Editor: The title of your joint interview in our August 2008 issue was "American and Canadian Antitrust/ Competition Law: Convergence?" Have there been any developments since that time? And do you think convergence will ever be accomplished?
Wofford: Jeff will speak to developments within Canada, but within the U.S. the major developments since August 2008 have primarily involved apparent policy changes in the Obama administration regarding unilateral conduct and merger policy, and a Supreme Court case on price-squeeze theory. None of these changes portends any particular movement toward or away from convergence with Canadian law as I understand it. Also, the flurry of antitrust cases decided by the Supreme Court in recent years and the change in our presidential administration remind us that antitrust law here, as well as in Canada, is fluid - and varied, if one includes the many state antitrust statutes. Sometimes that may mean the two regimes are moving toward each other across all fronts, or only some, or both toward and away from each other depending upon the area. The hope for complete convergence is therefore probably a vain one.
Brown: I agree with Russ that complete harmonization is too lofty a goal. There are significant efforts being made by antitrust authorities around the world, including in Canada and the United States, towards greater harmonization, but I think a realistic objective is to minimize conflicts in how our respective laws are administered rather than true convergence. Having said that, there have been some steps taken in Canada in the last year that increase harmonization between U.S. and Canadian antitrust law. I'm referring to amendments made to the Canadian Competition Act in March 2009, which are the most significant amendments to our legislation in more than 20 years. One of those changes is the adoption of a two-step merger procedure for premerger notification similar to the HSR procedure in the United States. The thresholds that trigger premerger notification under the Canadian Competition Act continue to be different, but, as in the United States, we now have a single notification form and a 30-day statutory waiting period with the possibility of an extended waiting period if the parties are issued what is being referred to in Canada as a "supplementary information request" or "SIR" (U.S. lawyers know these as second requests). We also have seen the repeal of the Canadian per se criminal offense for resale price maintenance (RPM). In its place, we now have a civilly reviewable practice for RPM, including an "adverse impact on competition" test, which brings us closer to the post- Leegin rule-of-reason approach to RPM in the United States. The only remedy available for a civil RPM violation is a prohibition order, or injunction. Another very significant change comes into effect in March 2010 - that is a substantial change to our conspiracy provision. Our current conspiracy provision includes an undue lessening of competition requirement, in contrast to the per se /rule of reason distinction that exists in the United States for Section 1 of the Sherman Act. Next March, our current conspiracy provision will be replaced with new provisions that provide for per se criminal treatment of agreements between competitors that deal with hardcore cartel conduct (or so-called "naked restraints"). Other agreements between competitors will be dealt with civilly as a reviewable practice, with relief limited to the issuance of a prohibition order. Lastly, the recent amendments also strengthened remedies for a number of antitrust violations, a new civil fine (or "administrative monetary penalty") for abuse of a dominant position. Unlike some other provisions in the Competition Act, there is still no provision for private litigation of abuses of dominance, but the Competition Tribunal, on application by the Commissioner of Competition (who heads the Canadian Competition Bureau), can order payment of an administrative monetary penalty in an amount up to Cdn. $10 million for a first violation, or up to Cdn. $15 million for subsequent violations.
Wofford: Jeff's comments about developments in resale price maintenance illustrate my earlier point. This time last year, we had a new U.S. Supreme Court decision mandating a rule-of-reason analysis for such agreements, but Canadian law regarding those agreements as more or less per se illegal. This year we have Canadian law moving closer to the current U.S. law of resale price maintenance agreements, but a legislative movement in our House of Representatives to move the other way via a statutory repeal of Leegin to reimpose a per se rule. In this area at least, the two countries may well trade places rather than converge.
Editor: The U.S. Justice Department through its spokesperson Christine Varney is taking a tougher line on antitrust enforcement. Do you see a closer alignment with Canada's Federal Competition Bureau's approach?
