Amendments to Canada’s Competition Act

October 2022 | EXPERT BRIEFING | COMPETITION & ANTITRUST

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The Canadian government passed significant amendments to the Competition Act in its Budget Implementation Act (BIA), which received Royal Assent on 23 June 2022. The amendments respond to calls for reform from civil society, academia and the commissioner of competition. The amendments are just the first step in a larger effort to modernise Canada’s competition regime, with the government expected to engage in a broad review of the Competition Act in the autumn of 2022, after which further substantial amendments may follow.

Background

Many jurisdictions have recently studied whether their competition laws adequately address new challenges in the digital economy. This has led to bold proposals in the European Union (EU), Australia and the US for competition law reforms, a discussion of which is outside the scope of this article. Calls to review the Competition Act started to gain momentum in 2021 when headlines like, “Why Canada’s toothless Competition Bureau can’t go after Big Tech” and “Canada’s Competition Act needs an overhaul” began to appear in national newspapers, as commentators questioned why Canada, unlike its allies, was not similarly reviewing its laws.

In autumn 2021, Howard Wetston, a former head of the Competition Bureau and a member of Canada’s Senate, initiated consultations on Canada’s competition policy framework. He commissioned professor Edward Iacobucci to examine whether digital markets have distinctive features that would necessitate changes to Canada’s laws. Professor Iacobucci’s report largely supported the status quo, although it did recommend a few incremental reforms, such as criminalising wage-fixing and no-poach agreements, clarifying that anti-competitive acts that may constitute an abuse of dominance include harm to competition and not just competitors, and adding digital market related examples of anti-competitive acts in the legislation. Subsequently, senator Wetston invited interested stakeholders to comment on Iacobucci’s paper.

More than 25 responses were received, including a detailed submission from the Bureau that had 35 wide-ranging recommendations, that if adopted, would dramatically reshape Canadian competition law enforcement. The Bureau’s recommendations went far beyond the scope of senator Wetston’s consultation, which was limited to the digital economy.

On 7 February 2022, Canada’s minister of Innovation, Science and Industry announced that he would evaluate ways to improve the operation of the Competition Act. The minister said he would tackle wage-fixing agreements, more clearly address drip pricing, tackle emerging forms of harmful behaviour in the digital economy, increase access to justice for those injured by harmful conduct, and modernise the penalty regime “to ensure it serves as a genuine deterrent against harmful business conduct”.

Overview of phase I amendments

The amendments to the Competition Act introduced in the BIA addressed each of the issues outlined by the minister, as well as a few other relatively non-controversial items. The amendments criminalise wage-fixing and related agreements, clarify that incomplete price disclosure is a false or misleading representation, expand the definition of anti-competitive conduct, enhance the commissioner’s investigative powers, allow private access to the Competition Tribunal to remedy an abuse of dominance, increase maximum fines and penalties, and fix certain loopholes.

Wage-fixing and no-poach agreements. The criminal conspiracy provisions of the Competition Act will now protect workers from agreements between employers that fix wages and restrict job mobility. The amendments, which will not come into force until 23 June 2023, will make it an offence for employers to agree to fix, maintain, decrease or control wages or other terms of employment, such as wage-fixing agreements, and to refrain from hiring or trying to hire one another’s employees (no-poach agreements). The penalties now include imprisonment for up to 14 years or a fine to be set at the discretion of the court, or both.

Drip pricing. Drip pricing involves offering a product or service at a price that is unattainable, because consumers must also pay additional non-government-imposed charges or fees to buy the product or service. The BIA makes drip pricing a criminal and civil violation. Interestingly, drip pricing was already prohibited by the civil and criminal provisions in the Competition Act, which prohibit companies from making materially false or misleading representations to the public for the purpose of promoting a product, service or business interest, and the Bureau has successfully enforced these provisions on many occasions, such as in the car rental industry, the ticket industry and so on. However, the amendment will make it easier to pursue those who engage in drip pricing as the requirement to prove that anyone was misled by such conduct is not included in the new provision.

