The Public Competition Enforcement Review: Canada
Commissioner Matthew Boswell (the Commissioner), who leads the Canadian Competition Bureau (the Bureau), continues to encourage compliance with the Competition Act (the Act), and to prioritise competition law enforcement as a means to protect Canadians from anticompetitive conduct. Despite the uncertainties created by the covid-19 pandemic, the Bureau remains focused on advancing its efforts to detect anticompetitive conduct early through intelligence gathering, and continues to modernise its policies, promote competitive outcomes in regulated industries, and collaborate with competition authorities in other legal areas and jurisdictions.
The Bureau consistently identifies the detection and remedying of conspiracies, cartels and bid-rigging, especially for infrastructure contracts, as among its most important commitments. The conspiracy (Section 45) and bid-rigging (Section 47) provisions of the Act are criminal offences with serious monetary and jail penalties for convicted offenders. There is no limitation period for these offences.
i Significant cases
A summary of recent notable cases where the Bureau has taken enforcement action in respect of cartels and bid-rigging are set out below.
Bureau closed cartel investigation into Postmedia and Torstar
In January 2021, the Bureau announced that it had closed its investigation into allegations that Postmedia and Torstar (including its subsidiary, Metroland Media Group) had contravened the conspiracy provision of the Act by entering into an agreement to swap 41 newspapers and then close 36 newspapers. In March 2018, the Bureau conducted a dawn raid at the offices of Postmedia, Torstar and Metroland Media Group and in November 2018, the Bureau obtained a court order requiring former and current employees of Torstar be examined under oath. After reviewing the available evidence, the Bureau determined no enforcement action was necessary. Throughout the Bureau's investigation, the parties maintained their transaction had not contravened the Act.
Bid-rigging for municipal contracts in Quebec
In 2020, the Bureau concluded investigations of Roche ltée, Groupe-conseil (now Norda Stelo Inc), SNC-Lavalin, Génius Conseil Inc and CIMA+ in respect of their roles in bid-rigging schemes targeting municipal contracts, including for infrastructure projects, in Quebec. To date, there have been six settlements related to the Bureau's ongoing investigation into bid-rigging for municipal contracts in Quebec. Collectively, CIMA+, Dessau, Genivar (now WSP Canada), Roche ltée, Groupe-conseil, SNC-Lavalin, and Génius Conseil Inc have been ordered to pay more than C$12 million in fines. In 2018, four individuals who held senior positions with CIMA+, Genivar and Dessau were charged, and in 2019, all four individuals pleaded guilty for their roles in the scheme. Cumulatively, they received conditional sentences totalling five years and 11 months, and court-ordered community service totalling 260 hours.
Packaged bread price-fixing agreement
In 2017, the Bureau conducted dawn raids at the offices of seven bread wholesalers and grocery retailers in a criminal investigation into the alleged price-fixing of packaged bread products. In court filings, the Bureau alleged that bread wholesalers Canada Bread and Weston Bakeries communicated with one another to set bread prices that retailers then agreed to pass through to consumers. These retailers were Loblaw Companies Ltd (whose parent company, George Weston Ltd, owns Weston Bakeries), Walmart Canada Corp, Sobeys Inc, Metro Inc and Giant Tiger Stores Ltd.
In December 2017, George Weston and Loblaw publicly admitted to their participation in what the companies say has been an industry-wide arrangement over the past 14 years to coordinate and fix the price of bread, and identified themselves collectively as the immunity applicant in this case. According to documents released by the Ontario Superior Court of Justice, the investigation alleged that prices were increased at least 15 times over this time period, in a pattern known as the 7/10 convention – seven cents more at wholesale and 10 cents more for consumers in stores.
The Bureau has not offered a timeline for when charges may be laid, and in early 2018, publicly clarified that there was no conclusion of wrongdoing at that time. At the time of writing, class action lawsuits have been launched against the implicated companies seeking more than C$1 billion in damages.
ii Trends, developments and strategies
The Bureau published covid-19 related guidance in respect of competitor collaborations, which is discussed in Section III.ii, below.