Wofford: I think it's still very early to try to divine exactly what Assistant Attorney General Varney means by a tougher line on antitrust enforcement. It's clear that there will be a more demanding scrutiny of mergers and some change in how that agency looks at unilateral conduct under Section 2 of our Sherman Act, but exactly what those changes will be is very unclear. It's therefore difficult at this point to say that any of these changes will more closely align with the approach that's taken in Canada. Of the three speeches of significance she has given to date since being confirmed, one has included an endorsement of an international cooperation, particularly in pursuit of cartels, and another has called on other countries' enforcement agencies to adopt transparent decisionmaking processes perhaps like those used in the United States. These speeches don't, however, necessarily mark a change from previous administrations.
Editor: Do you see a dichotomy between Justice and the FTC on some of these points? I understand the FTC has some new personnel.
Wofford: The FTC and Department of Justice have differed on certain aspects of antitrust policy in the past few years, but there are reasons to believe that dichotomy, as you put it, will diminish over time. The five FTC commissioners are appointed for staggered seven-year terms, and are considered quasi-independent of the administration. Although toward the end of the Bush administration three of the five commissioners were appointed as Republicans, the FTC took a much more aggressive enforcement position than did Justice in certain areas, most notably, in what are called "reverse payment settlements" in the pharmaceutical industry and with unilateral conduct in general. At one point you had the FTC seeking a petition of certiorari to the U.S. Supreme Court in an reverse-payment case with the Justice Department in opposition. Differences of that degree will almost certainly diminish under the Obama administration. By way of example, in one of her first acts after confirmation, Assistant Attorney General Varney withdrew a long-awaited Section 2 report that had been released just a few months before, after a couple of years' collaboration with the FTC. The FTC refused to join in the report when it was finally released, and now the Department of Justice has rejected it as well. I think that we will see in some of the other areas, such as the reverse payment settlements area, a shift in Justice's position to more closely resemble that of the FTC. All of this has occurred, oddly enough, without any change of personnel at the Commission other than an existing commissioner, Jon Leibowitz, becoming chair. There are, however, two new appointments expected that many people seem to expect will be filled with people whose enforcement views are consistent with the current majority.
Editor: Should a Liberal Government prevail in the next election in Canada, do you expect the current attitude toward competition on the part of Canada's Federal Competition Bureau to change in any way?
Brown: The short answer is no, I do not. Unlike in the United States, competition policy is less politically driven; we don't generally identify trends of antitrust enforcement with different administrations and the Competition Bureau functions quite independently of the political process. Moreover, it's not clear that there are significant divergences between the Liberals and the Conservatives on competition issues. The recent amendments, for example, were enacted under a Conservative government, but many of those amendments were carried over from previous bills introduced by the predecessor Liberal government. If one were to look for reasons why we might see some changes in enforcement policy, I think the more likely place to look is the fact that we now have a new Commissioner of Competition, Melanie Aitken. The former commissioner was very focused on policy. This is not to say that she didn't pay attention to enforcement -mergers and cartels, particularly domestic cartels, were important enforcement priorities of the former commissioner. However, the new commissioner's background is that of a litigator, which makes it interesting to see how she will deal with the challenges presented by the recent (and forthcoming) changes to the Competition Act. The new commissioner has already indicated that the Bureau may take a more active enforcement role by bringing more cases before the courts and the Tribunal with a view to clarifying the law.
Editor: Please explain the hierarchy of courts in Canada to which competition cases can go.
Brown: Our Competition Act contains both criminal and civil provisions. Criminal provisions are adjudicated through the courts. Basically, we have three levels of court: the court of first instance, which is either the provincial superior court or the Federal Court of Canada; the court of appeal, which again refers to the corresponding provincial appeals court or the Federal Court of Appeal; with final appeals to the Supreme Court of Canada, which is Canada's highest court. Civil, or reviewable practice, provisions of the Competition Act are generally adjudicated by the Competition Tribunal (some may also be adjudicated by the courts), which is a specialized court whose jurisdiction is limited to the Competition Act. Decisions of the Competition Tribunal are appealable to the Federal Court of Appeal, and then to the Supreme Court of Canada.
Editor: In 2008 you discussed the effect of the Leegin decision in widening the gap between U.S. and Canadian enforcement of antitrust law. Have there been any instances over the past 12 months that illustrate the problems posed by the way the enforcement bodies handle the same case?
