Stikeman's Michael Laskey says change may be on the way, but it will take time
With federal Competition Commissioner Matthew Boswell signalling in a recent speech to Canadian Bar Association delegates that he needs more tools to keep the level of competition here healthy, lawyers can expect intense lobbying for a comprehensive review of relevant laws, says Stikeman Elliott lawyer Michael Laskey.
“Globally, the winds are blowing in favour of looking at ways to encourage broader, bigger competition,” says Laskey, a partner in Stikeman’s competition and foreign investment group. He notes that in the European Union and the United States, there have been more challenges related to the size and anti-competitive strength of technology companies such as Facebook (now Meta), Google and Apple.
“So, if you’re the Competition Commissioner in Canada, this is a good time to broaden the scope and power of the Competition Act,” Laskey says, adding the “current social climate is one of more skepticism towards big business.”
He adds that judging from the tenor of Boswell’s speech to the CBA on Oct. 20, businesses who want to conduct strategic M&A in Canada may expect more burdensome merger review timelines, similar to what has recently been experienced in the United States. Should that happen, successfully completing strategic mergers in Canada will likely take longer, be more costly, and will be more likely to result in litigation.
“The overall theme of his speech is that Commissioner Boswell doesn’t think that the toolbox has the right tools in it anymore to enforce the Competition Act properly,” Laskey says.
In his speech to the CBA, Boswell pointed out that in the 2021 budget, Ottawa promised $96 million in funding over five years and an additional $27.5 million on an ongoing basis to enhance the Competition Bureau’s enforcement capacity.
Boswell outlined his priorities for the increased funding, including:
- the creation of a new Digital Enforcement and Intelligence Branch that will act as an “early-warning system” for competition issues in both the digital and traditional economies;
- strengthened enforcement teams, and hiring more officers to conduct investigations, more lawyers to litigate cases, and more external experts to bolster the bureau’s claims; and
- enhanced advocacy capacity, which in practice likely means an expanded Competition Promotion Branch to advocate for regulatory and other policy changes across Canada.
Boswell also devoted a significant portion of his speech to what he perceives as significant issues with the current merger review process and the legal standards that inhibit the bureau’s ability to prevent allegedly anti-competitive mergers from closing.
He focussed on the merger of Secure Energy Services and Tervita Corporation. The bureau filed a last-minute injunction earlier this year to stop the two waste companies closing the deal. The bureau’s initial request to stop closing, pending the hearing of an injunction, was rejected in July by both the Competition Tribunal, and later by the Federal Court of Appeal.
The bureau’s subsequent request for a separate hold order to restrict integration of the merged business pending adjudication of the bureau’s complaint was also rejected by the tribunal in August.
“I will be blunt,” Boswell said in his speech. “The tribunal allowed a transaction to proceed that it concluded would likely cause irreparable harm to the public interest and competition. Yet, this transaction was allowed to proceed prior to the hearing of all of the evidence on the application. This raises valid concerns about the state of competition laws in Canada.”
The commissioner also highlighted the difficulties that the bureau faces in reviewing the potentially hundreds of thousands of documents that it requires merging parties to produce in a timely fashion to complete its reviews of complex transactions before merging parties can legally close their transactions. The commissioner’s concerns about resource constraints are similar to concerns recently expressed by the U.S. Federal Trade Commission in the context of its “second request” process.
As a result, Boswell indicated in his speech that the bureau would be adopting a litigation-focused approach for transactions where merging parties refuse to enter into a timing agreement with the bureau (for example, an agreement not to close a transaction once the statutory waiting period has expired). For such cases, given the enhanced prospect of litigation, the commissioner said that merging parties can expect a decrease in transparency and engagement from the bureau team assessing their transactions.
The commissioner also pointed to what he perceives as gaps in the Competition Act that inhibits effective enforcement of competition laws in today’s economy. He pointed to:
- weak maximum fines that are perceived as a cost of doing business rather than a meaningful deterrent to anti-competitive conduct;
- strict and impractical legal tests to prevent alleged anti-competitive mergers;
- the absence of private enforcement for certain anti-competitive behaviours; and
- weaknesses in the cartel provisions that allow “buy-side” agreements that are harmful to workers, such as wage-fixing and no-poach agreements.
Laskey points out that, for example, that the maximum fine for engaging in a price-fixing conspiracy in Canada is $25 million. Boswell’s speech, says Laskey, indicates that he doesn’t feel that amount sends a strong enough message, “that it is not high enough to deter bad conduct in the modern era, and that companies see that as a cost of doing business.”
Laskey acknowledges that fines in Canada can be significantly lower than those in peer jurisdictions such as the United States and the European Union, the latter of which uses a fine system based on a percentage of a firm’s revenues. “You can imagine, for example, a fine of five per cent of Google’s revenues would be far more than $25 million.”
The commissioner also repeated his long-held critique of the “efficiencies defence” in merger reviews. The defence provides that mergers cannot be blocked if they result in cost savings and other efficiencies that outweigh and offset their competitive harms. But Boswell says this defence may not be working in the best interest of Canadians.
Referring to the Secure/Tervita case, Boswell noted that “in short, the tribunal concluded that the bureau had an obligation to provide a “ballpark” estimate, in dollars, of the harm to the economy at the injunction stage.” He added the tribunal concluded that it required this estimate to weigh against the evidence of harm Secure would suffer due to the delayed realization of the claimed efficiencies from the merger.
“This decision has significant implications for how we conduct future merger reviews, particularly in cases where there are competition concerns and parties are unwilling to provide a timing agreement to delay completion of their merger.”
Boswell noted in his speech that while the bureau will be receiving additional funds from Ottawa, the bureau’s Mergers Directorate would not be receiving any of the additional Budget 2021 funds, as that branch is fully funded by filing fees received from merging parties.
However, Boswell also forecasted that, with rising costs of conducting merger reviews and a review of the filing fee scheduled within two years, merging parties can likely expect a further increase in filing fees in the near future to “properly fund operations.”
Currently, the filing fee for notifiable mergers in Canada is approximately $75,000, and the bureau conducts approximately 200 – 250 merger reviews per year.
Boswell concluded that a comprehensive review of the Competition Act is required and pointed to international efforts in the U.S., the United Kingdom, Europe and Australia. He urged the federal government to get on board so that Canada does not lose ground as other jurisdictions boost efforts to increase competition in their economies.
Laskey says that while Boswell’s speech to the CBA projects a more activist stance, he notes there were a number of parts of the commissioner’s speech that “may . . . make the problem seem bigger than it really is.” For instance, Boswell pointed to the efficiencies defence causing significant harm, but Laskey notes that defence has been rarely used, even though it exists on paper.
Laskey says that Boswell’s speech builds on what he has suggested in the past in media interviews and other public remarks. Still, it does mark “a level of aggressiveness, or clarity or strength, from the Competition Bureau that we haven’t seen in the past.”
With that said, however, Laskey notes the Competition Bureau is not the agency that can make changes to the law. The bureau “is the ‘police’ and it is up to Parliament to decide what they’re going to do.” The federal government would likely want to embark on a stakeholder and public consultation process, so it will probably take time before any changes are made.
However, Laskey also points out the commissioner’s view is ‘now very clear and on the record in a way that it wasn’t before.”
Based on Boswell’s speech, Laskey says as a lawyer, “I think it’s fair to tell companies that we can expect more skepticism from the Competition Bureau.
He adds: “We can expect a more careful approach, and we may even be expecting changes to the law in the next two or three years that may narrow this efficiencies defence.”
But “would we tell a client not to go ahead with a merger or to expect a process that’s going to be a lot riskier? At this point I don’t think we’ve seen evidence.”