Changes to Canada’s civil competitor collaboration provisions & property controls enforcement guidance

Introduction

This bulletin is the third in our subject-matter specific series explained in the article: “A new playing field: Summarizing sweeping reforms to the Canadian Competition Act”, which summarizes key changes to Canada’s Competition Act (the “Act”).  Over the last two years, the Act has been substantially reformed through three separate rounds of amendments, most recently on June 20, 2024, by Bill C-59, known as The Fall Economic Statement Implementation Act.[1]

This bulletin focuses on the expansion of the scope of review and range of penalties now in force as they relate to the civil competitor collaboration provisions in section 90.1 of the Act. These provisions previously allowed the Canadian competition regulator, the Competition Bureau (the “Bureau”) to challenge competitor agreements that might be anti-competitive but did not meet the high threshold of “criminal conspiracies.” While the Competition Tribunal (the “Tribunal”) could previously stop parties from participating in these agreements, it could not: impose fines, look at past agreements, remedy third parties adversely affected, or hear cases not brought by the Commissioner of Competition (the “Commissioner”).

In addition, this bulletin discusses how these amendments prompted the Bureau to issue a statement on its enforcement position related to “property controls” as well enhancing the “Refusal to Deal” provisions under section 75 of the Act.

Overview of civil competitor collaboration provisions (s.90.1)

The existing civil competitor collaboration provisions allow the Bureau and the Commissioner to target agreements or potential agreements between competitors that have the effect of preventing or lessening competition substantially in a market. These agreements include those that do not fall within the more severe offence of “criminal conspiracy,” which carries more serious penalties (including incarceration), but correspondingly requires a more specific characterization to establish a violation.

Previously, the Tribunal only had the authority to make an order prohibiting any contravening person from participating in an impugned agreement.  It could not impose monetary penalties or remedies. Furthermore, only potential agreements or agreements that existed at the time a case was brought by the Commissioner were captured by these provisions. As discussed below, the amendments have materially increased the scope of the Act’s civil competitor collaboration provisions and the Tribunal’s powers.

Changes to civil competitor collaboration and civilly reviewable conduct

1. BROADER SCOPE OF REVIEWABLE COLLABORATIONS

The amendments to the Act allow for the Tribunal to review a much broader scope of agreements by now capturing collaboration/agreements between firms that are not competitors, but whose agreements can be shown to have the substantial lessening of competition as an actual effect or as a significant purpose.[2] Businesses should therefore be aware of compliance before entering into agreements, particularly those agreements listed in the Bureau’s guidelines.[3]

Additionally, the amendments update the non-exhaustive list of factors that will be used in determining the competitive impact of collaborations to include:

• network effects as another example of a barrier to entry in a market;
• the possible entrenchment of leading incumbents’ market position; and
• effects on both price competition and non-price competition, such as quality, choice or consumer privacy.[4]

The amendments also expand the temporal scope of agreements subject to section 90.1 of the Act. The Bureau will no longer be restrained to agreements that exist in the present or were likely to in the future; instead, they will be permitted to review past agreements going back up to 3 years.[5] Importantly, past and present agreements will be measured by whether or not they have substantially harmed competition, and future agreements will be measured whether they will be likely to substantially harm competition.

Finally, the amendments remove the efficiency defence, which previously made an exception for anti-competitive agreements that could create gains in efficiency that were sufficiently large so as to offset the anti-competitive effects.

2. NEW POTENTIAL PENALTIES FOR VIOLATIONS OF CIVIL COLLABORATION PROVISIONS

Along with a broader scope in terms of reviewable civil collaboration agreements, the amendments permit the Tribunal to order, in addition to their existing powers, an administrative monetary penalty against those who violate these provisions, in an amount not exceeding the greater of:

• (a) $10,000,000 and, for each subsequent order, an amount not exceeding $15,000,000, and
• (b) three (3) times the value of the benefit derived from the agreement, or alternatively, 3% of the person’s annual worldwide gross revenues.[6]

These amounts signify the maximum amount that can be imposed by the Tribunal, but no minimum is specified. The amendments also include guidance on the relevant factors that the Tribunal will consider in determining the appropriate amount, which broadly deal with the relative impact on competition in the relevant market, the financial benefits acquired by the participating firms, and historic compliance with the Act.[7]

3. COMPETITOR PROPERTY CONTROLS

In 2023, the Bureau also undertook a “Retail Grocery Market Study” in which it recommended that provincial and territorial governments take measures to limit property controls in the grocery industry, including prohibiting their use entirely. On August 7, 2024 the Bureau published a statement related to its preliminary enforcement approach related to property control mechanisms based on the amendments to the Act. The named controls include:

• exclusivity clauses: a clause within a commercial lease that limits how the land can be used by competitors to a tenant. This could prohibit the lessor from leasing a unit or a piece of land to a company that competes with an existing tenant, or limit what or how products can be sold. It could also be a clause that gives an incentive not to lease to competitors of a tenant; and
• restrictive covenants: a restriction on land that prevents a purchaser or owner of a commercial property from using the location to operate or lease to operators of certain types of businesses that compete with a previous owner.[8]

The Bureau’s statement outlines that these controls may be justified insofar as they protect incentives for a retailer to make investments to enter into a market and therefore increase competition. However, this justification must be established based on the facts surrounding the terms of the agreement and the circumstances. Restrictive covenants, as opposed to exclusivity clauses, are typically long-lasting and are exclusionary, such that the Bureau has stated that their use is not justified except in exceptional circumstances.[9]

Lessors and landowners, who may not directly compete with the parties to their existing lease agreements, may still be in violation of the Act if the property control provisions found in their leases have the effect of substantially harming competition.  Under the new amendments to the Act, offending parties will be open to the same potential penalties under the civil collaboration provisions of section 90.1 (including administrative monetary penalties and prohibition orders). In addition, the Bureau’s statement outlines that it may also take enforcement action under the Abuse of Dominance provisions as well as the criminal offence section 45 of the Act in egregious circumstances.

