Law Times

Law Times • sepTember 28, 2009 FOCUS New merger rules raise legal concerns BY DARYL-LYNN CARLSON For Law Times T here was remarkably little fanfare when the federal government tabled Bill C-10 to amend the Competition Act this year. In fact, there were only 40 days of parlia- mentary consideration on the bill before it came into effect last March. That's despite its sweeping effects on Canadian laws. Much of the controversy and discussion by lawyers so far have centred on changes to competitor agreements under s. 90.1 that won't take effect until next spring. But within the main bill, lawyers fore- see gaps and uncertainties that could soon require clarification either through the courts or amendments by the Competi- tion Tribunal. Most notably, penalties available un- der the act have increased 100-fold, says James Musgrove, chair of the competition law and marketing law group at Lang Mi- chener LLP. "It was a bit of a sleeper," he says of the lack of discussion surrounding the changes and fine increase. "It is a pretty significant change that hasn't gotten much attention." For instance, under the provisions for misleading advertising, penalties in- creased from $50,000 for a first offence for individuals to $750,000 and up to $1 million for repeat breaches. Corporations are subject to fines starting at $10 million for a first offence and up to $15 million for subsequent violations. The minimum penalty for price fix- ing has gone from $10 million and five years in jail to $25 million and 14 years respectively. Violations for abusive market dominance will also be subject to pen- alties. "Previously, par- ties were simply ordered to stop behaviour the bureau deemed bad, but now it also allows for these penalties," says Musgrove. "So again, we've moved from a re- gime where essentially if misconduct was ongoing you would be told to stop it to a regime where you can be told to stop it and pay up some money." There are changes to the act's merger provi- sions that create a two- stage review process sim- ilar to that in the United States. While it in some ways simplifies the paperwork necessary to effect a merger, it also empowers the Competition Bureau to halt a transaction if it wants supplementary information on how it will affect the market. "In a small number of transactions, this issue will arise and it will make a dif- ference in timing on some transactions," says Musgrove. As well, the monetary threshold for merger transactions has increased to $70 million from $50 million, while the penalty for not filing the paperwork properly will now match U.S. fines of $10,000 per day. The price-discrimination, price-main- tenance, and predatory-pricing provisions under s. 50 and 51 have been repealed. For years, those sections were difficult to prosecute and costly to administer, and it's Fully understanding the chang- es will be a challenge for firms and their advisers, says James Musgrove. believed authorities will simply use the "abuse of dominant market" pro- visions under the act to prosecute price-discrimi- nation matters. The criminal price- maintenance provisions are also gone in lieu of a civil review initiated by the bureau in circum- stances where conduct has reportedly had an adverse effect on market competition. Generally, Mus- grove says most of the amendments are good, although he's "worried about how they'll be in- terpreted." In summarizing the changes for clients in a newsletter, Mus- grove wrote: "To fully understand the implications of even one of these changes, let alone all of them, will be a complex process for firms and their advisers. Busi- nesses will have to carefully review all their material agreements and areas of activity and consider how the new rules will ap- ply. So, for everyone involved in or subject to Canadian competition law, it is going to be an interesting time." Lawson Hunter, counsel at Stikeman Elliott LLP, says the changes to the price- discrimination provisions have indeed rendered the laws clearer. But he says that the merger provisions that enable the Competition Bureau to intervene and undertake a review might be problematic for parties needing to close the transaction on a timeline. "Before, the bureau had to get an in- junction," Lawson points out. "Now, the bureau can just say, 'We're not done.' So we're going to see a bit of uncertainty about how that second request process is going to work." Any request for more details by the bu- reau triggers a 30-day closing period once the information is received. He says his firm already has been in- volved in second information requests by the bureau. While they didn't negatively affect the transactions, he expects authori- ties will have to establish some sort of time frame in the future. Kevin Wright, a partner with Davis LLP's antitrust law group, also commends most of the changes as "unambiguous." He particularly welcomes the decrimi- nalization of certain provisions in the act although he, too, has some concerns about the new requirements for merger notification. In the event the bureau initiates a second request for information, there are no limits on how much it can ask for. He says that in the United States, there have been situations where a sec- ond request by authorities has been costly and time consuming for parties trying to undertake a merger. Still, he adds that the bureau's merger- review process guidelines, which came out on Sept. 18, provide some comfort about about its approach to the matter. But ultimately, he says, "all of the old thinking is up for grabs. No one has really tested how the old principles will apply to the new provisions." This, says Wright, will keep lawyers busy advising business clients until the courts offer up some clarity. LT PAGE 9 Untitled-5 1 www.lawtimesnews.com 9/23/09 10:46:35 AM

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