Long-awaited reforms to the Canadian Competition Act (“Act“) have arrived and represent the most comprehensive amendments to the Act in over a decade. Recent and proposed amendments to the abuse of dominance provisions are likely to have a significant impact on how businesses operating in Canada assess and manage risk.
The first amendments to the abuse of dominance provisions, proposed in Bill C-56 The Affordable Housing and Groceries Act (“Bill C-56“), came into effect on 15 December 2023. These amendments created a new legal standard for abuse of dominance and increased the maximum administrative monetary penalties (AMPs).1
Further amendments to the abuse of dominance provisions are proposed in Bill C-59, The Fall Economic Statement Implementation Act, 2023 (“Bill C-59“), which is anticipated to be passed into law in early 2024. If passed as drafted, Bill C-59 would make it easier for private applicants to obtain leave from the Competition Tribunal (“Tribunal“) to bring a private action for abuse of dominance and create a disgorgement remedy.2
The Canadian abuse of dominance framework has undergone significant change, with more to come. The key takeaways for businesses in Canada are:
- Broader Scope of Conduct Subject to Potential Scrutiny. The new legal standard for abuse of dominance means that the Competition Bureau (“Bureau“) can investigate and take enforcement action against a broader range of conduct. A prohibition order may now be ordered where a dominant firm engages in either a practice of anti-competitive acts,3 or any conduct that has no anti-competitive intent, but results in anti-competitive effects in a market where the firm has a plausible competitive interest, and the effect is not a result of superior competitive performance. The non-exhaustive, statutory list of anti-competitive acts has also been expanded to include imposing excessive and unfair pricing.
- Significant Increase in Maximum AMPs. Bill C-59 increased the maximum AMPs that the Tribunal may order under the Act to the greater of CAD 25 million for the first violation (CAD 35 million for each subsequent violation), or three times the value of the benefit derived from the anti-competitive practice (or, if that amount cannot be reasonably determined, 3% of the company’s annual worldwide gross revenues).
- Increased Litigation Risk for Businesses. If passed in its current form, Bill C-59 is likely to increase the number of private applications for leave to bring a private action for abuse of dominance. Historical challenges in obtaining leave from the Tribunal to bring a private action are expected to be diminished as Bill C-59 would lower the existing legal threshold for private leave applicants and create a new public interest leave test. The proposed amendments would also, for the first time, permit the applicant and any other affected person to obtain disgorgement of the value of the benefit derived from the anti-competitive conduct. 4
In more detail
In recent years, Canada’s federal government has been focused on modernizing Canadian competition law and policy. This has included, among other things, initiating a consultation process to assess whether Canada’s competition policy framework remains appropriate in the digital age and a formal legislative review of the Act.
On the heels of these efforts, the Government of Canada introduced legislation proposing significant amendments to the Act. Bill C-56 was quickly passed, with the amendments to the abuse of dominance provisions coming into effect on 15 December 2023. The further amendments contained in Bill C-59 are part of omnibus legislation that is expected to pass into law with little debate or revision in early 2024. The amendments to the abuse of dominance provisions and the leave application test would not come into effect until one year after Bill C-59 comes into law.
The enacted and proposed amendments to the Act are examined in more detail below:
- New Abuse of Dominance Legal Standard. Prior to the enacted amendments, an abuse of dominance was established where three elements were met – unilateral or joint dominance, a practice of anti-competitive acts, and anti-competitive effects. Now, an abuse of dominance may be established based on anti-competitive intent or anti-competitive effects. Specifically, a prohibition order may be obtained where a dominant firm engages in either a practice of anti-competitive acts or any conduct that results in anti-competitive effects in a market that the firm has a plausible competitive interest in, which cannot be attributed to superior competitive performance. Alternative orders and AMPs continue to be available, but only where all three elements are met – a dominant firm engages in a practice of anti-competitive acts that have anti-competitive effects in a market where the dominant firm has a plausible competitive interest.
