In April, the Canadian Competition Bureau (Bureau) followed suit and issued a position statement on competitor collaborations during the COVID-19 pandemic. While the non-binding statement does not affect the legislative framework for competitor collaboration under the Competition Act (Act), it may provide some businesses with greater flexibility to explore legitimate collaborations to ensure the supply of essential goods in a way that may not have been possible prior to the pandemic.
Current Competitor Collaboration Framework
Under the Act, the Bureau may assess an agreement or collaboration arrangement between competitors either criminally or civilly.
The criminal conspiracy provisions set out in section 45 of the Act contain a per se prohibition against so-called “naked restraints” on competition, specifically agreements between actual or potential competitors to fix prices, allocate markets and customers, or restrict output or supply that have no legitimate purpose or rationale. There is a very limited ancillary restraints defence that may be available where the conduct at issue is ancillary to a broader or separate agreement and directly related to, and reasonably necessary for giving effect to, the objective of that broader or separate agreement. Conduct that falls under this defence may still be assessed under the civil provisions described below.
Violation of the criminal provisions can carry hefty fines of up to CAD 25 million, imprisonment for up to 14 years, or both. In addition, section 36 of the Act provides for a right of private action for the recovery of damages as a result of conduct that is or is alleged to be contrary to the criminal conspiracy provisions. This section is commonly used to commence competition class actions.
Any type of competitor collaboration not considered a criminal section 45 violation is assessed under section 90.1 of the Act and can be prohibited only if it results or is likely to result in a substantial prevention or lessening of competition in a relevant market. Section 90.1 is a civil provision and the only remedy is a civil order prohibiting the agreement or arrangement.
The Bureau’s COVID-19 Response
On April 8, 2020, the Bureau issued a position statement on competitor collaborations, stating that “where there is a clear imperative for companies to be collaborating in the short-term to respond to the crisis, [and] where those collaborations are undertaken and executed in good faith and do not go further than what is needed, [the Bureau] will generally refrain from exercising scrutiny”.
While providing some flexibility on its face, the position statement underscores that competition law enforcement remains vital during the crisis and that the Bureau will exercise a “zero tolerance” policy towards any attempts to abuse this increased flexibility as cover for unlawful or anticompetitive conduct that may violate the Act.
While most firms will look to counsel to guide their assessment, the Bureau has also established a team to assist businesses with the evaluation of proposed pandemic-driven collaborations, with the aim of facilitating rapid decisions to enable business to support the crisis response. The Bureau indicates it will strive to provide informal opinions within 7-10 business days, provided it receives sufficient disclosure regarding the parties to be involved and the nature of the intended collaboration.
Implications of the Position Statement
While the position statement is important symbolically because it shows that the Bureau is joining other regulators who have issued similar statements regarding their approach to competitor collaborations during the COVID-19 pandemic, it does not modify the current Canadian legislative framework. In addition, the two examples included in the position statement of conduct the Bureau is prepared to be flexible on (namely the formation of collaborative buying groups and the sharing of supply chain resources such as distribution facilities to ensure access to the necessities of life for all Canadians) would likely constitute acceptable civil reviewable practices, subject only to civil review rather than per se criminal prohibition, even in the absence of the pandemic. Although the Bureau has elsewhere publicly stated that it would also be prepared to show flexibility toward naked competition restraints (those ordinarily subject to criminal prohibition) where the goal is to “ensure the supply of products and services that are critical to Canadians” – such as restricting sales of PPE to ensure it is provided to frontline workers, or allocating supply of life-saving medications to certain markets – it is not clear how the Bureau would treat restraints where the fact pattern is not so obvious (for example, in the context of food distribution).
As a result, before entering into any arrangements with competitors, and despite the issuance of the position statement, businesses should note the following:
- The current civil and criminal framework under the Act continues to apply to agreements and arrangements between competitors. Most competitor collaborations will not be affected by the position statement and businesses should first consider the Act and existing guidance, including the Bureau’s Competitor Collaboration Guidelines, in determining whether their specific collaboration is likely to be permitted.
- While the position statement clearly applies to “the supply of products and services that are critical to Canadians” such as PPE and COVID-19 related medications, it is not clear whether it would necessarily apply to other goods that are not typically deemed “essential”. Instead, these cases will likely be considered on a case-by-case basis and be highly dependent on the particular industry.
- The flexibility provided by the Bureau is limited in both scope and duration. Therefore, it is unlikely that the position statement will apply to businesses that aim to enter into competitor collaborations primarily to mitigate the long-term financial difficulty caused by the pandemic or to ensure the viability of their business or industry, in the absence of the other objectives discussed in the position statement.
- Unlike other jurisdictions, such as the UK or South Africa, where competition authorities have granted exemptions to certain businesses from the application of competition legislation, the position statement does not exempt any businesses from the application of the Act and also does not insulate them from the possibility of a private or class action based on an alleged breach of the Act’s criminal provisions.
Analyzing a proposed competitor collaboration is complex and for global companies looking to undertake collaborations across multiple jurisdictions, nuances and implications in each jurisdiction must be carefully considered. Businesses should enter into these collaborations cautiously and should consult counsel in each relevant jurisdiction to consider the viability of a given collaboration and whether competition law safeguards are advisable to mitigate risk.
Baker McKenzie has put together a global Beyond COVID-19 Resource Centre and Canada COVID-19 Resource Centre with key insights to assist our clients understand, prepare and respond quickly to the significant legal and business challenges posed by COVID-19. Baker McKenzie understands that these times are challenging for all our clients and we want to assure you we are here to assist.