In our previous Bennett Jones insight, we described several upcoming (and far-reaching) amendments to the Competition Act (the Act) introduced by the Government of Canada in 2023. The most recent set of amendments came into force on June 20, 2024. Notably, these amendments follow amendments to the Act beginning in June 2022, and continuing in December 2023.1
Consistent with the rushed nature of the most recent set of amendments to the Act, the House of Commons Standing Committee on Finance (the Finance Committee) completed its review of the proposed amendments, first tabled in November of last year, on May 6, 2024, recommending several last-minute changes. These changes largely adopted the Commissioner of Competition’s (the Commissioner) submissions to the Finance Committee, as set out in a letter dated March 1, 2024 (the Commissioner’s Letter) and appear to have been at least in part precipitated by Jagmeet Singh’s Private Member’s Bill introduced in the House of Commons last fall.2
The revised version of the most recent set of amendments was tabled on May 2, 2024, and entered into force on June 20, 2024, following only very limited engagement with stakeholders. The amendments significantly revamp the merger review provisions of the Act, including by (a) introducing rebuttable presumptions of anti-competitiveness for mergers where certain market share/concentration thresholds are exceeded and (b) raising the requirements for a remedial order where a merger is found likely to substantially lessen or prevent competition. In addition, the amendments expand several of the deceptive marketing practices provisions of the Act, already causing significant uncertainty in the marketplace.
As noted above, the amendments transform Canada’s merger control regime by (a) adopting rebuttable presumptions where certain structural thresholds (based on market shares/concentration levels) are exceeded and (b) introducing a more stringent standard for remedial orders under section 92 of the Act.
Before the Competition Tribunal (the Tribunal) may make an order to block a merger or require a divestiture, it must first find that the merger prevents or lessens, or is likely to prevent or lessen, competition substantially. Prior to the recent amendments, the Commissioner bore the burden of establishing the likely substantial lessening or prevention of competition.3
The Commissioner’s Letter in March 2024 argued in favour of rebuttable presumptions, to reverse the onus; in other words, requiring the merging parties to establish that a merger would not substantially lessen or prevent competition where certain market share or concentration thresholds are exceeded. The Commissioner’s Letter stated as follows:
“Structural presumptions make sense for a risk-based analysis like merger review. They provide a guidepost for the analysis and more efficiently allocate burdens of proof while still allowing for a full assessment of relevant factors. They can also provide a useful signal to firms and their advisors about transactions that are likely to raise significant concerns and may not be worth pursuing, saving time and resources for everyone”.
Notably, the Commissioner’s Letter pushed to adopt presumptions in the name of aligning with U.S. law. In fact, what he advocated for—and secured—was not alignment of our laws, but rather a uniquely Canadian strict legislated presumption favourable to the Commissioner that mimics, not U.S. law, but the Department of Justice and Federal Trade Commission’s 2023 Merger Guidelines; omitted from his pitch is that those guidelines were issued by the most interventionist administration in a generation and, significantly, have no force of law and have been the subject of considerable criticism and have not been tested in court. The 2023 Merger Guidelines set out two different thresholds, one based on levels and changes in concentration as measured by the Herfindahl-Hirschman Index (HHI)4 and another based on the merged firm’s market share. These structural thresholds are summarized in the following table:
|
Indicator |
Threshold for Structural Presumption |
|
Post-merger HHI |
Market HHI greater than 1,800 AND Change in HHI greater than 100 |
|
Merged Firm’s Market Share |
Share greater than 30% AND Change in HHI greater than 100 |
Having wholesale adopted the Commissioner’s recommendations, from here on, if the Tribunal finds that a merger or proposed merger results, or is likely to result, in “a significant increase in concentration or market share”, it shall also find that the merger substantially lessens or prevents competition, “unless the contrary is proved on a balance of probabilities by the parties to the merger or proposed merger”.
