Stricter Review Of Commercial Agreements Is Coming: The Expansion Of Section 90.1 Of The Competition Act

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McCarthy Tétrault LLP provides a broad range of legal services, advising on large and complex assignments for Canadian and international interests. The firm has substantial presence in Canada’s major commercial centres and in New York City, US and London, UK.
Major competition law amendments have been made in Canada over the last year. New employer-specific cartel offences entered into force in June 2023...
Canada Antitrust/Competition Law
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Overview

Major competition law amendments have been made in Canada over the last year. New employer-specific cartel offences entered into force in June 2023, Bill C-56 (The Affordable Housing and Groceries Act ("Bill C-56")) passed in December 2023, and a further omnibus bill (Bill C-59, Fall Economic Statement Implementation Act, 2023 ("Bill C-59")) was tabled in autumn 2023 and is likely to pass in the first half of this year.

We previously published an overview of the Bill C-56 amendments and proposed Bill C-59 amendments here. Below, we review in greater detail the significant ways in which both bills have recast and expanded the civil competitor collaborations provision in section 90.1 of the Competition Act ("Act"). Notably, the revised provision now captures certain agreements between non-competitors, while eliminating the prior efficiencies defence. If Bill C-59 is adopted, litigation by private parties to enforce the expanded provision will be greatly incentivized and almost certainly will follow, backed up by new structural remedies and the possibility of major administrative monetary penalties.

Expanded Scope: No Longer Only Agreements Between "Competitors"; Efficiencies Defence Abolished

Bill C-56 received royal assent on December 15, 2023. With a one-year grace period, effective December 15, 2024, the amendments will enter into force and expand section 90.1 to capture certain anti-competitive agreements or arrangements between non-competitors, opening up a host of previously exempt conduct to potential scrutiny. Prior to these amendments, section 90.1 applied only to agreements that include – actual or potential – competitors.

Under the revised provision, both an agreement between competitors (without reference to its purpose) and any agreement, regardless of the competitive relationship between the parties, for which "a significant purpose" is to "prevent or lessen competition in any market" may be subject to Competition Bureau ("Bureau") enforcement action and remedies ordered by the Competition Tribunal ("Tribunal"). Notably, an infringement may occur where only "any part of" the agreement has a significant purpose to prevent or lessen competition, rather than the entire agreement.

What constitutes a "significant purpose" is, at best, an ambiguous concept. The term is not defined, nor does it appear elsewhere in the Act. Indeed, based on our review, the term does not appear in any other federal legislation (and only a single provincial statute), and has never been judicially considered in Canada. The Parliamentary debates in respect of Bill C-56 offer no meaningful assistance to interpreting the term ­— they simply indicate that the amendments sought to target all agreements "aimed at reducing competition", even where the agreeing parties were not competitors.1

It is similarly unclear how the Bureau — or, post-Bill C-59, a private litigant — will divine whether the purpose of the agreeing parties was to prevent or lessen competition. Where the applicant is the Bureau, it may use section 11 of the Act (i.e., subpoena powers) to compel oral examinations of, or documentary production from, the parties. However, where the applicant is a private party it is unclear how the applicant will satisfy this evidentiary burden.

Moreover, the "significant purpose" of the parties must be to "prevent or lessen competition in any market" — again, a different standard than exists in the rest of the Act, where the typical standard is to "prevent or lessen competition substantially in any market". The "substantially" standard has been eliminated in the revised section 90.1 as it pertains to assessing the scope and meaning of the parties' "significant purpose".

The scope of this lesser standard is unclear. Had the government wanted to apply a lower effects standard, it could have used the language from sections 75 and 76 of the Act — "having or is likely to have an adverse effect on competition in a market" — which has been interpreted by the Tribunal.

Finally, Bill C-56 removed the efficiencies defence in section 90.1 (and also removed it in section 92, the merger review provision). Subsections 90.1(4)-(6) previously exempted an otherwise infringing agreement from remedy where the agreement also "has brought about or is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition". Although this defense will be removed (as of December 2024), we note that efficiencies will remain relevant to an overall assessment of whether an agreement will, on balance, have anticompetitive effects sufficient to trigger an infringement of section 90.1. Promoting economic efficiency remains one of the Act's central purposes and efficiencies are an essential — if no longer enumerated — factor in determining the competitive effects of an agreement.

Bill C-59: More Enforcement is Coming

Since its addition to the Act in 2009, only two applications have ever been brought under section 90.1, with both applications resolved by consent agreements (obviating the need for reasoned decisions from the Tribunal).