In 2020, the Bureau published a statement about how the Act applies to no-poaching, wage-fixing and other buy-side agreements. While the Bureau recognised that certain buy-side agreements are anticompetitive and have no pro-competitive consequences, the Bureau confirmed that the conspiracy provision (Section 45) does not apply to buy-side agreements because the 2009 amendments to Section 45 removed the word 'purchase' from the provision, which limited its scope to supply-side agreements. Instead, the Bureau may assess buy-side agreements under the provision of the Act regarding civil restrictive agreements among competitors (Section 90.1). The Bureau's statement affirmed long-standing advice provided in the private competition bar that, unlike in the United States, no-poach, wage-fixing and other buy-side agreements are not criminal offences in Canada. The Bureau indicated that it would provide further guidance about how it will assess buy-side agreements in the forthcoming revised Competitor Collaboration Guidelines.
In 2018, the Bureau published revised immunity and leniency programmes under which a party that reveals the existence of criminal conduct and cooperates may be granted immunity or leniency from prosecution. Under the revised programmes, immunity is withheld until the applicant's cooperation and assistance is no longer required. In practice, this would result in applicants only benefiting from a provisional grant of immunity (instead of a final grant of immunity) for the long periods of time typically associated with cartel investigations, and potentially up until the applicant has testified at the trial of alleged co-conspirators. This change addresses the risk that, following the initial application, the applicant may reduce or cease the extent of its cooperation. Prosecutors faced this challenge in a prior bid-rigging trial where a cooperating witness who benefited from the Bureau's programmes provided testimony that was different from what the Bureau expected. The programmes no longer automatically protect directors, officers and employees of the immunity or leniency applicant. Instead, such individuals need to demonstrate their personal knowledge of the alleged wrongdoing and their willingness to cooperate with the Bureau's investigation to obtain protection. The directors, officers and employees of the leniency applicants are offered more narrow protections than those of the immunity applicants. Another significant change allows the Bureau to interview witnesses under oath and to video or audio-record those interviews (as well as corporate proffers). Finally, all applicants are now required to provide confidentiality waivers allowing the Bureau to communicate with competition authorities in other jurisdictions where the applicant is applying for immunity or leniency.
While the immunity and leniency programmes provide incentives for parties to unlawful conduct to self-report, these changes may render the Bureau's premier cartel detection tool less attractive, particularly for potential applicants who are considering the cooperation requirements of competition authorities in different jurisdictions. Indeed, since immunity and leniency programmes have been revised, the number of immunity and leniency markers granted to applicants has decreased. With the general decline in the perceived attractiveness of immunity and leniency programmes around the world, companies should consider carefully the advantages and risks associated with availing themselves of the Bureau's updated immunity and leniency programmes.
Given the Bureau's focus on the detection, investigation, prosecution and punishment of cartels and bid-rigging matters, companies should continue to give significant attention to ensuring compliance with applicable laws and to treat all potential violations seriously. Companies should note that the Bureau considers having a corporate compliance programme, which conforms to its Corporate Compliance Programs Bulletin, to be a mitigating factor in sentencing and will recommend a reduced sentence for companies with such a programme.
In cases of possible international conduct, coordination with counsel in other jurisdictions should be considered as early as possible. This is particularly relevant for cross-border conduct; Canada has a mutual legal assistance treaty and extradition treaty with the United States that can be used in cross-border criminal investigations. Above all else, it is critical for companies, especially those considering international conduct, to understand how the Bureau's immunity and leniency programmes operate, and how it may affect the companies' interests under the programmes of non-Canadian competition authorities and potential civil suits.