The Bureau’s statement encourages all businesses that use competitor property controls to ask themselves:

1. Is the property control necessary to allow a new business to enter the market or to encourage a new investment?
2. Could this property control be shortened?
3. Could this property control cover fewer products or services?
4. Could this property control cover less geographic area?

The Bureau has also emphasized that its enforcement position will soon be formally reviewed and updated to “ensure transparency and predictability for the business and legal communities in light of the changes to the Competition Act.”[10]

4. PRIVATE RIGHT OF ACTION TO CHALLENGE CIVILLY REVIEWABLE CONDUCT

Beginning in June 2025, the amendments will permit private parties to bring applications to the Tribunal to challenge new categories of civilly reviewable conduct, including anti-competitive agreements which previously were only available to the Commissioner.

In addition, the legal threshold requirements to bring a case directly to the Tribunal have been lowered. Businesses will now only need to show that part of their business has been affected by the alleged conduct, rather than the previous requirement that their entire operations were directly and significantly impacted by the anti-competitive behavior of a competitor. Further, a private party can also obtain permission to bring a case to the Tribunal if the Tribunal is satisfied that it is in the public interest to do so.

These private parties may be incentivized by the potential for disgorgement awards that can be ordered by the Tribunal, which grants an amount to be distributed among the applicant and any other person affected, up to a maximum of the value of the benefit derived from the conduct (similar to a class-action claim).

5. RIGHT TO REPAIR

The amendments also make new updates to the Act’s refusal to deal provisions. These provisions give the Tribunal the power to order a supplier to accept a person as a customer if their business is substantially affected due to an inability to acquire supplies on usual terms. The new amendments will add the refusal to supply the “means of diagnosis or repair,” which includes: “diagnostic information, technical updates, diagnostic software or tools, and any related documentation and service parts.”[11] Like the private right of action, they also expand the refusal to deal provision to include cases where only part of a business is substantially affected, rather than the business in its entirety.

Key takeaways

The new changes to the competitor collaboration, civilly reviewable conduct, and refusal to deal provisions reshapes the regulatory landscape with respect to interactions between firms. Businesses should be aware of the following:

1. Greater care should be taken with respect to compliance with civil collaboration provisions, given the broader scope of review, removal of the efficiency defence and increased penalties.
2. Litigation risks may increase as private rights of action will now have lower tests for leave and a monetary incentive of disgorgement, resulting in greater possibility of plaintiffs seeking class-action type damages. However, some businesses will also have the opportunity to use these provisions to begin actions against companies/competitors who may be engaging in practices perceived as unfair and/or anti-competitive.
3. Retailers, tenants and lessors/landowners should review both existing and potential agreements to evaluate whether any competitor property controls are in use, and if so, whether or not they will have the effect of harming competition substantially. Potential risks should be reduced where possible by limiting the scope to which the controls apply, whether by geographic area or period of time.
4. The Tribunal can now mandate the supply of means of diagnosis or repair to customers on terms that the Tribunal considers appropriate. Firms engaged in repair services, and those firms who may possess the means of diagnosis or repair, should be aware of their respective potential entitlements/obligations.

Should you have any questions regarding civil competitor collaboration agreements or refusal to deal provisions, please reach out to Eric Dufour (edufour@millerthomson.com) or Devin Persaud (dapersaud@millerthomson.com) of Miller Thomson’s Competition / Antitrust team.

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[1] Bill C-59, An Act to Implement Certain Provisions of the Fall Economic Statement, 1st Sess, 44th Parl, 2024, cl 236(1) (Assented to 20 June 2024).

[2] Comes into force in December 2024 – Competition Bureau, “Guide to the December 2023 Amendments to the Competition Act”, December 18, 2023, online: https://competition-bureau.canada.ca/how-we-foster-competition/education-and-outreach/guide-december-2023-amendments-competition-act

[3] Competition Bureau, “Competitor Collaboration Guidelines”, May 6, 2021, online: https://competition-bureau.canada.ca/how-we-foster-competition/education-and-outreach/competitor-collaboration-guidelines. The Competitor Collaborations Guidelines discuss six common forms of agreements between competitors; namely: commercialization agreements, information sharing agreements, research and development agreements, joint production agreements, joint purchasing agreements and non-compete agreements.

[4] “First round of significant and expansive amendments to the Competition Act in effect”, July 27, 2022, online: https://www.millerthomson.com/en/published-articles/significant-expansive-amendments-competition-act/

[5] Competition Bureau, “Guide to the June 2024 Amendments to the Competition Act”, June 25, 2024, online: https://competition-bureau.canada.ca/how-we-foster-competition/education-and-outreach/guide-june-2024-amendments-competition-act

[6] Supra, note 1.

[7] Ibid.

[8] Competition Bureau, “Competitor property controls and the Competition Act”, August 7, 2024, online: https://competition-bureau.canada.ca/how-we-foster-competition/education-and-outreach/competitor-property-controls-and-competition-act

[9] Ibid.

[10] Ibid

[11] Supra, note 1.