The words “significant increase in concentration or market share” are further defined in the amended Act to mean a merger where (a) the concentration index increases or is likely to increase by more than 100 and (b) either (i) the concentration index is or is likely to be more than 1,800 or (ii) the market share of the parties to the merger or proposed merger is or is likely to be more than 30%.5 As such, while arguably with some sleight of hand, in arguing presumptions would align Canada with our most significant trading partner, the Commissioner secured strict legislative structural presumptions consistent with the non-binding thresholds in the 2023 U.S. Merger Guidelines.
From here on in Canada, merging parties will have the burden to establish that a merger or proposed merger will not substantially lessen or prevent competition where the new structural thresholds are exceeded. In a country with a relatively small population such as Canada, many industries will already have a concentration index greater than 1,800, meaning the new structural presumptions will likely be engaged more frequently than in larger economies such as the United States.
Despite the Commissioner’s rhetoric, and some commentary from the Canadian antitrust bar that massive change is afoot, it is not clear that the new rebuttable presumptions will have an appreciable effect on many merger reviews in Canada.
First, the most logical reference point to inform the Tribunal’s application of the presumption will be the approach developed through the U.S. case law. As noted, the 2023 U.S. Merger Guidelines have not been endorsed by the courts, meaning past case law governs. Rebuttable presumptions have long been part of the U.S. merger review framework; notwithstanding that in the US, the true merger “presumption” is a nuanced and flexible creature of case law, not a rigid statutory presumption as we have now enshrined in our legislation, this remains the most accessible reference point for the Tribunal (particularly as Parliament was persuaded to introduce presumptions in the name of U.S. alignment). In practise in the United States, the presumption merely facilitates a more nuanced and holistic balancing of the parties’ respective evidentiary cases, not a strict burden shift; in fact, the U.S. agencies always retain the ultimate burden to establish the requisite ‘substantial lessening of competition’. They must first present evidence to establish a prima facie case of competitive harm and then, if that evidence is negated by the defendants’ evidence, produce additional evidence to establish that there is an appreciable risk the transaction will substantially lessen competition. Accordingly, while the Bureau may be tempted to adopt a more aggressive posture in light of the new presumption (including in the negotiation of remedies and/or by more frequently insisting on timing agreements), it is unlikely the Tribunal will interpret the presumption in a purely mechanical way.
Second, any difference in the scope of the Canadian presumption is likely to have little effect on the majority of transactions reviewed in Canada, as they are international/cross-border deals. We can reasonably expect the Commissioner’s enforcement appetite will be guided by the approach being taken in these deals by the U.S. agencies and, importantly, the U.S. courts. Pending the U.S. courts’ adoption of the U.S. agencies’ guidelines (which is by no means a given), the Commissioner’s enthusiasm to test a strict application of his new presumption may be attenuated. That leaves the impact, if any, that may be felt reserved for purely domestic transactions. Of course, whether we want to prohibit all domestic consolidation, irrespective of procompetitive effects, is a fair question—one of the many for which there was no opportunity to debate, given the haste to force change to arm the Commissioner to more easily win cases.
Prior to the most recent amendments, where the Tribunal found that a merger was likely to have the effect of substantially lessening or preventing competition, it was only to make an order that would “restore competition to the point at which it can no longer be said to be substantially less than it was before the merger” [italics added].6
Citing the incongruity between the prevailing standard in Canada and that in other jurisdictions—including the United States, EU and U.K.—the Commissioner’s Letter advocated for the adoption of a more stringent remedial standard that would require an order under section 92 to “preserve or restore the level of competition that would have existed without the merger”. In the Commissioner’s submission, “[m]erger control should seek to preserve the level of competition in these markets as much as possible rather than allow it to be eroded through anti-competitive consolidation that is only partially remedied.”7
The amendments fully adopt the Commissioner’s recommendation and now require that a remedial order “preserve the level of competition that would have prevailed but for the merger”. Hence, the revised standard requires that an order eliminate any anticompetitive effects of a merger that substantially lessens or prevents competition, a significant and noteworthy departure from the current standard as established by the Supreme Court of Canada in Southam.8
According to the Bureau's current policy,9 the standard for achieving an acceptable remedy in either a contested or consent proceeding (i.e., remedy negotiations) is the Southam standard.10 While the standard for contested proceedings has now changed, it is unclear which standard the Commissioner will apply in his approach to the negotiation of remedies in consent proceedings (where the majority of merger concerns are resolved). Since the amendments, the Bureau has publicly taken the position that the Commissioner has the discretion to apply whichever standard he chooses in consent proceedings. While a reflection of the new dynamic in Canada, where the Commissioner has at least in theory a lighter burden to meet and every tool required to take more aggressive positions, such self-serving discretion seems hard to justify. In any event, how these new, more aggressive, standards will play out remains to be seen. In time, the Commissioner may reflect on the granting of all his wishes with mixed feelings—the price to pay is high expectations which it is not clear he can deliver on.