Antitrust: restrictive agreements and dominance
The Act contains civil (i.e., non-criminal) provisions relating to abuse of dominance (Sections 78–79), restrictive agreements among competitors (Section 90.1) and various distribution practices, including refusal to deal, price maintenance, exclusive dealing, tied selling and market restrictions (Sections 75–77). These provisions, which are collectively known as 'reviewable practices', permit the Commissioner to seek an order from the Competition Tribunal (the Tribunal), where the Commissioner must demonstrate that the reviewable practice is, or is likely to have an anticompetitive effect. The Tribunal has the power to make remedial orders in respect of each provision, but may only impose an administrative monetary penalty (of up to C$10 million for a first order, and C$15 million for subsequent orders) in respect of abuse of dominance.
i Significant cases
Enforcement action in respect of the reviewable practices provisions of the Act continues to be a high priority for the Bureau. A summary of recent notable cases are set out below.
Bureau investigation into Amazon
The Bureau is investigating Amazon under the restrictive agreements and dominance provisions of the Act, with a focus on abuse of dominance (Section 79). The Bureau is examining whether Amazon is engaging in conduct on Amazon.ca that has a negative impact on competition for Canadian consumers and companies that do business in Canada. In August 2020, the Bureau publicly announced its investigation and sought feedback from market participants about Amazon's policies that impact third-party sellers' willingness to sell their products at a lower price on other retail channels (e.g., their own websites or other online platforms); whether third-party sellers can succeed on Amazon's marketplace without using the 'fulfilment by Amazon' service or advertising on Amazon.ca; and Amazon's efforts or strategies to influence consumers to buy Amazon's products over those offered by competing sellers.
Like other competition authorities such as the European Commission, Germany's Bundeskartellamt, and the United States Federal Trade Commission (and state attorney generals), the Bureau is increasingly focusing on the conduct of 'big tech' companies such as Amazon and competition in online marketplaces or platforms. At the time of writing, Amazon has indicated that it is cooperating with the Bureau's ongoing investigation.
Bureau inquiry into Otsuka Canada Pharmaceutical Inc and Inquiry into Celgene, Pfizer and Sanofi
In 2019, the Bureau initiated an inquiry into Otsuka Canada Pharmaceutical Inc (Otsuka) after receiving a complaint alleging that Otsuka restricted a generic manufacturer from accessing samples of its branded drug Jinarc, the only pharmacological therapy approved in Canada for the treatment of autosomal dominant polycystic kidney disease, and that these actions prevented or delayed the entry of competing generic drugs in the market. Without access to samples of branded drugs (known as Canadian Reference Products (CRPs)), generic manufacturers cannot conduct bioequivalence testing, and often cannot receive the necessary regulatory approval to market their generic versions of the drug. As part of its investigation, the Bureau sought a Section 11 order against Otsuka, after which Otsuka agreed to provide samples of Jinarc to the generic manufacturer prompting the Bureau to close its inquiry before obtaining the Section 11 order.
In announcing the end of the inquiry, the Bureau noted it remains very concerned that branded manufacturers have continued to restrict access to samples of branded drugs despite the Bureau's previous investigations and guidance to the pharmaceutical industry. The Bureau recently closed multi-year inquiries into the policies and practices of Celgene, Pfizer and Sanofi, which allegedly restricted generic drug manufacturer's access to samples of their branded drugs contrary to the abuse of dominance provision of the Act. The Bureau warned that it will treat any explanation for branded drug manufacturers' failure to supply generic drug manufacturers with CRPs in a timely manner with an 'extremely high degree of scepticism' and, even if CRPs are eventually supplied after an initial delay, the Bureau will address past anticompetitive conducting, including by seeking administrative monetary penalties.
The Commissioner of Competition v. Vancouver Airport Authority
In 2019, the Tribunal dismissed the Commissioner's application against Vancouver Airport Authority (VAA) under the abuse of dominance provision of the Act. The Commissioner subsequently announced that he would not appeal the Tribunal's decision.
In 2016, the Commissioner brought an application against VAA before the Tribunal alleging that VAA engaged in anticompetitive conduct because it decided not to grant a licence to a firm that wished to begin supplying in-flight catering to airlines at the Vancouver airport (YVR). VAA denied the Commissioner's allegations; VAA explained that it had no anticompetitive purpose – it decided not to permit additional in-flight caterers at YVR in order to maintain healthy competition between the two full-service caterers already operating at the airport, and its decision did not unduly lessen competition. The Commissioner sought an order from the Tribunal requiring VAA to grant additional licences to in-flight caterers.
