically increasing the $330-million threshold to $600 million, $800 million and $1 billion over the next six years, with further increases based on a prescribed formula. When the new regulations come into force, the threshold calculation will be based on "enterprise value," a term that has yet to be defined.
• In January 2012, the Canadian minister of industry announced the settlement of his lawsuit against U.S. Steel. The Minister accepted new commitments from U.S. Steel and requested that the Attorney General of Canada discontinues the court action against U.S. Steel. In 2007, U.S. Steel acquired Stelco Inc. The acquisition was subject to review and approval under the Investment Canada Act. As part of the approval process, U.S. Steel gave undertakings (including production and employment commitments) to satisfy the Canadian government that the acquisition was likely to be of net benefit to Canada. In March 2009, U.S. Steel shut down two Canadian plants, citing market conditions as forcing the closures and layoffs. In July 2009, the Canadian government, applied to court for an order requiring U.S. Steel to comply with its undertakings on production and employment. This was the first time that the Canadian government had sought a court order to enforce undertakings under the Investment Canada Act.

What to Watch for in 2012

• New jurisprudence on mergers and reviewable matters, including in relation to the CCS Merger, the Air Canada and United Continental proposed joint venture and "cooperation agreements," the Visa/MasterCard price maintenance case and the TREB abuse of dominance case.
• New jurisprudence on misleading advertising in the Rogers case.
• Application and interpretation of recently published revised MEGs.
• Clarity on class action jurisprudence involving indirect purchasers claims.
• Increased scrutiny of non-notifiable transactions.
• Legislative developments in relation to Bill C-10 and Bill C-30.
• Impact of Bill 35 of the Québec Legislature, An Act to prevent, combat and punish certain fraudulent practices in the construction industry and make other amendments to the Building Act, which bans any company convicted of fraud or a criminal offence during the previous five years to bid or work on public contracts for a five-year period.