Abuse of dominance – expanded scope of anti-competitive conduct. Abuse of dominance is a civil provision that authorises the commissioner to apply to the Tribunal for a remedial order where the Tribunal finds that a person or company controls a relevant market and has engaged in or is engaging in a practice of anti-competitive acts, and the practice has had, is having or is likely to have, the effect of preventing or lessening competition substantially in a market.

The Tribunal and the Federal Court of Appeal have generally interpreted the Act as applying only to anti-competitive conduct that has an intended negative impact on a competitor that is predatory, exclusionary or disciplinary. This interpretation has been criticised as being too narrow because it focuses on the impact of the act on a competitor and not competition more broadly.

The Competition Act now defines an anti-competitive act as one that is intended to have a predatory, exclusionary or disciplinary negative impact on a competitor, or to have an adverse effect on competition.

The BIA also adds a new example of business practices that may be anti-competitive: a selective or discriminatory response by a dominant player to make it more difficult for a competitor to enter a market or grow, or to remove a competitor from a market, is now an example of an anti-competitive act.

Expanded list of factors to determine impact on competition. The Competition Act contains factors to be considered when assessing the competitive impact of mergers, business practices and competitor collaborations. These non-exhaustive lists have been expanded to include some that may arise in the digital sphere, although they are applicable more broadly as well.

For competitor collaborations and mergers, factors now include network effects as another example of a barrier to entry in a market, the possible entrenchment of leading incumbents’ market position, and effects on both price and competition and non-price competition, such as quality, choice or consumer privacy.

For abuse, factors now include effects on barriers to entry, such as network effects, effects on both price competition and non-price competition, the nature and extent of change and innovation in the relevant market, and any other factor that is relevant to competition in the market that is or would be affected by the practice.

Abuse of dominance – new private right of access. The amendments provide private parties that have been subject to an abuse of dominance to bring their own action before the Tribunal. Potential parties must first obtain leave from the Tribunal, which requires the application be supported by sufficient credible evidence to give rise to a bona fide belief that the applicant is “directly and substantially affected” in its business by the relevant reviewable practice, and the practice could be subject to an order under the section of the Act at issue.

Increased fines and penalties. Penalties under the Competition Act have been widely criticised, including by the current commissioner, as insufficient to deter anti-competitive conduct. The Bureau has noted that monetary penalties, particularly for abuse of dominance where the maximum penalty was $10m or $15m for subsequent violations, are insufficient to deter anti-competitive conduct. By contrast, in the EU, fines may be up to 10 percent of a company’s annual revenues.

The BIA increased penalties and fines for abuse of dominance, deceptive marketing and cartel agreements. The maximum abuse penalty was increased to the greater of $10m (and $15m for each subsequent violation), and three times the value of the benefit derived from the conduct in question or, if that amount cannot be reasonably determined, 3 percent of the corporation’s annual worldwide gross revenues. The maximum corporate penalty for deceptive marketing was increased from a maximum of $10m ($15m for each subsequent violation) to the greater of $10m ($15m for each subsequent violation) and three times the value of the benefit obtained from the deceptive conduct. If that amount cannot be reasonably determined, the maximum penalty is 3 percent of annual worldwide gross revenues. Starting on 23 June 2023, the $25m maximum fine for agreements between competitors to fix prices, restrict supply or allocate markets will be removed, and fine amounts will be at the discretion of the court – essentially unlimited.

Going forward

Topics that will likely be examined in the next round of amendments include whether the efficiencies defence should be maintained, eliminated or converted into just one factor to consider, among others, and a ban on ‘self-preferencing’ (or a legal requirement that platforms clearly label instances of self-preferencing, so consumers are aware). Canada’s House of Commons standing committee on industry and technology spent the spring studying the productivity of small and medium-sized enterprises, with a focus on competitiveness and Competition Act reform. There will be considerable opportunity for those with an interest in the future of competition policy in Canada to make their views known.

Kevin Ackhurst is a partner and Justine Reisler is an associate at Stikeman Elliott. Mr Ackhurst can be contacted on +1 (416) 869 5680 or by email: kackhurst@stikeman.com. Ms Reisler can be contacted on +1 (416) 869 5689 or by email: jreisler@stikeman.com.

Kevin Ackhurst and Justine Reisler

Stikeman Elliott