In advance of the hearing, the Commissioner was required to produce documents to the defendant. In this matter, the Commissioner produced a large volume of documents, but asserted 'public interest privilege' over the vast majority of these documents and refused to produce them to VAA. In series of a pre-hearing motions, the Tribunal upheld precedents determining that, in non-criminal proceedings before the Tribunal, the Commissioner did not have to produce any documents or information gathered from third parties in the course of the investigation by relying upon a blanket 'public interest privilege'. VAA successfully appealed the Tribunal's decision to the Federal Court of Appeal. The Federal Court of Appeal abolished the class-based public interest privilege. The decision, which will apply in all contested proceedings before the Tribunal in the future, only allows the Commissioner to assert public interest privilege on a case-by-case basis (i.e., to specific documents). Such assertions of privilege, which will be fact-specific, are more likely to result in a fair process before the Tribunal.
In 2019, the Tribunal dismissed the Commissioner's application on the merits. The Tribunal determined that the Commissioner could not meet two of the three prongs of the abuse of dominance test, namely it found that VAA had not engaged in a practice of anticompetitive acts and that the Commissioner did not prove that VAA's conduct resulted in any substantial lessening of competition (in terms of both price and quality).
The decision is notable for at least two reasons going beyond the specific facts of the case. First, the decision sheds light on whether a firm that supplies inputs to competitors in a market, but does not itself operate in that market, could be held to have abused a dominant position in that market. In a prior case, the Tribunal held that the firm must have a 'plausible competitive interest' in the market (as distinguished from a 'garden variety' refusal to supply) as a prerequisite to finding an abuse of dominance. The Tribunal's latest decision clarified the concept of 'plausible competitive interest' in an impugned market. VAA acted as a market gatekeeper by exercising control over and setting the rules of a market, but did not compete in the market for in-flight catering. The Tribunal's decision set a low bar for the competitive interest that a market gatekeeper must have for the Commissioner to pursue enforcement action, which suggests that many platform operators could face scrutiny about their business decisions from the Commissioner. The Tribunal decision could also have implications for the essential facilities doctrine in Canada; the same analytical framework could theoretically be applied to digital platforms to ensure that the competition they manage on their platforms is consistent with standards under the Act (which have yet to be articulated by the Bureau or the Tribunal).
Second, the decision was the first time that the Tribunal considered and opined on the regulated conduct defence (which is similar to implied antitrust immunity and the state-action immunity doctrine in the United States). In theory, the regulated conduct defence allows businesses to justify their conduct because it was required or compelled by law. While the regulated conduct defence has been used in criminal matters under the Act, the Tribunal determined that the defence could not be extended to the abuse of dominance provision of the Act because the provision does not contain the type of 'leeway' language that courts in other circumstances have identified when deciding that federal law should not operate to impugn conduct authorised by provincial or other federal law. Despite this finding, the Tribunal also concluded that the regulated conduct defence would not apply because the VAA's governing legislation did not specifically require or compel VAA to limit the number of in-flight caterers operating at the airport.
ii Trends, developments and strategies
In response to the covid-19 pandemic, the Bureau published a statement on competitor collaborations, which recognised that the pandemic may create a need for rapid business collaborations of limited duration and scope to ensure the supply of products and services that are critical to Canadians. The Bureau indicated that if there is a 'clear imperative' for companies to collaborate in the short-term to respond to the crisis, and collaborations do not go further than what is needed and are undertaken and executed in good faith, then the Bureau would 'generally refrain from exercising scrutiny'. The Bureau emphasised that it has zero tolerance for any attempts to abuse the flexibility or guidance offered in responding to the covid-19 pandemic as 'cover for unnecessary conduct' that would contravene the Act. To date, the Bureau has not issued any public guidance on specific cases and has confirmed at industry events that no businesses had yet sought guidance from the Bureau on competitor collaborations under its statement.
