Government proposes extensive overhaul of the Competition Act

The Canadian government has introduced major proposed amendments to the Competition Act (the Act) that will radically alter Canada’s merger control, abuse of dominance and competitor collaborations enforcement regimes.

We expect the government will want the proposed changes to be passed quickly as part of the Fall Economic Statement Implementation Act, 2023 (Bill C-59).

What you need to know

• In total, the amendments hand the Competition Bureau substantially everything it has been seeking to strengthen enforcement powers and penalties under the Act.
  • More mergers will be subject to notification and require approval, and the Bureau will benefit from a lower bar to challenge transactions, including challenges to closed deals.
  • Private actions will increase because the current “leave” standard to start a proceeding will be lowered and more provisions in the Act will be open to private enforcement, including the deceptive marketing and anti-competitive agreements provisions.
  • There will be increased penalties and wider ranges of sanction for contraventions of the Competition Act.
  • The changes will also introduce the possibility of exemptions for environmental protection arrangements, subject to stringent requirements.
• The changes are likely to result in significant additional regulatory uncertainty and increase the cost of doing business in Canada.

Background

Amendments to the Act have been frequent since early 2022:

• The first phase of amendments were part of the Budget Implementation Act, 2022 (read our earlier bulletin for more). Those changes criminalized “wage-fixing” agreements and broadened the scope of the Act’s abuse of dominance provisions.
• A second phase of amendments are before Parliament as part of Bill C-56 (read our earlier bulletin for more). These would repeal the “efficiencies defence” for mergers and authorize the Competition Bureau to conduct market studies. (And potentially make radical changes to the abuse of dominance provisions if recommendations made by the committee studying the bill are adopted by parliament.)

These latest proposed amendments, following closely on Bill C-56, are likely to dramatically increase public and private enforcement while at the same time creating significant legal uncertainty due to changes to substantive provisions in the legislation.

Merger control

The proposed amendments will increase the number of reviewable mergers, make mergers easier to successfully challenge, and make defending merger challenges more costly.

• More mergers will be subject to mandatory reporting and review because the notification thresholds will require parties to include sales from outside Canada in calculating whether the “size of target” threshold is met. This is a de facto lowering of the relevant notification threshold because the important new category of revenue will have to be included in the threshold calculations.
• It will be easier for the Bureau to halt mergers temporarily by introducing rules that would automatically prevent closing while interim injunctions are being decided.
• High market shares alone will be a sole basis for the Bureau to oppose mergers. The Act currently prohibits a merger challenge from being based solely on market shares.
• The amendments will allow the Bureau to assess the impact of a merger on labour markets, which has not historically been an area of focus.
• The Bureau will be able to challenge more closed mergers because the statute of limitations period will be extended from one year to three years after closing for non-notifiable mergers.

The amendments also modify the Competition Tribunal Act, making it much more difficult for merger parties to get a costs award in the event they are successful in defending a government challenge.

Private access

The proposed amendments will permit private litigants to bring claims under the deceptive marketing and anti-competitive agreements provisions of the Act. Following the changes, private parties will be able to advance claims under every key enforcement area of the Act, other than merger review.

The changes would also relax the requirement that applicants must seek “leave” from the Competition Tribunal prior to starting a case. Currently, they must establish that their business has been “substantially affected” by the impugned conduct. The requirement is designed to prevent frivolous claims. The proposed amendments will permit leave where the impugned conduct substantially affects only part of a claimant’s business (rather than the whole business) or where it is in the public interest to do so.

Penalties

The amendments will significantly change the way in which agreements that may lessen competition are remedied. At present, the Act contemplates cease and desist orders; under the new changes, businesses may have to divest shares or assets to remedy anti-competitive effects and pay penalties up to 3% of annual gross revenues.

In addition to the penalties proposed for anti-competitive agreements, contraventions of the abuse of dominance rules and other reviewable practices would be subject to “disgorgement” orders, as well as fines and other remedies. Under the terms of these orders, the Competition Tribunal may order a respondent “to pay an amount, not exceeding the value of the benefit derived from the practice … to be distributed among the applicant and any other person affected by the practice”.

The amendments also add penalty provisions for procedural non-compliance with the Act. Many of these penalty provisions relate to failure to comply with a consent agreement between the Commissioner or a private party. These penalties can be as high as $10,000 per day of non-compliance.

Environmental certificates

The amendments will create a process to facilitate arrangements between parties (even competitors) for the purpose of protecting the environment where such agreements do not otherwise substantially lessen competition. The process would provide the parties with a “certificate” that exempts the conduct from the application of the Act for renewable periods up to 20 years.

Conclusion

These amendments, along with those passed in 2022 and proposed as part of Bill C-56, represent the greatest expansion of competition law enforcement scope and power in decades.

The sum effect of the amendments to the Act will, put simply, increase the cost, complexity and regulatory uncertainty of doing business in Canada.