The amendments expand the scope of several of the civil deceptive marketing practices provisions of the Act, including in areas such as (a) environmental claims; (b) drip pricing; and (c) ordinary selling price claims.
Although the initial version of the proposed amendments would have already introduced a requirement that any claims regarding a “product’s benefits for protecting the environment or mitigating the environmental and ecological effects of climate change” be based on an “adequate and proper test”, the Commissioner’s Letter argued that this did not go far enough. He wanted to be sure to capture forward-looking environmental claims about a business or brand as a whole; to achieve that, the Commissioner argued that section 74.01 of the Act should be expanded to require the substantiation of all environmental claims made to promote a product or business interest.
Of greater concern, given the uncertainty it creates, the amendments further adopted the Commissioner’s recommendation and require that all environmental claims made to promote a product or business interest be based “on adequate and proper substantiation in accordance with internationally recognized methodology”. It is not at all clear what constitutes “internationally recognized methodology” for the purposes of this new provision; by adopting such a vague (and necessarily susceptible to change) standard, Parliament (on the Commissioner’s insistence) has introduced enormous uncertainty. Companies and advocates of all kind, on all environmental issues, are now left to either silence their representations (which could have benefits to consumers), or risk exposure (which could include a fine of up to 3% of the offending company’s annual worldwide gross revenues). In the short term, companies considering broad statements regarding their commitment to the environment should be prepared to substantiate such claims, even where the claims are not made to promote a specific product or service.
While the Bureau has committed to update much of its existing guidance in light of the recent amendments, it issued a press release shortly after the amendments were passed announcing that it would develop guidance on these new environmental provisions on "an accelerated basis", after the conclusion of a public consultation with stakeholders. That consultation process began on July 22, 2024; interested parties are invited to provide feedback to inform the Bureau’s enforcement guidance in respect of the new greenwashing provisions by September 27, 2024. In the interim, however, businesses operating in Canada remain in limbo while the Bureau works on its guidelines and it is possible that the last-minute changes will have the unintended effect of increasing 'green-hushing' in Canada, a term which refers to businesses and organizations opting to stay quiet about their climate and environmental strategies rather than risk exposure for deceptive marketing practices.
Drip pricing is the practise of offering or advertising unattainable headline prices to attract consumers while adding or burying additional fixed obligatory charges or fees in the final price, making the headline price unobtainable. As part of the June 2022 amendments to the Act, new subsections were added to explicitly recognize drip pricing as a deceptive practice under both the civil and criminal deceptive marketing/misleading advertising provisions.
Here too, the Commissioner’s Letter argued that the 2022 amendments did not go far enough, as the Bureau had observed that some businesses were interpreting the provisions as allowing them to pass their own regulatory costs or business taxes onto consumers in the form of mandatory ‘transaction fees’, so as to avoid disclosing these fees in the advertised price. Parliament agreed. The amendments stipulate that only those fees that are imposed directly on a purchaser by or under an Act of Parliament or the legislature of a province may be passed on in the form of additional fees.
Companies doing business in Canada should therefore ensure that the advertised price of a product or service includes all applicable fees, with the narrow exception of obligatory charges or fees which represent only an amount imposed on a purchaser of the product by or under an Act of Parliament or the legislature of a province (e.g., sales taxes).
