From Crisis Cartels to COVID “Cures” to Merger Clearance: How the COVID-19 Pandemic is Challenging Canada’s Competition Laws

| 16 minutes

By The Competition/Antitrust & Foreign Investment Group of McCarthy Tétrault LLP

Canada’s Commissioner of Competition issued an open letter on March 18, 2020 addressing the COVID-19 crisis and outlining the Competition Bureau’s response to it. Acknowledging that we are in uncertain times, the letter first sought to reassure Canadians that the Bureau is still fully operational and “remains dedicated to doing its utmost to serve the public interest”. Below, we highlight the latest developments and provide some guidance for companies wondering what they are and are not allowed to do to weather the current economic storm.

Merger Clearance

Despite reassuring the market as to the Bureau’s continuing activity, the Commissioner acknowledged that he is instituting some changes to Bureau processes to respect social distancing recommendations and that this could lead to delays, especially in merger reviews and ongoing, non-urgent investigations. Already, we have seen delays in the Bureau’s ability to provide complexity designations in mergers and have been warned that reviews will likely take longer than normal, in part because of the difficulty the Bureau faces when trying to make market contacts. We expect these delays to continue, and merging parties would be wise to consider timing when negotiating outside dates in their agreements.

The Commissioner noted that, to confront these unprecedented circumstances, greater efforts would be made to “prioritize matters to maximize [its] resources and meet [its] service standards” and to “prioritize urgent marketplace issues that require immediate action to protect Canadians”. The Commissioner did not specify what would be prioritized, but given the extent of coordination between antitrust agencies, it is fair to assume that his priorities will reflect the priorities of the Bureau’s sister agencies in the U.S. and Europe.

Consumer Protection Measures

Initial reports from foreign agencies have emphasized the need to protect consumers, be that from fraud, to deceptive marketing, to price gouging or excessive pricing. In particular:

  • National agencies in Europe are taking swift action on reports of price gouging. Italy, for example, has opened investigations against Amazon and eBay for alleged misleading claims and excessive price increases, and have opened investigations over complaints regarding hand sanitizers and respiratory protection masks.[1]
  • The US Federal Trade Commission is monitoring health claims regarding treatment or cures for COVID-19 and is providing tips to “help keep scammers at bay”.[2]
  • The US Justice Department emphasized its “intention to hold accountable anyone who violates the antitrust laws of the United States in connection with the manufacturing, distribution, or sale of public health products such as face masks, respirators, and diagnostics”.[3]
  • California’s declared state of emergency triggered a prohibition against the price gouging of food, emergency supplies, medical supplies, gasoline, emergency cleanup services, hotel accommodations, and transportation.[4]

Although price gouging is not in and of itself within the Commissioner’s purview in Canada, deceptive marketing practices are, and were an enforcement priority area even before the onset of the crisis. Businesses should continue to exercise care in making health-related claims, and ensure that where such claims are made, they have conducted sufficient testing to substantiate any performance or efficacy claims. Further, businesses should ensure that they respect the rules regarding the advertising of sales and discounts, including the complex rules about ordinary selling price and what constitutes a ‘clearance’ or ‘sale’. Moreover, Canada’s Emergencies Act, which the Prime Minister has stated may be invoked, allows for the Federal Government to take measures regarding “the regulation of the distribution and availability of essential goods, services and resources”.[5] This could lead to similar pricing rules as have been invoked in California.

Crisis Cartels and Other Collaborations

We are also monitoring how the Bureau will approach some of the more structural issues the COVID-19 crisis presents for the economy. For example, some jurisdictions recognize the possibility of so-called “crisis cartels” that are entered into to mitigate a severe decline in sales or overstock, such as Article 15(5) of China’s Antimonopoly law, or Article 101(3) of Treaty on the Functioning of the European Union (TFEU) which allows for some information sharing among competitors regarding oversupply and undersupply so long as it “does not go beyond what is necessary to correct the market failure.” In a similar vein, reports out of Norway suggest that it has provided a three-month respite on prohibitions against horizontal cooperation in the transportation sector.

Canada does not have exemptions for “crisis cartels”. However, in light of the Commissioner’s stated goal of prioritizing urgent marketplace issues, there may be scope to work with the Bureau to ensure that competitor collaborations that, in normal times, could trigger antitrust enforcement activity, are tolerated for a period of time to avoid market failures. For example, avenues for collaboration may exist through legitimate joint ventures, or by obtaining advisory opinions from the Bureau in respect of potential courses of action. Furthermore, some combined efforts to merge critical resources or services among competitors to bring goods to market more efficiently can actually be procompetitive, if properly structured.

Outside such avenues, however, Canada’s price fixing and market allocation rules remain in force and carry the possibility of criminal sanction. This includes agreeing with competitors to limit supply or coordinate on pricing, including agreements that could be perceived as coordinated price gouging, controlling the production or supply of goods, or allocating markets, customers or territories. Any such activity is likely to attract the attention of the Bureau, and to be treated as a priority, especially in respect of essential products. This is in addition to the ever-present proliferation of competition class actions in Canada, where price-fixing and market allocation cases can be pursued as private actions and benefit from relatively low thresholds for class certification.

Accordingly, before your company engages in any coordinated or collaborative efforts with competitors to confront the COVID-19 crisis, it is as critical as ever that your decision-making be guided by sound advice as to what is and what is not permitted under the Competition Act.

[1] See: https://en.agcm.it/en/media/press-releases/2020/3/ICA-Coronavirus-the-Authority-intervenes-in-the-sale-of-sanitizing-products-and-masks.

[2] See: https://www.consumer.ftc.gov/blog/2020/02/coronavirus-scammers-follow-headlines.

[3] See: https://www.justice.gov/opa/pr/justice-department-cautions-business-community-against-violating-antitrust-laws-manufacturing.

[4] See: https://www.gov.ca.gov/wp-content/uploads/2020/03/3.4.20-Coronavirus-SOE-Proclamation.pdf and https://www.nytimes.com/2020/03/12/us/california-state-of-emergency.html.

[5]Emergencies Act (R.S.C., 1985, c. 22 (4th Supp.)), s. 8(1)(e).