New Criminal Cartel and Civil Competitor Agreement Provisions under the Competition Act Come into Force
When significant changes to the Competition Act were adopted in March 2009 as part of Bill C-10, the Budget Implementation Act, 2009,1 a one-year transitional period was provided before the coming into force of the amendments to the conspiracy provisions. This transitional period ended on March 12, 2010. The new per se criminal conspiracy offence and associated increased penalties, as well as the new civil provision for agreements between competitors, are now in force.
Per se Conspiracy Offence
Under the new Section 45, agreements among competitors and potential competitors to fix prices, allocate markets or restrict output are per se illegal. This means that the prosecution no longer has to demonstrate beyond a reasonable doubt that such agreements unduly lessen competition. The amendments therefore make it easier for the prosecution (and civil plaintiffs) to prove so-called "hard core" cartels.
The new provision provides a defence for ancillary restraints: parties to agreements may defend a charge if they can establish on a balance of probabilities that the agreement is ancillary and reasonably necessary to a broader agreement that is not within an impugned "hard core" category. The regulated conduct defence, which exempts conduct prescribed or authorized by a regulatory scheme, has also been expressly preserved.
The maximum fine for conspiracy has now been increased to $25 million (from $10 million), and the maximum prison term has been increased to 14 years (from five years).
Civil Competitor Agreement Provision
The Competition Act now provides a dual-track approach to competitor agreements. Agreements or arrangements among competitors and potential competitors other than agreements to fix prices, allocate markets or restrict output (such as joint ventures and strategic alliances) may be subject to review, but only if they substantially prevent or lessen competition. Under this new civil provision, the Commissioner of Competition may bring an application to the Competition Tribunal for an order prohibiting any person from doing anything under the agreement, but the conduct is not subject to criminal sanction or monetary penalties. The new civil regime provides for treatment similar to merger review, including an efficiencies defence that allows the parties to argue that the pro-competitive efficiencies resulting from the agreement outweigh its anti-competitive effects, and would not be attained if the Competition Tribunal were to issue a prohibition order.
Competition Bureau’s Guidelines
The Competition Bureau recently issued Competitor Collaboration Guidelines2 that describe the approach it will take in applying the new dual-track regime to agreements between competitors. The Guidelines indicate that the criminal conspiracy offence will apply only to agreements between competitors to fix prices, allocate markets and restrict output that constitute "naked restraints" on competition, i.e., restraints that are not implemented in furtherance of a legitimate collaboration between competitors such as a strategic alliance or a joint venture.
As indicated above, both the criminal and the civil provisions apply to agreements among competitors and "potential competitors." The Guidelines include a discussion on factors that the Bureau will consider in order to determine whether parties to an agreement are potential competitors, i.e., whether they are likely to compete with respect to a product in the absence of the agreement under consideration.
The Guidelines adopt a strict interpretation of the ancillary restraints defence. The Bureau states that it will conclude that a restraint on competition (i.e., price fixing, market allocation and output restriction) is not reasonably necessary to a broader agreement, for example a joint venture, if "the parties could have achieved an equivalent or comparable arrangement through practical, significantly less restrictive means that were reasonably available to the parties at the time when the agreement was entered into." While the Bureau indicates that it will not second-guess the parties with potentially less restrictive alternatives, the scope of the defence will inevitably be subject to interpretation.
The Guidelines also clarify some areas of uncertainty, for example by stating that vertical agreements between suppliers and customers, as well as dual-distribution agreements and franchise agreements, will be assessed under the civil, rather than criminal, provisions (except where such agreements are used to cover agreements among distributors or franchisees to fix prices or allocate markets). The Guidelines also confirm that the criminal price-fixing provision will only apply to agreements between sellers, and not to agreements between buyers.
Finally, the Guidelines discuss the potential application of the new civil regime to different types of agreements between competitors including: commercialization and joint selling agreements, information-sharing agreements, research and development agreements, joint production agreements, and joint purchasing agreements and buying groups.
McCarthy Tétrault Notes
While the intent of the new dual-track approach is to restrict application of the criminal provisions to "hard core cartels," questions remain as to how the new civil competitor agreement provisions will be applied.
If such exercise has not been completed during the one-year transitional period, all businesses operating in Canada should review their competition law compliance programs to prevent and detect potential violation of the new per se criminal conspiracy offence. Companies should also review their existing agreements with competitors and potential competitors, including strategic alliances and joint ventures, to determine whether they raise issues under the new civil provision, and carefully consider these issues before entering into future agreements with competitors. The McCarthy Tétrault National Competition/Antitrust Group can assist businesses in conducting these reviews.
1 For further information, please see the following McCarthy Tétrault LLP publication, "Government Enacts Sweeping Changes to Canada’s Competition and Foreign Investment Laws."
2 Available online: http://competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03177.html.