In July 2020, the Bureau published a draft of its revised Competitor Collaboration Guidelines, and sought feedback from interested parties to provide comments on the draft. The updates reflect the Bureau's experience with competitor collaboration reviews, and relevant decisions of the Tribunal and courts. Significant updates included providing more context about the types of the evidence the Bureau will consider when assessing whether companies are competitors, clarifying the circumstances where the Bureau will investigate agreements between competitors under the cartel provisions of the Act and revising examples of conduct that may raise concerns. At the time of writing, the Bureau has not released the final version of the revised Competitor Collaboration Guidelines.
Like other jurisdictions, the Bureau is taking steps to ensure it is at the forefront of and fostering a culture of competition in the digital economy. In August 2020, the Bureau released a toolkit to help government policymakers assess the competitive impact of new and existing policies, and tailor such policies to maximise the benefits of competition in the economy, including the digital sector. The Bureau also hosted its first Digital Enforcement Summit with Canadian and international participants who shared best practices and discussed new solutions, tools and strategies for tackling emerging enforcement issues. Companies should expect the Bureau to detect and conduct sophisticated investigations into alleged anticompetitive conduct in the digital economy, including in financial services, and online marketing.
The Bureau continues to seek document and data production, witness examinations and other orders under Section 11 of the Act to investigate reviewable practices. In 2020, the Commissioner sought and obtained orders for production and written returns from seven agricultural manufacturers and wholesalers to support its investigation into whether they have anticompetitively refused to supply or restricted supply to the Farmers Business Network Canada, an online supplier of agricultural products. Responding to Section 11 orders can be an expensive and time-consuming process that requires the target company and others involved in an inquiry to make extensive documentary and data production. The use of this investigative tool increases the likelihood of greater public attention and interest in the Bureau's inquiry, given the public filings in the Court's record.
The Bureau remains committed to investigating and bringing enforcement actions for reviewable matters in all sectors of the economy, with a particular focus on digital, pharmaceutical and other consumer facing sectors. As the Bureau remains focused on carefully selecting matters for investigation (and potential enforcement action), companies should ensure their business practices are compliant with all applicable laws. In particular, companies operating in and adjacent to the digital economy should be cognisant of the Bureau's ongoing efforts as their investigations and potential enforcement actions are likely to involve or implicate the digital economy.
Sectoral competition: market investigations and regulated industries
The Bureau conducts market studies to examine an industry or business sector from a competition perspective to identify relevant laws, policies, regulations or other factors that may impede competition.
i Significant cases
Canada's digital healthcare sector
The Bureau is conducting a market study examining to support the digital healthcare across Canada through pro-competitive policies. The covid-19 pandemic has demonstrated the important role that digital solutions play in meeting Canadians' healthcare needs. The Bureau states that it aims to promote the adoption of policies that achieve legitimate policy goals without inadvertently limiting the entry, expansion or consumer adoption of new products and services. The Bureau invited Canadians to comment on the digital healthcare sector to learn more about Canadians' experiences accessing and using digital healthcare service to understand the factors that may be impeding access to digital healthcare, or limiting innovation and choice in Canada's healthcare sector, and identify possible opportunities for change. At the time of the writing, the Bureau has not released its final report.
Canadian Radio-television and Telecommunications Commission's review of mobile wireless services
In 2020, the Bureau made its final submission to the Canadian Radio-television and Telecommunications Commission's (CRTC) review of mobile wireless services. The Bureau has long taken the position that Canadians would benefit from greater competition between national and regional cellphone providers. The Bureau determined that prices can be more than 50 per cent lower for all cellphone users in markets where national carriers face strong competition from regional carriers. The Bureau again recommended that the CRTC pursue a Mobile Virtual Network Operator policy where national carriers would sell temporary access to their wireless networks to regional carriers who plan to invest and further expand their own networks. The Bureau's submissions reflect its longstanding position that Canadians would benefit from greater competition in certain regulated industries.
ii Trends, developments and strategies
The Bureau remains focused on understanding and promoting competition in industries that matter the most to Canadians. Since the Bureau has no ability to compel third parties to provide information for a market study, the Bureau relies on publicly available information, information already in its possession and information provided by stakeholders on a voluntary basis. Where appropriate, companies should consider participating in market studies so that the Bureau understands an industry from the 'business' perspective. Any voluntary information provided to the Bureau is protected by the confidentiality provisions in Section 29 of the Act (which protects information from disclosure except under certain limited circumstances), and is subject to the Bureau's Communication of Confidential Information under the Competition Act Bulletin.