Wofford: I am not aware of any instance in which an enforcement attempt by the agencies in our respective countries has collided with the other country's enforcement priorities. As I mentioned earlier, a bill currently under consideration in Congress seeks to reverse the Supreme Court's decision in Leegin and to dictate by statute that agreements to maintain resale prices are per se illegal again. That has been reported out of a subcommittee of the House Judiciary Committee, so there's some possibility that we in the United States may be moving back toward a per se regime where agreements to maintain resale prices are concerned. Maybe what we're seeing here is convergence to the point of divergence.
Brown: Like Russ, I'm not aware of any situation where there has been an enforcement conflict caused by the different RPM standards in Canada and the United States after Leegin . This is not to say that the different standards didn't present challenges for businesses seeking to comply with the law on both sides of the border - it absolutely did. When we spoke a year ago, however, Canada still had a per se criminal offense for RPM. As of this past March, Canada's criminal RPM provision has been repealed and replaced with a civil "reviewable practice" provision, which basically says that if somebody engages in RPM, there can be an application made to the Competition Tribunal for an order to prohibit the person from engaging in RPM. In order for such order to issue, one of the critical elements is a rule-of-reason type of element, that is, that an adverse impact on competition be shown. Viewed in light of the Leegin decision, it can't be said that this amendment amounts to a harmonization of the Canadian and U.S. approaches to RPM, but it is certainly an example of convergence between Canadian and U.S. law. Ironically, if the movement to repeal Leegin in the United States is successful, we could see the unwinding of that convergence, and the tables turned relative to a few years ago with Canadian having the more liberal, rather than the more stringent, treatment of RPM.
Editor: What acts may be charged as criminal offenses in Canada under the Competition Laws? Are the same acts criminal offenses in the U.S.?
Brown: In terms of what types of conduct are dealt with criminally under the Competition Act, the two principle types are conspiracies, which are the equivalent of Section 1 of the Sherman Act in the United States, and bid-rigging. I've already talked a bit about our conspiracy provisions, as they are today and as they will be amended in March 2010. Bid-rigging is a per se criminal offense in Canada, and I understand it is also treated criminally in the United States. In terms of differences between Canada and the United States, I would note two things. First, our Competition Act also deals with deceptive marketing practices, such as misleading advertising, which can be dealt with either criminally or civilly (i.e., as a reviewable practice). Second, our abuse of dominance provision, which is loosely speaking our counterpart to Section 2 of the Sherman Act, is a civil provision which, until recently, gave rise to only injunctive relief prohibiting the conduct in question. As I noted previously, as a result of the March 2009 amendments, abuse of dominance can now give rise to a civil fine, or "administrative monetary penalty," which in the case of a first violation amounts to a maximum penalty of Cdn. $10 million and for a subsequent violation a maximum amount of Cdn. $15 million.
Wofford: A lay audience should understand that the Department of Justice is the only one of the two federal agencies that has criminal authority to enforce the Sherman Act; the FTC does not. The Department of Justice historically has prosecuted as crimes only the hardest core violations, such as the agreement between competitors to fix prices or allocate territories. The statutes are not nearly as specific as the Canadian ones in terms of delineating what behaviors are and are not criminal. Technically, any violation of Section 1 or 2 of the Sherman Act - and even price discrimination in the Clayton Act - could be prosecuted criminally, but as a practical matter only the most hardcore violations of Section 1 are.
Editor: Does Canada have anything similar to The Antitrust Criminal Penalty Enforcement and Reform Act of 2004 in the U.S. where the first to file among a group of companies charged with being a cartel is given a lighter penalty?
Brown: We don't have specific legislation dealing with this subject, but the Competition Bureau has issued two sets of guidelines: one dealing with immunity, and one dealing with leniency, the latter of which are still in draft form. As in the United States, the general principal set out in these guidelines is that immunity is available for the "first-in" with respect to alleged criminal offenses and for subsequent parties who voluntarily approach and cooperate fully with the Competition Bureau. Procedurally, the Canadian situation is somewhat unique, because there are three institutions involved in the prosecution process. In the first instance, it is the Commissioner of Competition that investigates the offense and makes an initial assessment of whether an applicant is a good candidate for immunity or leniency. If the commissioner decides that is the case, at the conclusion of the investigation she will recommend to the Director of Public Prosecutions, who is responsible for conducting the actual prosecution, that immunity or leniency be granted. It's up to the Director of Public Prosecutions, however, to decide whether to accept the commissioner's recommendation. Even if the Director of Public Prosecutions chooses to accept the recommendation, it is up to the courts to make the final decision as to whether immunity or leniency is granted.
