Law Times

LaW TIMeS • SePTeMBeR 21, 2015 Page 9 www.lawtimesnews.com Foreign investment changes among latest issues in competition law BY JULIUS MELNITZER For Law Times FOREIGN INVESTMENT THRESHOLD CHANGES New regulations for determin- ing the threshold for a manda- tory net-benefit review under the Investment Canada Act will on their face raise it to $800 million in 2017 and $1 billion in 2019 with the amount indexed thereafter. But because the regulations, which took effect in April 2015, also make changes to the meth- od for calculating the threshold, it's difficult to compare these numbers to the previous level of $369 million. The changes could, however, add some strategic wrinkles to takeover tactics. "There's definitely room for manoeuvring in public bids, both in the planning stages and in de- ciding when to make the [Invest- ment Canada Act] filing," says Michelle Lally of Osler Hoskin & Harcourt LLP. "These rules could also create a first-to-file advantage in auction scenarios." The old thresholds used book value, an amount readily ascer- tained from financial statements. The new thresholds use enterprise value in the hope that it will attach a more current market value to the target. Calculating the enter- prise value involves determining the market capitalization, adding long-term liabilities assumed by the acquirer, and subtracting op- erating liabilities and cash. What's important from a strategic perspective, however, is that for the purposes of the act, enterprise value is calculated as of the date of the filing. "Because enterprise value is ef- fectively linked to the share price of a company, we could have situ- ations where share f luctuations change the [Investment Canada Act] status in the sense that the target might meet the net-benefit threshold at one point in time but not at another," says Omar Wakil of Torys LLP in Toronto. Because enterprise value is fro- zen at the date of the filing — but only for the bidder — potential ac- quirers' reviewability status could differ. "The [Investment Canada Act] process is now more than ever a material risk factor for con- sideration and could certainly af- fect the valuation of targets," says Subrata Bhatacharjee of Borden Ladner Gervais LLP in Toronto. The changes are perhaps most likely to affect auction sce- narios, particularly where there are multiple bidders. "Where the announcement of a first bid has the effect of in- creasing the target's share price, it may result in an uneven play- ing field amongst foreign bid- ders," says Lally. "While the first bidder would not be subject to [Investment Canada Act] review, if there is a significant time gap in between bids such that enterprise value has increased as a result of the first offer, the subsequent bidders may be subject to . . . review if the enter- prise value threshold is exceeded." As well, if the bidding goes beyond the threshold, bidders that upgrade their offer above it will still maintain the exempt status proffered by their original bid that was below it. It's not, however, as if day-to- day f luctuations in share price will be determinative. "Enterprise value is calcu- lated using a market cap based on the last 20 days of the month preceding the month of the (In- vestment Canada Act] filing, so an April filing would look to the end of February," says Wakil. Whatever their impact, law- yers had foreseen the conse- quences. "Various stakeholders, includ- ing the Canadian Bar Association and our firm, thoroughly dis- cussed the implications of using enterprise value as a standard with policymakers at Industry Canada," says Lally. "The government knew that there could be instances in which there might not be a level playing field but decided that the conse- quences were not that significant." Still, it's important to re- member that the changes are the result of regulation rather than legislation. "Regulations are a lot easier to change than legislation, and these could change," says Wakil. "But at this point, the govern- ment has done their best to put forward a workable scheme, and we won't know how it's working out until we have at least a couple of years' experience." IP ENFORCEMENT GUIDELINES In June, the Competition Bureau released an updated draft of its intellectual property enforcement guidelines for comment. Among other things, the guidelines deal with the bu- reau's proposed approach to pat- ent litigation settlements, anti- competitive activities by patent owners, and patent trolls. When it comes to patent liti- gation settlements, the bureau has attempted to align Canada's approach more closely to inter- national standards by making it clear that it will review pat- ent litigation settlements in the pharmaceutical industry as civil enforcement matters and it will only pursue criminal enforce- ment in limited circumstances. The guidelines include sev- eral other provisions: the bureau won't review entry-split settle- ments in which an innovator al- lows a generic entry to the mar- ket before the expiry of the patent and where the innovator pays no other consideration; where further payments are made in an entry-split settlement, the bu- reau may review it under the civil provisions relating to agreements between competitors; and crimi- nal proceedings may be under- taken when generic entry is de- layed beyond the patent's expiry or where there's evidence that the settlement is a sham amounting to a conspiracy to restrain trade. When it comes to standard essential patents, the bureau will investigate civilly when the holder of one of them de- liberately conceals it from the organization developing the standard and then asserts the patent when access to it is neces- sary to meet the standard once it has been formulated. The bureau may also investi- gate patent holders that renege on a commitment to license a patent or seek an injunction after mak- ing a commitment to a prospec- tive licensee who was willing to pay a fair royalty. And when it comes to pat- ent assertion entities, when the demands are allegedly false or misleading, the bureau intends to review their conduct under the criminal or civil mislead- ing advertising provisions of the Competition Act. Which route the bureau chooses will depend to a degree on whether the case involves knowing or reckless mis- representation. The bureau will also be re- lying on the new provisions regarding electronic communi- cations introduced to the Com- petition Act by Canada's anti- spam legislation. LT FOCUS Register online at www.lexpert.ca/cpdcentre For more information, please contact Lexpert® Events at 1-877-298-5868 For any organization, purchasing goods and services ranks at the top of the "must-do- right" list. When done well, procurement processes will drive innovative solutions and achieve best value. Done poorly, supply chains are interrupted, costly litigation looms, and suppliers lose confidence in the organization's ability or willingness to purchase goods and services in an open, fair and transparent manner. Numerous court decisions provide a rich body of evidence detailing how good procurements can go badly, and the consequences when they do. COURSE LEADER Richard H. Shaban, Gerry Stobo, Ian J. Houston Borden Ladner Gervais LLP COURSE HIGHLIGHTS • New Developments in Procurement Law – Case Law Update • Drafting – Best Practices • New and Innovative Processes • Advanced, Comprehensive Case Study DATE & LOCATION October 22, 2015 WTCC Halifax Halifax, NS October 27, 2015 St. Andrews Club and Conference Centre Toronto*, ON *Webinar also available. EARLY BIRD ENDS SEPT. 25 6 TH ANNUAL NEW PROCUREMENT: CRITICAL ADVANCES FROM PROCESS TO PRACTICE E V E N T S Untitled-4 1 2015-09-17 2:24 PM ROUNDUP ROUNDUP ROUNDUP Bureau showing teeth on ordinary prices BY JULIUS MELNITZER For Law Times T he $3.5-million settlement reached be- tween arts and crafts store Michaels of Canada ULC and the commissioner of competition in May 2015 is yet another sign that the Competition Bureau is serious about ramping up its enforcement focus in the area of misleading advertising. "The settlement is of note because it is con- sistent with the bureau's renewed interest in ordinary or regular pricing representations," says Anita Banicevic of Davies Ward Phillips & Vineberg LLP. "It is also indicative of the bureau's interest and active enforcement in the advertising area in general." The ordinary price provisions in the Compe- tition Act are, in a nutshell, in place to ensure that a bargain offered to consumers really is a good deal. The upshot is that a supplier can't claim that a product's price is its ordinary or regular price unless it or those in the market generally have sold a substantial volume at the represented amount, or higher, within a reasonable time be- fore or after making the representation. In the alternative, it must have offered the product for sale in good faith at the represented ordinary See Enforcement, page 10

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