The Bureau will continue to use market studies as a tool to understand how competition can be increased in a given industry or sector. The Bureau can be expected to focus market studies on those markets that may be held back by a perceived lack of competition, including digital, telecommunications, wireless and health sectors, as well as those that directly impact Canadian consumers.
The Bureau reviews a wide range of mergers, including acquisitions of assets or shares, amalgamations and other combinations to determine whether a merger is or is likely to substantially lessen or prevent competition in Canada. Subject to certain exceptions, parties to a proposed merger that exceeds certain financial thresholds are required to notify the merger to the Commissioner. The Commissioner retains jurisdiction to substantively review all mergers in Canada, even those that fall below the pre-merger notification financial thresholds. The Commissioner may challenge a merger for up to one year after it has been completed by filing an application with the Tribunal requesting an order to dissolve the merger or divest assets or shares or, with the consent of the merging parties, any other action.
A pre-merger notification filing is required where both of two financial thresholds, which are colloquially referred to as the 'size of target' and 'size of parties' thresholds, are exceeded.2 For 2020, the 'size of target' threshold was C$96 million, and is adjusted annually for inflation. The 'size of target' threshold is exceeded where the aggregate value of the assets in Canada that are to be acquired, or the gross revenues from sales in or from Canada generated from those assets exceed the threshold. The 'size of parties' threshold is exceeded where the parties to the proposed merger, together with their respective affiliates, have either assets in Canada, or had gross revenues from sales in, from or into Canada that exceed C$400 million in aggregate value. The 'size of parties' threshold counts the vendor's assets and revenues, even if not included in the transaction.
If a proposed merger is notifiable, then it may not be completed until the parties file complete notifications, and the 30-day statutory waiting period has expired, been terminated early or the Commissioner has waived the obligation to submit a notification. The merger may be completed upon the expiry of the first waiting period unless the Commissioner issues a supplementary information request (SIR) to the parties. If a SIR is issued, then the merger cannot be completed until 30 days after the parties comply with the SIR, and provided that the Tribunal has not issued an order prohibiting the parties from completing the transaction. SIRs are issued in complex matters where the Bureau must conduct an in-depth analysis of whether the proposed merger will substantially lessen or prevent competition. As a result, the Commissioner's substantive assessment of a proposed merger may extend beyond the statutory waiting period and the parties may choose not to complete the transaction until after the Commissioner's review is complete.
i Significant cases
The Bureau reviews all types of transactions, including domestic and multinational transactions, where there are significant assets or sales in Canada. Many of these reviews have resulted in consent agreements requiring the divestiture of assets or other behavioural commitments. Recent notable cases are summarised below.
Air Canada and Transat AT Inc
In June 2019, Air Canada and Transat AT Inc (Transat) announced that they entered into an arrangement agreement whereby Air Canada would acquire all of the issued and outstanding shares of Transat. As the proposed merger involved two Canadian airlines, it was subject to pre-merger notification under the Act and public interest review under the Canada Transportation Act.
The Minister of Transport initiated a Phase II public interest review for the proposed transaction (only the second Phase II review ever conducted), which limits the Commissioner's jurisdiction to take enforcement action in respect of the proposed transaction. As part of the public interest review, the Commissioner provided a report to the Minister of Transport regarding the potential prevention or lessening of competition that may result because of the merger. The report concluded that the proposed merger is likely to result in a substantial lessening or prevention of competition in the provision of leisure air travel and vacation packages. By eliminating rivalry between Air Canada and Transat, the proposed merger would result in increased prices, less choice, decreased service, and a significant reduction in travel by Canadians on 83 routes where the parties' existing networks overlap, including 22 routes where the merging parties are the only two carriers offering non-stop service. Despite recognising that the covid-19 pandemic disrupted the Canadian airline industry, the competitive effects analysis relied on a forward-looking analysis that used data and information collected before the covid-19 pandemic.
