Canadian Competition Law Update by gjjur4356

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									                                                                                       OCTOBER 2005


New Powers Aimed at the Oil Patch Will Catch All Industries
BRIAN FACEY, CRYSTAL WITTERICK AND NAVIN JONEJA


The Federal Government is renewing efforts to strengthen the Canadian Competition Act. The
changes are sounding alarm bells in the business community, and the oil patch in particular,
and for good reason. Bill C-19, which, if passed, would significantly alter the treatment of
Canadian businesses under the Act, was initially introduced into the House of Commons in
November 2004 and was the subject of significant discussion and commentary among the
competition bar and business community. To access our previous Report, please click here or
visit our Web site at www.blakes.com/Publications/Competition/November 2004.

What has Happened?

The Bill gathered new momentum this week as changes were proposed largely to respond to
recent spikes in gasoline prices. While the language of the new Bill continues to evolve, the
most recent indications are that, if enacted, the Bill would:

   •   impose significant penalties ($10 million for a first offence and $15 million for a second
       offence) for violations of the abuse of dominance laws;

           o   The abuse of dominance laws address a wide variety of normal business
               activities, including tied selling, exclusive dealing, assignment of dealer
               territories, rebates, low pricing, high pricing (i.e., margin squeezing), as well as
               joint ventures. In some circumstances, the rules can even apply to companies
               that are not dominant– joint dominance rules mean that two or more non-
               dominant companies (such as joint venture partners) can be subject to the law
               if together they have a significant market position or operate in a concentrated
               industry;

   •   significantly increase the maximum penalties for deceptive marketing practices;

   •   increase fines for agreements between competitors that are likely to lessen
       competition unduly, from the current maximum of $10 million to a maximum of $25
       million; and

   •   allow for an examination of the “state of competition” within an industry, including
       seizure of documents and compelled testimony from executives, without any indication
       that an offence or other anticompetitive event has occurred within that industry.

   Providing the Competition Bureau with the power to assess the state of competition would
   enable the Bureau to gather all sorts of data, including commercially sensitive data that is




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   not available in the public domain, and to conduct in-depth analysis of various industry
   sectors. Such powers were proposed in June 2003 but were widely criticized by the
   competition bar and business community and, as such, were not included in the initial
   proposed amendments contained in Bill C-19.


   Implications for Businesses

   The sudden inclusion of these provisions this week (along with increased penalties in a
   number of areas) is of importance for all industries, but particularly so for businesses
   operating in the oil and gas sectors in Canada. The Parliamentary hearings surrounding
   Bill C-19 have been loaded with questions and comments about gasoline prices. There is
   no doubt that these concerns prompted the recent proposed changes to toughen the Bill.
   Indeed, the gasoline industry merited special mention in the press release announcing the
   changes:

           The Government of Canada is prepared to strengthen Bill C-19 by increasing
           criminal fines for conspiracy and providing the Competition Bureau with
           additional tools. Increasing the fine level under the conspiracy provisions of
           the Competition Act (section 45) from a maximum of $10 million to a
           maximum of $25 million will serve as a deterrent to unlawful cartel behaviour
           in all industries, including the gasoline industry. The expected costs for
           engaging in cartels should outweigh the benefits. [emphasis added]

   There is some irony here, as never has one industry been so heavily investigated to reveal
   so little anticompetitive conduct (let alone an unlawful cartel). The Bureau just finished a
   year-long inquiry into the industry and concluded as follows:

           The Competition Bureau found no evidence to suggest that the rapid rise in
           retail gasoline prices in the spring and summer of 2004 resulted from a
           national conspiracy to fix prices...

           •   High crude oil prices and low gasoline inventories caused by a shortage
               of refining capacity in North America were largely responsible for the
               sharp increase in retail and wholesale gasoline prices;
           •   Retail gasoline pricing behaviour in major centres across Canada during
               this period was consistent with independent pricing actions taken by
               businesses in response to normal market forces;
           •   Before taxes, retail gasoline prices in Canada continued to be lower than
               equivalent prices in most countries in the industrialised world and were
               slightly lower than prices in the United States in May 2004. [emphasis
               added]
Hearings on the Bill are slated to continue next week, with the Bureau making additional
submissions to justify the Bill on Tuesday, November 1, 2005 and then clause-by-clause
review of the Bill is slated to commence on Wednesday, November 2, 2005.




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Additional changes may be forthcoming as members of the Committee continue to submit
amendments for consideration. Yesterday some of these proposals were made public.
Among the more controversial proposals:

    •   private lawsuits could be commenced for abuse of dominance cases and damages
        could be awarded by the Tribunal – currently the Commissioner acts as a gatekeeper
        for such matters and only behavioural and structural remedies are possible.
        Experience in other areas of competition law suggests that allowing private access will
        generate significant litigation against large companies;

    •   agreements between competitors which lessen competition would be per se illegal with
        possible criminal sanctions of imprisonment and fines up to $25 million, regardless of
        the effect on competition, unless it can be shown by the accused corporation that the
        agreement would help to lower prices or provide “other benefits to society” (currently
        the law requires an “undue” effect on competition before agreements between
        competitors are offside); and

    •   any practice aimed at imposing “unfair contractual terms and conditions” would be an
        anticompetitive act for the purposes of the abuse of dominance provisions.

Additional amendment proposals can be made until 9:00 am Monday, October 31. We will
continue to monitor these developments. From the outset, Blakes has been heavily involved
in criticizing the Bill. Partners Brian Facey and Crystal Witterick as well as Scholar in
Residence, Professor Peter Hogg, have all appeared before the Industry Committee
questioning the need for the initial changes and the constitutionality of the Bill.

Should you have any questions or comments regarding the above, please do not hesitate to
contact:
Brian Facey         416.863.4262          brian.facey@blakes.com
Crystal Witterick   416.863.2389          crystal.witterick@blakes.com
Navin Joneja        416.863.2352          navin.joneja@blakes.com
or any other member of the Blakes Competition Law Group.




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