  • In 2011, the Bureau filed an application against Air Canada, United Continental and United Airlines. The application alleged that a coordinated arrangement of air services between Air Canada and United Airlines violated section 90.1 of the Act (and that a proposed joint business arrangement between Air Canada and United Continental violated section 92 of the Act). The Bureau entered into a consent agreement with the parties to resolve its concerns; regarding the section 90.1 issues, Air Canada and United Continental agreed to refrain from coordinating prices, available seats at each price, and pooling revenue, as well as refrain from sharing commercially-sensitive information.
  • In 2017, the Bureau filed an application pursuant to section 90.1 against HarperCollins, claiming that HarperCollins' agreements with six other publishers to switch their distribution models for e-books from wholesale to agency would result in a substantial lessening of competition. The Commissioner argued that a wholesale model would allow e-book retailers to set the selling prices and compete through discounts, while an agency model gave retailers no control over the selling prices and could even bar discounts. The Bureau and HarperCollins ultimately entered into a consent agreement in January 2018, which permitted retailers to sell the e-books at discounts.

The proposed amendments in Bill C-59, if adopted, are expected to result in significantly more enforcement of section 90.1 by opening up the provision — the scope of which has already been expanded by Bill C-56, as discussed above — to private enforcement. No longer will the Bureau have the sole jurisdiction to bring section 90.1 applications to the Tribunal. While the provision is not likely intended to apply to mergers since the Bureau has been given sole authority to review and challenge mergers under section 92 of the Act, there is no necessary reason why a merger would not fall under section 90.1 given that a merger is an "agreement or arrangement", which is the class of commercial activity covered by the section. Time will tell whether Canada may see private enforcement of mergers.

In addition to opening up section 90.1 to private enforcement, Bill C-59 also proposes to significantly reduce the burden on private litigants in obtaining leave to bring section 90.1 claims. Post-amendments, the Tribunal may grant leave to private applicants (pursuant to section 103.1 of the Act), where: (i) all or part of the applicant's business is affected by the impugned agreement; or (ii) the Tribunal determines it is in the "public interest" to grant leave.

The latter option for granting leave, the "public interest" test, is entirely new to private competition litigation under the Act. The former option is a substantial reduction to the current leave standard, which requires an applicant to demonstrate that its entire business is "directly and substantially affected" by the agreement; this has proven to be a hurdle in some past cases involving multi-product firms and other reviewable practices in the Act subject to private enforcement (e.g., Refusal to Deal).

The Range of Remedies is Becoming Broader — and Harsher

Moreover, to further encourage enforcement and discourage misconduct, Bill C-59 will increase the cost of non-compliance for parties to an impugned agreement. Where it finds that an agreement infringes section 90.1, the Tribunal can not only make a prohibition or behavioural order (as previously), but also make structural orders, such as the divestiture of assets or shares, or impose administrative monetary penalties ("AMPs"). While notionally intended "not to punish", the AMPs' power can result in significant fines of up to $10 million (or $15 million for subsequent infringements), or fines of up to "three times the value of the benefit derived from the agreement or arrangement" or, if that amount cannot be reasonably determined, up to "3% of the person's annual worldwide gross revenues".

Further, if the case is brought by a private applicant, the Tribunal may also order disgorgement not exceeding the value of the benefit derived from the conduct at issue, to be distributed amongst the private applicant and any other person affected by the conduct. This is a major departure from the current provision, for which there is no threat of monetary penalties or financial and structural remedies.

Conclusions

Taken together, the adopted Bill C-56 amendments and proposed Bill C-59 amendments:

  • Substantially increase the scope of section 90.1 of the Act, sweeping in agreements between non-competitors;
  • Eliminate the statutory efficiencies defence;
  • Create a new right of access for private litigants, combined with a diluted leave test; and
  • Add structural orders and significant financial penalties to the arsenal of remedies available to the Tribunal.

Given that the Bill C-56 reforms do not enter into force until December 15, 2024, and the Bill C-59 amendments have not yet been adopted by Parliament, businesses operating in Canada still have time to assess their commercial agreements and practices and take advice to reduce the risk of potential liability.

Footnote

1. 44th Parliament, 1st Session, Hansard No. 265, online at: https://www.ourcommons.ca/documentviewer/en/44-1/house/sitting-265/hansard.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Stricter Review Of Commercial Agreements Is Coming: The Expansion Of Section 90.1 Of The Competition Act

Canada Antitrust/Competition Law

Contributor

McCarthy Tétrault LLP provides a broad range of legal services, advising on large and complex assignments for Canadian and international interests. The firm has substantial presence in Canada’s major commercial centres and in New York City, US and London, UK.
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