Transport Canada was required to provide its public interest assessment to the Minister of Transport in May 2020, after which, the Governor in Council (Federal Cabinet) will make the final decision as to whether the proposed merger is in the public interest as it relates to national transportation. Given the competition concerns raised by the proposed merger, it is widely expected that in order to receive public interest approval from the Federal Cabinet that Air Canada will be required to give certain undertakings or make divestitures to remedy the Commissioner's competition concerns. At the time of writing, the Governor in Council has not made a decision as to whether the merger is in the public interest.
The proposed transaction is also subject to review by the European Commission, which has initiated a Phase II in-depth investigation. At the time of writing, the European Commission has not yet released a decision.
Evonik Industries AG and Peroxychem Holding Company LLC
In 2018, Evonik Industries Inc (Evonik), a specialty chemical manufacturer, agreed to acquire Peroxychem Holding Company LLC (PeroxyChem), a manufacturer of hydrogen peroxide, peracetic acid and persulfates. The Bureau's Merger Intelligence and Notification Unit (MINU) became aware of the proposed merger through a complaint from a customer in the pulp and paper industry, and initiated a substantive inquiry. The Bureau determined that the loss of rivalry resulting from the proposed merger would likely substantially lessen competition for the supply of hydrogen peroxide in Western Canada. In January 2020, the Commissioner and Evonik entered into a registered consent agreement with the Tribunal requiring Evonik to divest PeroxyChem's hydrogen peroxide manufacturing facility in Prince George, British Columbia.
The Bureau coordinated extensively with the United States Federal Trade Commission (the US FTC) throughout its merger review as the merging parties' facilities located in Western Canada supply customers in both Western Canada and the Pacific Northwest, United States. In August 2019, the US FTC issued an administrative complaint and filed a request for a temporary restraining order and preliminary injunction to prevent the merger from closing. The US FTC sought the divestiture of the Prince George, British Columbia manufacturing facility as well as a second facility in Bayport, Texas. In January 2020, a United States federal court dismissed the US FTC's earlier lawsuit to block the proposed transaction because the proposed divestiture of the Prince George, British Columbia manufacturing facility resolved the anticompetitive concerns in the Pacific Northwest United States and the US FTC did not establish an undue concentration in the Southern and Central United States. The Federal Court dismissed the US FTC's application for a preliminary injunction, after which the parties closed the merger.
Commissioner of Competition v. Parrish & Heimbecker, Limited
In 2019, Parrish & Heimbeck (P&H) acquired 10 primary grain elevators from Louis Dreyfus Company in Western Canada, including in Virden, Manitoba. The Bureau determined that the acquisition is likely to result in farmers paying higher prices for grain handling services in one local where P&H would control the only two primary grain elevators, which were formerly close competitors.
Despite the Bureau's concerns, P&H closed the acquisition. The Commissioner then filed an application with the Tribunal seeking a divestiture order for one of the two primary grain elevators in the local area. Significantly, the Commissioner challenged only the acquisition of the primary grain elevator in the local area and not the full transaction. At the time of writing, the matter is ongoing before the Tribunal.
The Commissioner of Competition v. American Iron & Metal Company
In February 2020, the Bureau closed its investigation into American Iron & Metal Company Inc's (American Iron) acquisition of Total Metal Recovery without taking enforcement action. The Bureau conducted a three-month inquiry into whether the proposed merger would substantially lessen or prevent competition in the purchase and sale of unprocessed and processed scrap metal in Montreal, Quebec, during which, the Bureau considered the parties' failing firm claims. While the parties completed the merger before the Bureau completed its investigation, prior to closing, the Commissioner and American Iron entered into an interim agreement to preserve specific assets in respect for 60 days while the Bureau's investigation continued.
