Will new leadership at the Competition Bureau mean a different approach to enforcement?
John Pecman, Canada's newest Commissioner of Competition, was appointed to the job in June 2013 after serving as interim commissioner for one year. He is the first economist to hold the position. His predecessors were all lawyers, as are virtually all his counterparts around the world, including the US.
“Pecman is a great economist with very good instincts, and even though the Bureau is an enforcement agency and has always been run by lawyers, the economic considerations are huge,” says Melanie Aitken, Pecman's forerunner and now practising in Bennett Jones LLP's office in Washington, DC. Ironically, Pecman's appointment came in a year that saw Canadian courts and tribunals produce more significant competition law decisions than ever.
“The two previous years, 2011 and 2012, saw unprecedented levels of enforcement,” says Adam Fanaki of Davies Ward Phillips & Vineberg LLP's Toronto office. “But from the perspective of competition law jurisprudence, 2013 was unlike any other year.”
Not that Pecman is going to have any trouble understanding or acting on the rulings. With some 30 years at the Bureau as an investigator, manager and executive, most recently as Senior Deputy Commissioner of the Criminal Matters Branch, it's unlikely that even the most arcane legalities – or any other aspect – of competition law escape him.
“Before his appointment as commissioner, Pecman had been in every other significant role that exists at the Bureau,” says Paul Collins of Stikeman Elliott LLP's Toronto office.
As it turns out, Pecman is also the first commissioner to have risen to the position through the Bureau's ranks. As Collins, who was himself seconded to the Bureau earlier in his career, sees it, Pecman's strong roots in the Bureau make it unlikely that he will reach into the ranks of the private Bar for secondments as often as his predecessor Aitken, who moved to the Bureau from a career at the private Bar to which she has now returned.
As well, there are other important differences between the two. Aitken, appointed in 2009, was by experience and inclination a litigator at heart. There is little doubt that she revived competition law enforcement by initiating challenges that spanned the Competition Act, including mergers (CCS, CREA, TREB), abuse of dominance, price fixing (retail gasoline), price maintenance (credit cards) and misleading advertising (Chatr Wireless, Nivea).
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Pecman, it seems, is of a different ilk. In early October 2013, he addressed the Canadian Bar Association. Calling the remarks his “first serious public speaking engagement since my appointment,” he quickly turned to the “amazing vision and a new approach” that was implemented when he became Interim Commissioner.
The focal point of the “new approach” was a “Bureau Without Borders,” which Pecman described as one in which the Competition Bureau's reach was not strictly limited by its resources or constrained by international or domestic jurisdictional boundaries. In this vision, shared compliance – the concept that the Bureau, the legal community and the business community shared the responsibility to promote competitive markets – was central.
By way of example, the Commissioner referred to the Competition Tribunal's decision in The Commissioner of Competition v. Visa Canada Corporation and MasterCard International Incorporated. The Tribunal ruled that Visa and MasterCard had not engaged in resale price maintenance when they required the operators of their payments systems networks to impose certain conditions on the retail merchants using the networks. The Competition Tribunal reasoned that because what the networks were providing to the merchants was different from what the credit card services provided to the networks, no “reselling” had occurred.
What may be more significant, especially from a policy perspective, is the Competition Tribunal's observation that even if the allegations had been proven, it would not have issued the order sought by the Commissioner, which would have amounted to a “blunt instrument” requiring constant adjustment in a varied “merchant sector” and “replaced one set of distorted incentives by another.”
Pecman took note. The Bureau decided not to appeal the ruling, hoping instead to “work collaboratively” with Visa, MasterCard and other stakeholders to achieve a result that would be “beneficial to both Canada's consumers and merchants alike.” As further evidence of the Bureau's new approach, Pecman cited recent consent agreements with Interac, Agrium Inc., Air Canada and United Continental Holdings,WM Holdings andRCI Environment. He also cited the guilty pleas by Hershey Canada in the chocolate conspiracy case, by Yazaki Corporation and Furukawa Electric Co., Ltd. in the motor vehicle components case, by Cathay Pacific Airways and LATAM Airlines Group in the air cargo matter, and by JTEKT Corporation in the bearings proceedings.
Pecman went on to promise to cooperate with the Bar, put new emphasis on “transparency, certainty and predictability” in the Bureau's operations and application of the law, and to intervene strategically with other regulators and government agencies to raise the profile of competition policy considerations in their decisions.
“There is a clear, concerted and proactive effort to strengthen relationships and try to infuse competition policy thinking into other regulatory bodies, like the CRTC, as these bodies attempt to come to grips with broader issues,” says Neil Campbell of McMillan LLP's Toronto office.