The ordinary selling price (OSP) provisions of the Act prohibit any person from promoting a price as being a discount when, in fact, the advertised price is just the ordinary price of the product.
Prior to the amendments, the Bureau had the onus to establish that a price claim violated the OSP provisions. As the Commissioner’s Letter argued, this required the Bureau to “obtain the data and run the numbers to verify whether the claim is truthful or not, and be prepared to prove it in court, which can be a hefty burden”. The Commissioner’s Letter proposed that “further amendments be made to reverse the burden of proof under the OSP provisions”.
The Commissioner’s proposal was adopted; the amendments now place the burden on the person making a claim regarding the ordinary selling price of a product or service to substantiate the claim by establishing that either of the following are true:
While these amendments do not change the substantive elements of the ordinary selling price provisions of the Act, the shifting of the evidentiary burden to the person making the claim may embolden the Bureau to investigate more claims where it has reason to believe that a company has deflated the ordinary selling price of a product or service in order to inflate perceived discount to consumers. Moving forward, it will therefore be important for companies doing business in Canada to document (with supporting data) the basis for any advertised ordinary selling price claims.
The recent amendments to the Act, particularly as they adopted last minute changes urged by the Commissioner, have significantly changed several aspects of Canada’s competition framework, most notably in the areas of merger review and deceptive marketing practices. By design, the changes, like those to the abuse of dominance provisions in 2023, have increased the burden and introduced uncertainty for companies engaged with the Bureau, while significantly easing both the legal and resource burden on the Commissioner. Not only has Canada gone further than its principal trading partner in the United States with presumptions more familiar to European law, we have introduced vague standards, for which there are no Canadian reference points. We can only hope that the Commissioner resists the temptation to exploit his new powers for easy but questionable wins, and instead engages with Canadians openly and with measure, with a view to genuinely improving the health and competitiveness of the Canadian economy, not just his scorecard.
If you have any questions about these recent amendments, please contact the Bennett Jones Competition/Antitrust group.
1 For information on the June 2022 amendments to the Act, please see our previous Bennett Jones insight.
2 Bill C-352; September 18, 2023.
3 Tervita Corporation v. Canada (Commissioner of Competition), 2013 FCA 28 at para 107.
4 The HHI is calculated by summing up the squares of market shares in the market. The HHI ranges from near 0 (in the case of very large number of small firms) to 10,000 (in the case of a monopoly).
5 The amendments allow the Governor in Council to make regulations prescribing different values than those set out in Bill C-59.
6 Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 SCR 748 (Southam) at para 85. Further, in Southam, the Court found that if the choice was between a remedy that goes farther than necessary to restore competition to an acceptable level (i.e., to a point where competition is no longer lessened ‘substantially’), and a remedy that does not go far enough, then the former option must be preferred.
7 Notably, the standard in the United States is not as clear as the Commissioner suggests: in Illumina, Inc. v. FTC, the United States Court of Appeals for the Fifth Circuit held that, “Illumina was only required to show that the [proposed remedy] sufficiently mitigated the merger’s effect such that it was no longer likely to substantially lessen competition. Illumina was not required to show that the [proposed remedy] would negate the anticompetitive effects of the merger entirely”. As such, in the US, a remedy does not need to completely restore competition to what it would be ‘but for’ a deal, so long as the remedied transaction won’t substantially lessen competition.
8 Southam at para 89.
9 See Information Bulletin on Merger Remedies in Canada (September 22, 2006), available at: https://competition-bureau.canada.ca/how-we-foster-competition/education-and-outreach/information-bulletin-merger-remedies-canada.
10 Notably, there is now an incongruity (presumably unintended) between the applicable remedial standard under section 92 (which requires that a remedy restore competition to pre-merger levels) and the standard required to engage the Tribunal’s jurisdiction to make a remedial order under section 92 (which continues to require a ‘substantial’ lessening or prevention of competition).