After building energy for reform and a comprehensive public consultation, the product of the federal government’s review of the Competition Act are coming into focus. With Bill C-56 receiving royal assent and C-59 to be debated early in the new year, it is an exciting time for competition policy in Canada.
With the changes to come in C-56 and C-59, Canada has a real shot at moving away from the efficiency-dominated and consolidation friendly approach that has characterized the Competition Act since its 1986 introduction. To explain the issues these changes address, and what to look for in 2024, CAMP has put together an overview of Canada’s Competition Act reform agenda so far.
At a glance, here are the changes already brought into law and on the horizon for 2024.
C-56, which has received royal assent and become law, amends the Competition Act by:
- Removing the efficiencies defense that excuse otherwise harmful mergers and anticompetitive agreements
- Broaden the scope of enforcement and increase financial penalties for abuses of corporate dominance
- Provide the Competition Bureau with the independent authority to study competition in markets across the economy
- Include a wider range of anticompetitive agreements under the act’s jurisdiction
C-59, which is set to be debated in early 2024, proposes to further amend the Competition Act by:
- Allowing industry concentration levels and effects on labour markets to be considered in the assessment of mergers and giving the Competition Bureau more time to analyze certain mergers
- Opening the door for private access to the Competition Tribunal, allowing companies to bring cases against corporations engaging in anticompetitive conduct
- Strengthening enforcement against anticompetitive agreements, allowing for financial penalties and enforcement against past agreements
- Creating a system for the Competition Bureau to authorize collaborations between competitors that support environmental goals and do not reduce competition
- Narrowing the potential for taxpayers to end up footing a corporation’s legal bills if the Competition Bureau loses in court, as seen in Rogers-Shaw
- Introducing language to support the right to repair in Canada
With these changes, the federal government is making material improvements to Canada’s competition law framework. While the changes represent real progress towards effective competition law in Canada, key elements such as presumptions against mergers in already consolidated industries and a system for tackling unfair methods of competition remain absent from Canada’s competition law framework. Once enacted, the effectiveness of the amendments in C-56 and C-59 will ultimately depend on the Competition Bureau and private parties to vigorously enforce them in support of fairer competition in Canada.
Bills C-56 and C-59
To avoid confusion a quick note on the names and status of the two competition bills moving through Canadian Parliament.
C-56, the Affordable Housing and Groceries Act: introduced in September 2023, C-56 proposed amendments to the Excise Tax Act and the Competition Act. After cross-party amendments to strengthen the bill from the House Standing Committee on Finance, the bill received royal assent and became law on December 15, 2023.
C-59, the Fall Economic Statement Implementation Act, 2023: introduced in November 2023, C-59 implements a variety of legislative changes in support of the government’s 2023 Fall Economic Statement, including further amendments to the Competition Act. Before the house adjourned for the holiday break the bill had moved to second reading and has not yet been studied by parliamentary committee.
Both bills are set to strengthen Canada’s competition law in important ways, catching Canada up to international peers and providing better protection for Canadians as they weather the ongoing rise in the cost of living. But what changes do these bills make and what issues do they address in Canada’s competition law framework?
Strengthen enforcement against harmful mergers
Some of the most exciting changes are happening to Canada’s merger enforcement framework, with both C-56 and C-59 bringing a more skeptical treatment of mergers and their alleged benefits. First, the efficiencies defense that allows harms to competition to be traded off for benefits such as cost savings, is out. This is an important development for Canada’s competition law, a jurisdiction uniquely committed to the idea that the harms and benefits of a merger can be measured and traded off against one another. Though only a handful of public cases have hinged on the efficiencies defense, it is a reflection of a framework willing to sacrifice competition in pursuit of other goals. With its removal, Canada moves closer to a competition law that actually decides mergers based on their impact on competition.
But the issues with Canada’s current merger enforcement framework run deeper than the efficiencies defense. Today the Competition Act downplays the role that market structure plays in competition, rejecting increases in concentration as indicative of a potential harm to competition. C-59 removes language that rejects market structure as an indicator of competition and includes increases in concentration as a factor for the Competition Tribunal to consider when evaluating a merger. In addition to changes in concentration levels, C-59 also makes clear that effects on labour markets should be considered when analyzing a potentially harmful merger.