In January 2020, the Bureau obtained Section 11 orders to compel information from the merging and a third party who had expressed an interest in purchasing Total Metal Recovery, and expeditiously reviewed the information produced to coincide with the length of the preservation order. The Bureau ultimately concluded that Total Metal Recovery was a failing firm because it was insolvent and had a high likelihood of bankruptcy filing in the immediate future, further attempts at retrenching or restructuring would not have prevented failure or enabled Total Metal Recovery to survive as a meaningful competitor, no competitively preferable purchaser to American Iron existed and the liquidation of Total Metal Recovery's individual assets would not have been a determining factor in facilitating entry of a rival in Quebec, and was not likely to result in a materially higher level of competition than if the merger did not proceed.
In announcing the decision, the Bureau urged merging parties intending to make failing firm claims to provide full information to the Bureau as early as possible during the review process.
ii Trends, developments and strategies
In 2019, the Bureau changed the name of its Merger Notification Unit to the Merger Intelligence and Notification Unit, and expanded its role to include active intelligence gathering on non-notifiable mergers that may raise competition concerns. The MINU continues to identify and investigate potentially anticompetitive transactions that were not subject to pre-merger notification and is willing to take enforcement action.
Going forward, companies may have a valuable opportunity to close transactions even though a portion of it may potentially be anticompetitive. Parrish & Heimbecker Limited is an example where the Bureau was reviewing a proposed merger, allowed it to close and then took enforcement action in respect of the portion of the merger that it alleged was anticompetitive.
In Canada, the efficiency defence continues to be a powerful tool for firms seeking to engage in strategic transactions that may have competitive effects. Given the detailed and resource-intensive analysis required to review efficiencies claims, the Bureau expects merging parties to enter into a timing agreement so that the Bureau may consider efficiencies claim and recently released a model timing agreement for merger reviews involving claimed efficiencies. Firms seeking to obtain the benefit of the efficiencies defence should engage in careful and early planning and seek the assistance of experts able to organise and marshal the evidence necessary to support efficiencies claims.
As the Bureau will continue to closely cooperate with competition authorities in other jurisdictions, including the US FTC and the Antitrust Division of the Department of Justice, competition counsel across jurisdictions where a proposed merger is subject to review should work collaboratively to facilitate efficient reviews and consistent outcomes.
The Bureau treats merger reviews as one of its top priorities, particularly as the number of strategic transactions remains high. Companies should continue to expect that the Bureau will thoroughly review and investigate all mergers that have or are likely to have significant competitive effects, including taking appropriate enforcement action. The Bureau can be expected to continue to tailor remedies to the anticompetitive portions of a merger. Parties to mergers that have substantive overlaps, but do not exceed the pre-merger notification thresholds, should be cognisant of the expanded role of the MINU, and carefully consider whether their proposed mergers should be voluntarily notified to the Commissioner.
With the Commissioner focused on protecting Canadians from anticompetitive conduct, the Bureau continues to investigate, review and take enforcement action in respect of all types of anticompetitive conduct. When faced with uncertainties created by the covid-19 pandemic, the Bureau demonstrated its understanding of business realities by offering practical guidance to help companies to navigate such uncertainties and promote competitive outcomes. Going forward, companies should expect that the Commissioner and Bureau will maintain existing priorities, while looking for opportunities to further competition and foster innovation across all sectors of the Canadian economy.
1 Michael Koch and David Rosner are partners and Justine Johnston is a senior associate at Goodmans LLP.
2 If the proposed merger is by way of an acquisition of shares, the shareholder threshold must also be exceeded. To exceed this threshold, the buyer, together with its affiliates, must hold (1) more than 20 per cent of the voting shares of a publicly traded company or (2) more than 35 per cent of the voting shares of a company that is not publicly traded. The threshold is also exceeded if the buyer, together with its affiliates, already holds more than 20 or 35 per cent of the voting shares (as applicable), and would hold more than 50 per cent of the voting shares of the target company as a result of the proposed merger.