One area of particular interest to the Commissioner is the connection between intellectual property and anti-trust. The Bureau has already promised to update its IP Enforcement Guidelines, which have not been revised since being formally finalized in 2001. As well, Pecman wants to address the kinds of issues that have arisen in the US with regard to “pay for delay” or “reverse settlements” between innovators and generics in the pharma industry.
“What we might be hearing is an echo of the federal government's current ‘consumer first' message,” says Denis Gascon of Norton Rose Fulbright Canada LLP's Montreal office.
Also in the works is a Memorandum of Understanding with Public Works and Government Services Canada intended to enhance cooperation and coordination around procurement bid-rigging issues in an effort to improve enforcement on both sides. The fact that communication between the two departments is even happening is notable as PSGSC apparently stepped on the Bureau's toes when its new debarment rules, issued in 2012, prohibited individuals and companies convicted of competition-related offences from bidding on government contracts.
“Previously, the debarment program exempted applicants involved in the Bureau's immunity program,” Campbell says. “But the change imposed a harsh economic penalty on people who chose to cooperate with the Bureau, and it didn't really do much to advance the leniency initiative.” Although the debarment rules have not been re-modified, Campbell believes the interaction remains meaningful. “The fact that the Bureau is working at getting an MOU with an agency with which there has not been a particularly significant cooperative relationship in the past is a positive step that is indicative of the Commissioner's general approach to outreach and advocacy.”
Initial indications are that Pecman is delivering on his promises of collaboration.
“There's a new relationship between the Commissioner and the CBA, what I would call a huge change,” says Brian Facey of Blake, Cassels & Graydon LLP's Toronto office. “Collaboration had dwindled to a dribble under the previous administration and the relationship became strained, but we've rebuilt bridges to the point where we now have members of the Bureau on the CBA's Competition Section committees and there has been a lot of back and forth.”
Facey says the benefits of collaboration will become even more evident as new guidelines are released. “The contents won't be a surprise, there will be greater buy-in from the community and the Bar, and for the most part we'll get better policies than we would have without the cooperation.”
For now, the merger review process appears to be a prime beneficiary of the Bureau's policy. “There's a fresh approach that focuses on getting anything that's very straightforward in and out of the door quickly,” Facey says. “Also, the staff is far more engaged and transparent in expressing their concerns about a particular market or product and by way of letting parties in on what's going on in the Bureau's mind.”
Another area Bureau Without Borders is impacting is in the treatment of multi-jurisdictional mergers. In December, the Bureau issued a “No Action Letter” regarding Thermo Fisher Scientific Inc.'s acquisition of Life Technologies Corporation, two US multinationals. In approving the merger, the Bureau cited a remedy ordered by the European Commission that required divestiture of certain assets.
“The Bureau had issues on this transaction, but it allowed the US and Europe to be the lead jurisdictions and accepted the global remedy they imposed,” says Facey, who represented Thermo in Canada. “It's a sign of the confidence that the Bureau has in its own abilities and its willingness to resort to efficiencies of this kind in using its resources.”
There will, however, doubtlessly be skeptics who point out that the Bureau's current collaborative-friendly, cooperation-driven approach, including the decision not to appeal the credit card ruling, is an invention of necessity. After all, the credit card ruling was just one of several disappointments that emanated from the Bureau's forays into litigation instituted during Aitken's tenure.
“In their most recently released [2011-12] annual report, the Bureau touted the fact that it had brought the credit card case, the Rogers misleading advertising involving Chatr, and the TREB case involving multiple listing access, as ‘key achievements,'” Gascon notes. “When the decisions were later released, it turned out that they lost each of those cases.”
Several years ago, the Federal Court sharply criticized the Bureau for excessive use of its subpoena powers, after which the regulator pledged to adopt stricter internal controls on the use of those powers, including the broad powers found in s. 11of the Competition Act to subpoena documents and obtain oral discovery.
“Given the Bureau's recent experience in the courts, you have to wonder whether they'll do the same when it comes to deciding whether to launch new enforcement proceedings,” Gascon says. “It might depend on what lessons they learned from their losses. While it's important to advance the law through litigation, the real question is, ‘At what price?'”
For his part, Collins believes that the emphasis on enforcement will not abate. “I think John is determined to enforce the Act rigorously,” says Collins, who interprets Pecman's collaborative bent not as a reluctance to initiate formal proceedings but rather as a focus on resolving them by way of settlement rather than arduous litigation.
What the Bureau may have learned from its recent tribulations before the courts, however, was that it had to bolster its cases properly before bringing them. “Pecman has already indicated that they'll be resorting more frequently to their powers to collect information in non-merger applications,” says Toronto-based Norton Rose Fulbright Canada partner, Kevin Ackhurst. Here, Pecman has quickly proven that he's as good as his word.
