New Competition Rules for Trade Associations

Steve Szentesi for The Lawyers Weekly

January 29, 2010

Recent landmark amendments to the federal Competition Act will have a significant impact on trade associations in Canada.

While there are no specific provisions of the Act dealing specifically with trade associations, some of the general provisions are particularly relevant to trade association activities, including those on criminal conspiracy, bid rigging, misleading advertising and abuse of dominance provisions - all of which have recently changed.

Criminal conspiracy rules

Significant new criminal conspiracy provisions will come into force in March. Under the new rules, it will be possible to establish price fixing, market allocation and output restriction agreements (three types of "hard core" cartel agreements) without establishing any adverse market effects.

The primary impact of these changes will be that, whereas formerly market power was a prerequisite to establish a criminal conspiracy (i.e., that a cartel agreement prevented or lessened competition unduly in one or more relevant markets), under the new law, parties to an agreement with modest market shares may also be caught. As such, trade association members that engage in price fixing, market allocation or boycott agreements (and potentially where associations facilitate such agreements) will face potentially increased criminal liability.

The penalties for criminal cartels will also more than double - with fines of up to $25 million and/or imprisonment for up to 14 years (increased from $10 million and 5 years). The enforcement of the criminal conspiracy provisions remains an enforcement priority for the Competition Bureau, which has indicated in recent public statements that it is increasingly interested in detecting domestic (Canadian) cartels.

Misleading advertising

The false or misleading representation provisions of the Act are highly relevant to trade associations and their members. The Act contains both criminal and civil misleading advertising provisions, which apply to false or misleading representations made to promote the supply or use of a product or a business interest.

As a result of the recent amendments, contravention of these provisions will now potentially be subject to civil fines of up to $750,000 (for individuals) and $10 million (for corporations).

Abuse of dominance

As a result of the recent landmark amendments, civil fines have been introduced for abuse of dominance - for the first time in Canada - of up to $10 million ($15 million for repeat contraventions). Under the Act, abuse of dominance occurs where a dominant firm (or firms) has engaged in a practice of anti-competitive acts that has an intended negative effect on a competitor that is exclusionary, predatory or disciplinary, with the result that competition has been, is being or is likely to be prevented or lessened substantially.

Some of the types of trade association activities that can raise abuse of dominance issues include restricting access to essential services or markets and standard setting that may prevent or impede entry.

Bid rigging

Canada has a stand-alone bid rigging provision that applies where, in response to a call for tenders or bids, one or more bidders agrees not to submit a bid (or where two or more bidders agree to submit bids that have been prearranged). These rules can be relevant to members of trade associations involved in competitive bids or tenders (for example, the construction industry). It is also now a criminal offence to agree to withdraw a bid that has already been made.

Trade association enforcement guidelines

The Bureau has recently issued a new draft information bulletin specifically dealing with the enforcement of the Act in relation to trade associations. Together with its proposed new enforcement guidelines for competitor collaborations, the new trade association guidelines are expected to further alter the analysis of the application of Canadian competition law to the activities of trade associations and their members.

The landscape of Canadian competition law has drastically changed. The recent amendments are the most significant in 25 years - or even since Canada introduced competition law in 1889. The impacts on Canadian firms and trade associations will be significant.

Steve Szentesi is a Canadian competition lawyer and consultant based in Vancouver. He works in association with Norton Stewart, Business Lawyers and is an owner of Competition Law Canada.
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