Canadian businesses are facing unprecedented challenges in light of the rapid spread of COVID-19. Supply chains are under significant strain and Canadians are worried about the availability of essential goods. Industry associations and various levels of government are working to address some of these concerns, but it is important to remember that any time competitors find themselves working together, they must be mindful of their obligations under Canada’s Competition Act. This remains the case in the current environment.
In addition to setting out rules about how competitors may interact, the Competition Act also governs misleading advertising and provides for the review of mergers. Below are six key takeaways:
- Agreements between competitors that fix prices, allocate markets (customers or territories) or control, lessen or eliminate output are illegal. Companies may be under pressure to cooperate with rivals to ensure adequate supplies of essential goods reach Canadians. They may also be tempted to align with rivals on pricing during these challenging times. However, any agreement with one or more competitor (or potential competitors) cannot involve agreements on prices, customer allocation or output restrictions without violating the Competition Act. Such agreements need not have a negative impact on competition. Violations of these provisions can result in fines of up to $25 million and up to 14 years in jail (or both), and the commissioner of competition has indicated that the Bureau remains vigilant against such conduct.
- Agreements between competitors outside those areas are permissible so long as they don’t lessen or prevent competition substantially. In a recent statement the commissioner of competition indicated that the Act “accommodate[s] pro-competitive collaborations between companies to support the delivery of affordable goods and services to meet the needs of Canadians.” Agreements found to have violated the Act can lead to an order by the Competition Tribunal against any person, whether a party to the agreement or not, prohibiting them from doing anything under the agreement or requiring any person (with their consent and that of the commissioner) to take any other action. Even where such an agreement does result in a substantial lessening or prevention of competition, agreements that have brought about or are likely to bring about gains in efficiency that will be greater than, and offset, the effects of any prevention or lessening of competition cannot be subject to an order under the Act.
- The Competition Act does not generally regulate prices. Concerns have been raised in the press and on social media about allegations of price gouging. Charging high prices is not, in and of itself, illegal. The Competition Act does not prohibit price gouging; rather, companies are generally free to set their own prices. However, it is important to remember that certain provinces, including Ontario, have emergency legislation that, once activated, may prohibit price gouging.
- The Bureau will vigorously pursue misleading advertising, particularly those making false or misleading claims regarding a product’s ability prevent, cure or treat the virus. The Act requires that any performance claims be supported by adequate and proper testing completed before the claim is made. Penalties for violating the civil misleading advertising provisions carry a maximum monetary penalty of up to $10 million for a company ($15 million for subsequent violations) and exposure to restitution claims.
- Expect merger reviews to take longer. The Competition Bureau has indicated that with increased numbers of employees (both its own and in the private sector) working remotely, it is having difficulty making market contacts, which are a key method for gathering information to assess the potential impact of a merger. The Bureau is monitoring the situation and will prioritize matters to maximize its resources and meet its service standards where possible. Counsel should maintain close contact with case officers, but parties planning transactions or with transactions pending should expect reviews to take longer than usual.
- Properly document decisions to suspend or cancel deliveries. If your company is unable to continue to supply customers during the pandemic, particularly for reasons related to supply chain issues or lack of staff, document those reasons. This may be necessary to defend against allegations of refusal to supply or other reviewable practices.
Developments in this area are moving quickly. Antitrust agencies in other countries have taken more aggressive action, including suspending application of competition legislation to specific sectors affected by the pandemic. Companies must continue to be aware of their obligations under the Competition Act when considering any action that could involve cooperating with competitors or otherwise affect competition.