“John is using some of the older arrows in the tool shed's arsenal, such as s. 11, much more than Melanie [Aitken] did,” Collins says. “For example, in the past the Bureau would likely start an abuse of dominance inquiry with an informal approach to a party, but these days they're likely to initiate an investigation with a s. 11 order even if a party is willing to cooperate and has no history of non-compliance.”
Indeed, it's been almost a quarter century since the Bureau resorted, as it has recently, to s. 11 oral discovery in abuse cases. “It's a bit of an old-school approach,” Collins says. “John genuinely believes that going the formal route at the outset of an investigation fleshes out the issues and so facilitates settlement down the road.”
The formality would also deliver on Pecman's promised determination to make the Bureau more transparent. “I've found him to be quite reasonable in several high-profile cases in which I've been involved,” Collins says. “He's definitely not afraid of litigation, but my sense is that he prefers to work things out.”
It's also important to remember that recent developments on the litigation front have hardly been all bad for the Bureau. To begin with, the courts have upheld the constitutionality of administrative monetary penalties (although they are still being challenged in a case involving Leon's Furniture). The Bureau also won the initial rounds in the first contested merger case since 2005 when the Federal Court of Appeal ruled in June 2013 that the regulator could intervene in a merger that would result in a substantial prevention of competition, an argument considerably broader than the traditional one that an impugned transaction would produce a substantial lessening of competition. The SCC, however, has since granted leave to appeal.
“I don't think the setbacks in cases like VISA and Chatr will necessarily cause the Bureau to shy away from proper civil enforcement proceedings,” Campbell says.
Civil proceedings aside, what most observers are expecting is an upswing in criminal prosecutions, especially those involving cartels. After all, it's been about three years since the cartel provisions were amended to constitute agreements to fix prices as per se offences, making prosecution and conviction easier by removing the need to prove that such agreements were likely to lessen competition.
“There's never a shortage of cartels to pursue,” says Anthony Baldanza of Fasken Martineau DuMoulin LLP's Toronto office. “Given Pecman's recent heritage on the criminal side and the fact that the Bureau has being going through a bit of a learning curve regarding the 2010 amendments to the criminal provisions, I think we can expect a fair bit of activity there.”
As well, and doubtless buoyed by the success of its immunity and leniency programs , the Bureau has recently adopted a new, more aggressive stance to enforcement by revising the programs substantially and by creating a new program called The Criminal Cartel Whistleblowing Initiative.
“The vast majority of criminal cartel and bid-rigging cases that we are investigating have originated with our immunity and leniency programs,” says Jeanne Pratt, Assistant Deputy Commissioner, Criminal Matters Branch. “The new initiatives are intended to build on the huge success of these programs.”
The revisions do not change the main features of the programs. But they do ramp up enforcement policies by, among other things, making it clear that cartels having only indirect sales into Canada are subject to prosecution and therefore fall within the immunity and leniency programs, and by instituting measures aimed at ensuring complete cooperation by applicants.
But it's not as if whistleblowing provisions are new to the Competition Act. “The current initiative highlights and publicizes the protections that exist for whistleblowers under the existing provisions, which have been in force since 1999,” Fanaki says.
Under the immunity program, the first party to disclose to the Bureau an offence not yet detected or to provide evidence leading to the filing of charges may receive immunity from prosecution as long as the party cooperates with the Bureau. Under the leniency program, cooperating persons who have breached the cartel provisions under the Competition Act but are not eligible for a grant of immunity may be considered for lenient treatment in sentencing.
The new initiative, however, seems to be aimed at individuals whose conduct does not expose them to the risk of prosecution. “Mostly we're talking about employees of corporations who have evidenced but not participated in an offence,” Pratt explains.
In other words, the new program focuses on innocent parties, encouraging them to provide information by highlighting the protections available and giving them direct contact information. What it does not do is provide positive incentives, like rewards, for innocent people to proffer information. In the case of the Competition Act, then, it remains to be seen whether such individuals will be as willing to come forward in cartel cases as have culpable companies or individuals who have opted for the leniency or immunity programs.
As it turns out, even the culpable individuals may be more reluctant. Ever since the conspiracy offence became a per se offence in 2010 as part of the same amendments that increased the maximum penalties from $10 million to $25 million and from 10 to 14 years' imprisonment, the Competition Bureau has been seeking more robust fines.
If Federal Court Chief Justice Paul Crampton's remarks in Canada v. Maxzone Auto Parts (Canada) Corp. in September 2012 are any indication, the courts seem willing to support a tougher approach.