C-59 also widens the funnel for mergers reviewable by the Competition Bureau by expanding the criteria for mergers that require notification to the Bureau before closing and giving the Bureau more time to investigate mergers that do not require notification. C-59 does this by including “sales into Canada” as a notification criterion, catching a wider group of large foreign firms with relatively smaller operations in Canada. It also reverts to a three-year window after close for the Bureau to intervene on a non-notifiable merger, while keeping the intervention window for notifiable mergers at one year.
Expand tools to prevent big businesses from behaving badly
But merger enforcement is a fundamentally defensive game, preventing competition from worsening in a market. Where consolidation has been allowed to occur and markets are characterized by a few large players, strong abuse of dominance laws are needed to ensure corporations are not able to engage in activity that suppresses competition. This is particularly the case in Canada, a country that has long had higher levels of concentration than international peers, a trend that has worsened over the past twenty years.
To that end, amendments to C-56 put forward by the NDP make important changes to the test for an abuse of dominance case, broadening the scope of anticompetitive conduct captured by the provision. Prior to the amendments, an abuse of dominance finding required meeting three tests: that a corporation was dominant in a market, that it engaged in anticompetitive acts, and that the effects of those acts were deemed substantial. In its submission to the government’s consultation on the Competition Act, the Competition Bureau pointed to the three-part test as frustrating its ability to intervene against anticompetitive conduct. C-56 broadens this test by allowing an abuse of dominance to be found without a finding of substantial effects. This corrects an important blind spot that allowed anticompetitive conduct by dominant corporations to occur so long as the effect was not deemed substantial, even if it was clearly anticompetitive in its intent.
Additionally, amendments proposed by the Bloc Québécois add “excessive or unfair pricing” as a potential abuse of dominance under the law. This change brings Canada’s abuse of dominance law closer to that of the European Union, who have used their abuse of dominance provision to pursue cases against excessive pricing in the pharmaceutical market.
Decentralize enforcement of the Competition Act
While the changes to the merger and abuse of dominance provisions are promising, a possible sleeper hit change to Canada’s competition law framework is the expansion of private access to the Competition Act. Today, outside of a handful of class action cases, the primary source of competition law cases is the Competition Bureau, Canada’s sole competition law enforcement agency. This stands in contrast to the United States, where individual companies can bring competition law cases against firms they believe are engaging in conduct harming competition. Despite its best efforts, at approximately 400 people mostly based in Gatineau, the Competition Bureau cannot have eyes on every corner of Canada’s $2 trillion economy. A robust private access framework is an important complement to the expert work of a federal competition authority.
C-59 creates the foundation for this framework by expanding private access to a range of anticompetitive conduct covered by the Competition Act and allowing companies to seek damages for anticompetitive conduct. Companies take on serious risks when challenging the dominant firms in their industries, and the possibility of compensation for the anticompetitive conduct they face is an incentive for companies to bring these cases. In the U.S. the private access regime has contributed meaningfully to the evolution of American antitrust law, most recently on display with the jury decision in favour of Epic Games in its suit against Google’s app store policies. In 2022 Canada opened the door to private abuse of dominance claims without damages, which have already been used by a generic drug maker to gain quicker access to samples of a name brand leukemia drug for reproduction and increased competition. Changes in C-59 would take those changes further in support of a more robust private access framework.
Allow the Competition Bureau to study competition
Unlike its counterparts in the U.S., U.K., E.U., and Australia, Canada’s Competition Bureau does not have the power to study competition in markets. This may not seem to be the case given the Bureau’s 2023 study of the retail grocery market, but that study and all previous studies by the Bureau lacked an important component. Before C-56, the Bureau had to rely on the voluntary production of data from firms to inform any market study it conducted. In the case of the grocery market study, this meant that major grocery firms refused to provide pricing information that would have allowed the Competition Bureau to better understand the sources of food inflation, as the U.K. Competition and Markets Authority (CMA) is currently studying.
To remedy this situation, C-56 provides the Competition Bureau with the power to use the courts to compel information for the purpose of market studies, previously limited to investigations of conduct in violation of the Competition Act. Beyond bringing Canada closer to global peers, this power has important implications for both prospective and retrospective analysis.
