Earlier this week the Minister of Innovation, Science and Industry and the Competition Bureau (Bureau) separately announced proposals to amend the Competition Act, including proposals that would represent dramatic changes to existing merger review practice.
The Bureau’s recommendations, if adopted, would herald a new era of regulatory intervention in M&A transactions. In particular, there are recommendations that would make it much easier for the Commissioner of Competition (Commissioner) to block mergers without many of the procedural or evidentiary safeguards that are in place today.
While these announcements signal likely changes to the Competition Act, the precise scope and timeframe for these changes are still unknown.
What you need to know
The Minister’s announcement included references to closing “loopholes” in the legislation which are likely references to changing the merger notification regime to make more transactions reportable to the Bureau. Other areas of focus include criminalizing so-called “wage-fixing” agreements amongst employers and increasing fines for anti-competitive business conduct.
The Bureau’s proposed changes to the Canadian merger regime are significant and include:
Reversing the onus to require the merging parties to prove that a merger above a certain market concentration level would not be anti-competitive;
Eliminating the “efficiencies defence” under which mergers are permitted if their efficiencies outweigh their anti-competitive effects;
Allowing the Bureau to challenge a completed merger up to three years after closing;
Establishing a more flexible approach to allow the Bureau to challenge acquisitions of start-up companies by dominant firms;
Amending technical notification requirements to close “loopholes” resulting in more transactions reportable to the Bureau;
Relaxing injunction standards to allow the Commissioner to temporarily stop mergers more quickly and with less evidence; and
Giving the Bureau the power to compel the production of documents and testimony from third parties, including in a merger review context, without judicial oversight.
The initiative to re-examine competition law policy in Canada stems from a broader, global review of how competition can be maintained and promoted in the digital era. Stakeholders and lawmakers in countries such as the United States, the United Kingdom and Australia have been undertaking in-depth studies of their overall competition policy, including how merger reviews are conducted. Because the Bureau is not formally responsible for amendments, it is unclear which if any of its proposals have government backing. The Minister’s announcement, however, suggests that at least some changes are planned.
Merger review amendments
The most significant Bureau merger review recommendation involves reversing the burden of proof onto merging parties to prove that a merger above a concentrative level would not substantially lessen or prevent competition. Currently, the Commissioner bears the burden of proving competitive harm in every case and high market share alone cannot be the basis for concluding a merger would harm competition.
This recommendation follows on a similar proposal made in the United States through the introduction of the Competition and Antitrust Law Enforcement Reform Act in February 2021 (which has not been passed into law). The Bureau’s proposal, if enacted, would upend decades of merger review practice and Canadian case law as well as substantially increase the cost and complexity of merger review compliance.
The Bureau recommends the elimination of the efficiencies defence which provides for the weighing of pro-competitive merger efficiencies against possible or likely competitive harm from increased concentration. The Competition Act efficiencies defence recognizes Canada’s large geography, relatively small population and the need for Canadian businesses to compete effectively in the broader global market. In its submission, the Bureau has argued that the efficiencies defence is too difficult or expensive to analyze and implement when contesting a merger.
The Bureau currently has one year after closing to challenge a completed merger. The Bureau has recommended that its window to challenge mergers be extended to three years to have more time to evaluate the competitive effects of a merger and consider a post-closing challenge. For buyers, an extended limitation period will reduce regulatory certainty, especially for those transactions that have not received explicit approval from the Bureau.
The Bureau is also proposing a new standard for reviewing acquisitions by dominant firms of nascent, potential future competitors (also known as “killer acquisitions”). Although the Bureau’s proposal is somewhat unclear, it likely entails lowering the intervention threshold for start-up companies such that the mere possibility of a nascent firms someday competing with dominant firms would be sufficient for the Commissioner to order remedies or block the merger. Currently, the Bureau must identify and establish “concrete market opportunities” that would likely be available to a nascent competitor allowing the competitor to expand quickly and affect competition in the relevant market.
Regarding injunctions, the Bureau’s recommended approach is an acknowledgment that it has recently struggled to provide enough evidence in the statutory time period to satisfy the legal standards for receiving an injunction. The Bureau’s proposal would likely involve either an increase in the statutory waiting period before parties are legally entitled to close or a more relaxed injunction standard that is easier for the Bureau to meet.
In addition, the Bureau has also called for a number of other amendments to the Competition Act or to its judicial interpretation. Specifically, the Bureau has requested a new anti-avoidance provision to prevent parties from structuring a transaction to avoid notification. Further, the Bureau requested a new standard for remedies to anti-competitive mergers that would allow it to eliminate all anti-competitive effects. The current standard only permits the Commissioner to impose the least intrusive remedy that restores competition substantially to where it was prior to the merger.
In combination, the Minister’s announcement and Bureau statement suggest that merger notification and review under the Competition Act may undergo substantial change. Several of the Bureau’s recommendations, including the reversing of burdens and lowering injunction standards, raise serious new questions about procedural and substantive fairness for merger reviews. Overall, the recommendations reflect an enforcer’s desire to expand and ease enforcement standards. It is hoped, that if amendments to the Competition Act are to be made, they only be undertaken after broad and balanced consultations with all relevant stakeholders, including with businesses and consumers.
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