“Price fixing agreements, like other forms of hard core cartel agreements … represent nothing less than an assault on our open market economy,” Crampton wrote. “Buyers in free market societies are entitled to assume that the prices of the goods and services they purchase have been determined by the forces of competition. When they purchase products that have been the subject of such an agreement, they are effectively defrauded.”
Cartels, Crampton added, should be treated at least as seriously, if not more seriously, than fraud and theft. In that vein, he also added an element of uncertainty to the plea-bargaining that accompanies the immunity and leniency programs.
“Although he accepted the plea bargain made in this particular case, Justice Crampton made it clear that rubber-stamping would not occur in his court, and that he expects a great deal of information and explanation before approving settlements,” Anthony Baldanza says. “That creates the kind of uncertainty that would certainly make an accused think twice before pleading. We could see quite a few more trials in cartel cases.”
And not just on the criminal side. In a landmark trilogy released on Halloween that changed the face of competition class-action law, the Supreme Court declared open season on consumers who wish to use class actions to recover overpayments for products or services that have been the subject of price-fixing conspiracies.
“Price-fixing class actions are open for business in Canada,” says J.J. Camp of Vancouver's Camp Fiorante Matthews Mogerman, who represented the class in Pro-Sys Consultants Ltd. v. Microsoft Corporation, one of the three cases decided by the SCC. “If the court had excluded consumers, dozens of these types of cases would have been shut down, unjustly precluding consumers from recovering their losses against the wrongdoers and requiring them to disgorge their ill-gotten gains.”
More particularly, the court ruled that plaintiffs' lawyers can lump direct and indirect purchasers into the same class. “These decisions are, without a doubt, a big win for plaintiffs,” says Michael Osborne, a class-action defence lawyer at Affleck Greene McMurtry LLP. “The entire structure of class actions in Canada has tended to be based on the one big happy family approach where direct and indirect purchasers sue in the same proceedings — and the court has basically validated that approach.”
Microsoft was a BC case involving operating systems. The second case, Sun-Rype Products Ltd. v. Archer Daniels Midland Company, was also a BC case but involved high-fructose corn syrup. The third, Infineon Technologies AG v. Option consommateurs, originated in Quebec and dealt with DRAM memory chips. The court unanimously (9-0) certified the indirect purchaser classes in Microsoft and Infineon, but in a split decision (7-2) rejected certification for both direct and indirect purchasers in Sun-Rype. The rejection of the indirect purchasers was based on the plaintiffs' inability to offer any evidence showing that at least two individuals (two being the minimum number for a class) could “self-identify” by proving they purchased a product that actually contained the impugned syrup, which tended not to be identified on labels.
In all three cases, however, the court rejected the 1977 US Supreme Court decision in Illinois Brick Co. v. Illinois, which has served to bar indirect purchaser claims in federal courts (but not in state courts) for more than three decades.
“Despite recognizing that there were complicated issues of multiple and double recovery in allowing indirect purchaser claims to proceed, the SCC clearly believed that trial judges would be able to sort these things out,” says Fanaki, who represented the Canadian Chamber of Commerce, an intervener in Sun-Rype.
Just as significantly, the SCC confirmed, as it had 10 years earlier when it first considered the question, that a relatively low evidentiary standard is required for certification of price-fixing class actions in common-law provinces — and an even lower one in Quebec.
“It's clear that the Supreme Court does not see the certification process as a robust gatekeeping function,” says Fanaki's colleague Mark Katz in Toronto.
It was not, the SCC ruled, the certifying court's place to resolve conflicting facts or evidentiary issues. Rather, where loss issues arose, a plaintiff only had to make out a “credible” or “plausible” methodology that would allow a court to try the case on a class-wide basis.
In a price-fixing case, the methodology had to offer a “realistic prospect” – one grounded in the facts of the case and based on “some evidence” that appropriate data was available – for establishing loss on a class-wide basis to ensure that the plaintiffs could demonstrate at trial that any proven losses were common to the class.
In Quebec, however, the Civil Code imposed a lower standard of certification. Expert evidence was, therefore, “not the norm” at the certification stage and the plaintiffs had only to demonstrate an “arguable case that an injury was suffered.”
Canada's acceptance of indirect purchaser classes and its lower evidentiary standard for certification raises the prospect that competition class actions that can't be certified in the US will come to Canada and succeed here. “It's not clear yet how much sense that makes,” says Christopher Naudie, a defence lawyer in Osler, Hoskin & Harcourt LLP's Toronto office.
What does make sense is that John Pecman's term is shaping up to be a busy one.
Julius Melnitzer is a freelance legal-affairs writer in Toronto.