Prospectively, the Competition Bureau can use this power to understand the dynamics in emerging markets, as the U.S. Federal Trade Commission is currently doing with its study of the market for cloud computing services. Rather than the catch up that authorities around the world have been engaged in on digital markets over the past decade, more proactive study of markets will allow the Bureau to understand how a market is functioning before competitive issues arise. Retrospectively, the Bureau can use this power to understand the consequences of their action and inaction, particularly in the case of mergers. Though the Competition Bureau frequently enters settlements to remedy otherwise problematic mergers, until now it has had no tools to look back and understand whether those remedies were effective. With market studies, the Competition Bureau has the opportunity to learn from its past actions and apply those learnings going forward.
Bolster anticompetitive agreement provisions
C-56 and C-59 also address a long-standing issue with enforcement against agreements that harm competition but do not rise to the criminal standard for cartel enforcement. Before C-56 and C-59, powers against anticompetitive agreements could only be used against competitors entering into agreements, could not be enforced against past agreements, and carried no financial penalties. Though the term is often thrown around, these deficiencies meant that the provisions were effectively toothless. Companies engaging in anticompetitive agreements could abandon agreements if they came under Bureau scrutiny and then simply re-enter them once that scrutiny had passed. With no backward-looking capability or financial penalty, it is hard to imagine parties being deterred from entering such agreements.
After C-56, agreements between businesses that are not competitors fall under the law, motivated by reporting that showed grocery stores were limiting competition in their dual role as landlords. Amendments to C-56 put forward by the Conservatives also removed the justification for anticompetitive agreements on the grounds of efficiency, a shadow efficiency defense similar to the one removed for mergers by C-56. Going further, C-59 will correct the remaining deficiencies in the anticompetitive agreements provisions, allowing for enforcement against past agreements and bringing financial penalties similar to the abuse of dominance provisions.
Create a system for environmental collaborations
A growing trend at the intersection of competition law and climate change has been companies using the risk of competition and antitrust law enforcement as an excuse for not pursuing collaborative climate change goals. To facilitate these collaborations without sacrificing competition, C-59 provides a mechanism for companies to apply to the Competition Bureau for certification that an agreement or arrangement with environmental goals as its purpose does not lessen competition, and therefore not likely to represent a violation of the Competition Act. Though the level of uptake of the authorizations remains to be seen, this move follows in the footsteps of jurisdictions like Australia with authorization frameworks and should provide certainty to businesses without excusing anticompetitive behaviour on environmental policy grounds.
Narrow cost awards and protect the right to repair
Though C-56 and C-59 make material changes to the Competition Act, they leave relatively untouched the Competition Tribunal Act, the legislation governing the Competition Tribunal, Canada’s competition court. One important exception to this is a narrowing of the window for cost awards against the Competition Bureau should it lose in court. Disregarding the public interest mandate of the Competition Bureau, the law currently treats the Bureau effectively as a private litigant, with the risk of being on the hook for a portion of a defendants legal fees should it lose. This was seen most recently when the Bureau was ordered by the Competition Tribunal to pay $13 million of taxpayer money to multibillion dollar telecommunications firm Rogers. Though C-59 does not remove cost awards entirely, it limits the circumstances where a judge could order the Bureau to pay these costs in the future.
Through C-59 the government has also given a nod to the growing right to repair movement focused on consumer’s ability to repair and maintain the devices they own without being locked into specific providers. The Competition Act includes provisions for refusals to deal, where a corporation refuses to provide its product or services to another for the purposes of blunting competition. By adding language covering products that are a “means of diagnosis or repair,” C-59 creates an avenue for companies that offer repair services for products like the iPhone to be granted access to proprietary parts required to provide consumers with competitive options when they are in need of repair services.
What’s Next for Competition Policy in Canada
Covering the capture of Canada’s competition law in the 1980s, legendary reporter Peter C Newman called the Competition Act “the only time in the history of capitalism that any country allowed its anti-monopoly legislation to be written by the very people it was meant to police.” Taken together, the changes contained in C-56 and C-59 are an important break with that history and step towards competition law on par with Canada’s global peers.
Though not a cure-all for the issues facing competition in Canada, C-56 and C_59 are important steps towards more robust and effective protection of the competitive process and its many benefits to Canadians. Though C-56 has received royal assent and is now law, Canadians will have to wait until 2024 for the final form of C-59 and whether the federal government is able to see to its swift passage. Once C-59 receives royal assent, attention will rightfully turn to both the Competition Bureau as well as private actors facing anticompetitive conduct to begin working towards a more competitive future in Canada. Much work remains but Canada is beginning the process of catching up to the growing global focus on competition and the threat of concentrated economic power.