Editor: Is it customary for a company contemplating a merger to speak with regulators in advance of filing a merger application?
Wofford: In the United States certain notification requirements need to be met that are based primarily on the size of the transaction and the size of the parties involved in the transactions. Communications of that type precede any discussion about the merits of a particular merger with either the FTC or the Department of Justice. Beyond that, only on rare occasions would a company considering a merger speak with regulators in advance of filing a merger application. First, the two agencies allocate reportable mergers between them so, although each agency has a tendency to scrutinize mergers in a particular industry, you'd rarely if ever know for sure which agency would handle the anticipated transaction. Second, most businesses don't like to invite greater government scrutiny of their transactions.
Brown: The practice is a little bit different in Canada, because of the way our merger review process has evolved. As in the United States, it is necessary to distinguish between transactions that meet our thresholds for mandatory premerger notification and non-notifiable transactions. For transactions that do not exceed these thresholds, my experience is that it's rare, although not unheard of, for parties to voluntarily approach the Bureau. There may be parties who decide that they want guidance from the Competition Bureau, for example because they like to have the comfortof a positive clearance or because they want to avoid the risk of post-closing enforcement action by the commissioner. In the case of transactions where the thresholds for premerger notification are exceeded, it is actually very common for parties to approach the Bureau before making the actually filing. This is typically done shortly after public announcement of the transaction, often in the form of a simple courtesy call. The reason for this, I think, derives from how our merger review process evolved after it was first enacted in 1986. In the United States, it's common to file an HSR filing and then wait to see whether it attracts the attention of either the DOJ or the FTC. In other words, the U.S. can be described as a "no news is good news regime," with HSR clearance considered to have been obtained by virtue of the fact that the 30-day waiting period has expired. In Canada, perhaps because when our law was first enacted the statutory waiting period was only 7 days, it became customary for parties to submit with their premerger notification a competitive impact submission, or "white paper," and to expect to receive positive clearance from the Competition Bureau in the form of either an advance ruling certificate, which is the highest form of clearance for a merger, or a so-called "no-action letter," which is a letter basically stating that the Commissioner of Competition has reviewed the transaction and concluded that grounds for the challenge of transaction do not exist. It will be interesting to see whether our moving to a U.S.-style merger review procedure will have any impact on these practices - my experience under the new procedure to date suggests that it may not.
Editor: What advice do you give clients who wish to set up antitrust compliance programs?
Wofford: I would say that a client who thinks it needs a compliance program and doesn't have one is probably already behind schedule; compliance programs are essential in today's environment. So my first piece of advice is to set one up. Beyond that, my approach is to look carefully at the nature of the business and the real and perceived risks from the antitrust perspective that the business has, and to design a compliance program that addresses those risks. It is difficult to be much more specific about compliance programs in general than to say that they're strongly recommended, particularly if the business is ever in the position of having to request leniency from the government.
Brown: I agree. I would just add a few things from a Canadian perspective. The need for a good antitrust/compliance program in Canada is increasing. As the recent amendments to the Competition Act show, the trend is toward more severe consequences for competition violations in Canada, which means heightened risk for companies who find themselves on the wrong side of the law. Secondly, for companies with operations in Canada and the United States, it's critical that the development of a compliance program take account of law in both jurisdictions, which means understanding the business's operations in both countries, dealing with people involved in the operations in both countries, working with antitrust counsel in both countries and developing a compliance program that is tailored to the specific cross-border needs of the business. It is also important to identify those individuals whose functions create particular exposure to antitrust risks, to ensure that they are covered by the compliance program, and individuals with responsibilities on both sides of the border have a solid understanding of the legal requirements in Canada and the United States.
Published October 4, 2009.