- Inclusion of Excessive and Unfair Prices. The Act’s non-exhaustive, illustrative list of anti-competitive acts was expanded to include imposing excessive and unfair selling prices. While the Bureau could have historically investigated excessive and unfair pricing as an abuse of dominance, by explicitly including such conduct in the non-exhaustive statutory list of anti-competitive acts, the Canadian government has signaled its intention that the Bureau investigate such conduct. The inclusion of excessive and unfair pricing also aligns Canada’s abuse of dominance framework with the European Union’s, which has long included excessive pricing. Competition law experts debate whether competition authorities are best placed to assess whether a business is pricing excessively, and fear that they will be turned into price regulators. Potentially to deter such commentary in Canada, when the government introduced Bill C-56, it confirmed that the inclusion of excessive and unfair selling prices was not intended to turn the Bureau into a price regulator. To the extent excessive and unfair pricing cases are brought in Canada, it is expected that they will relate to exploitative practices and involve complex and data-heavy investigations. Ultimately, the amendments may result in the increased scrutiny of, and litigation risk related to, dominant firms’ pricing practices, particularly where the public perceives that a dominant firm is pricing excessively and unfairly.
- Avenue to Obtain Remedies for Excessive Pricing that Amounts to a Refusal to Deal. Imposing an excessive and unfair price can be a form of refusal to deal. The Act has a separate provision for refusal to deal, which has a different legal standard and does not permit the Tribunal to order AMPs. Rather, the Tribunal may only order the supplier to supply the customer on usual trade terms within a specified timeframe. The new legal standard for abuse of dominance would likely make it easier to obtain a prohibition order to stop a dominant supplier from imposing excessive and unfair prices as a form of refusal to deal. The Tribunal would also be permitted to order AMPs where all three elements of abuse of dominance are established.
- Significant Increase in Maximum AMPs. The maximum available AMPs that may be imposed by the Tribunal for abuse of dominance have significantly increased. The maximum is now up to the greater of: (i) CAD 25 million in the first instance or CAD 35 million for a subsequent order (previously CAD 10 million and CAD 15 million, respectively); and (ii) three times the value of the benefit derived from the anti-competitive practice, or, if that amount cannot be reasonably determined, 3% of the person’s annual worldwide gross revenues. The Tribunal will consider a list of statutory factors to determine an appropriate AMP. Generally, these factors are intended to ensure that the AMP is corrective rather than punitive. The Bureau has historically sought AMPs that are commensurate with the degree of anti-competitive effects found and has indicated that it would only seek the maximum in particularly egregious circumstances.
- Lower Threshold to Obtain Leave from the Tribunal to Bring a Private Action. Bill C-59 proposes amendments which, if enacted, would radically change the prospects of private actions for abuse of dominance. Specifically, Bill C-59 would lower the threshold for private applicants to obtain leave from the Tribunal by no longer requiring that the applicant’s business as a whole be directly and substantially affected by the conduct. Rather, to obtain leave, the applicant would need to demonstrate that it is directly and substantially affected in the whole or part of its business by the conduct. Leave would also be granted to applicants if it is in the public interest, which is a novel concept in Canadian competition law and will require test cases before the Tribunal to fully flesh out the legal standard.
- New Remedy Available to Private Litigants. Bill C-59 would also, for the first time, permit private applicants to obtain a financial remedy for abuse of dominance. Specifically, a private applicant could seek disgorgement of the value of the benefit derived from the anti-competitive conduct, which would be distributed among the private applicant and any other person affected by the conduct. This private disgorgement right is separate from the class action regime for alleged criminal conduct under the Act or the failure to comply with a Tribunal or court order and lacks that regime’s procedural protections. Creating a financial incentive for private applicants to bring abuse of dominance actions is likely to increase the frequency and cost of competition litigation for businesses operating in Canada.
1 For further details on the Bill C-56 amendments see our client alert, here.
2 While not defined as such in the Act, disgorgement is a legal remedy which aims to deprive wrongdoers of their ill-gotten gains and has the practical effect of transferring the benefit derived from the wrongful act (generally, profits) to those injured by the conduct.
3 The Act defines an anti-competitive act as any act intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, or to have an adverse effect on competition.
4 For an in-depth review of competition law and foreign investment changes and trends seen in 2023, see our client alert here.