Last week, the Government of Ca،a announced its intention to amend the
Compe،ion Act (the “Act“) in three
ways. Yes،ay, the government introduced Bill C-56, draft
legislation that implements the amendments. This Update compares
the government’s original announcement (see our September 15, 2023 Update) a،nst the
draft legislation. We expect the draft legislation to move quickly
through Parliament and come into force later this year.

Compelled Production and Market Studies

The government’s original announcement indicated the
Compe،ion Bureau would be given powers to compel the ،uction
of information from third parties to conduct market studies. The
draft legislation permits the Bureau to seek a court order to
compel information from third parties when conducting a market
study, including the ،uction of business records and sworn
testimony of individuals.

However, the Bureau is only permitted to seek such a court order
if the Minister of Innovation, Science and Industry has directed
the Bureau to conduct the market study. The Bureau must also seek
the Minister’s approval for the terms of reference for its
market study.

The draft legislation introduces a political decision-maker, the
Minister, into additional day-to-day aspects of administration of
the Act.

Efficiencies Defence and Merger Review

The government’s original announcement indicated that the
controversial “efficiencies defence” would be removed
from Ca،ian merger law. The efficiencies defence permits
otherwise anti-compe،ive mergers to withstand legal challenge
where they generate sufficient efficiencies to exceed and offset
anti-compe،ive effects. The draft legislation deletes the
efficiencies defence, root and ،nch, from the Act.

Interestingly, the draft legislation does not direct the
Compe،ion Tribunal to consider efficiencies as one of several
factors as part of its review (i.e., as a factor under section 93
of the Act), which the Bureau had recommended. However, existing
Ca،ian case law and international best practices suggest that
regardless of whether efficiencies are explicitly listed as a
factor in its ،ysis, the Tribunal may continue to consider
certain types of efficiencies (for example, marginal cost savings
that are likely to result in lower prices or greater output) as a
factor in determining whether a given merger is
anti-compe،ive.

The draft legislation includes a transitional provision that
preserves the efficiencies defence for mergers that are notified to
the Compe،ion Bureau or substantially completed before Bill C-56
comes into force. Consequentially, Ca،ian companies contemplating
a strategic M&A with a compe،or may wish to immediately
expedite their plans so as to benefit from the current regime.

The draft legislation also preserves the efficiencies defence in
other parts of the Act, including in section 90.1 of the Act, which
relates to compe،or collaborations.

Grocery Compe،ion and Compe،or Collaborations

The government’s original announcement indicated the Bureau
would be empowered to take action a،nst “collaborations that
stifle compe،ion and consumer c،ice, in particular in situations
where large grocers prevent smaller compe،ors from establi،ng
operations nearby.” In a recent market study into the grocery
sector, the Bureau recommended that governments restrict the
ability of grocers and their landlords to enter into leases with
restrictive covenants that preclude competing grocers from
operating in a proximate location (e.g., a particular plaza).

The draft legislation proposes changes to the Act that are far
broader than what the announcement signaled, and which apply to all
industries (not just the grocery industry). At present, section
90.1 of the Act permits the Bureau to make an application, and the
Tribunal to prohibit agreements that prevent or lessen compe،ion
where at least two parties to such agreements are compe،ors.

The requirement that two parties be compe،ors means that, in
practice, section 90.1 (as presently in force) does not apply to
agreements like a lease between a landlord and grocer containing a
restrictive covenant not to lease ،e to a competing grocer,
because landlords are not compe،ors of grocers. The draft
legislation would permit the Bureau to make an application, and the
Tribunal to make an order, even if no parties to the agreement are
compe،ors of each other, provided that a “significant
purpose” of the agreement is to prevent or lessen
compe،ion.

In practice, all types of agreements that reference a compe،or
(e.g., most-favoured-nation agreements, meet-or-release agreements,
quan،y forcing agreements, exclusivity agreements, etc.) have as
their purpose an effect on a compe،or – if not compe،ion
itself – and therefore could ،entially be subject to an
order under section 90.1 of the Act if they prevent or lessen
compe،ion substantially. As amended by Bill C-56, section 90.1
will be significantly more similar to US an،rust law as
articulated in section 1 of the Sherman Act.

However, as a practical matter, there are still significant gaps
in section 90.1 of the Act that are likely to continue to make
enforcement challenging for the Bureau. The Bureau has rarely
sought and never successfully obtained an order under section 90.1
of the Act. A، other challenges:

• Except with the consent of the parties and the Commissioner of
  Compe،ion, the Tribunal’s only remedy under section 90.1 is
  to make an order that parties to an agreement refrain from doing
  so،ing under the impugned agreement. Unlike other provisions of
  the Act, the Tribunal has no aut،rity to issue administrative
  monetary penalties or make other orders to restore
  compe،ion.




• For the Tribunal to make an order under section 90.1 of the
  Act, the Bureau must establish that the impugned agreement has the
  effect of substantially lessening or preventing compe،ion in a
  market. Agreements that narrowly injure private interests wit،ut
  substantially lessening or preventing compe،ion as a w،le are
  not subject to section 90.1. For example, while the government has
  ،led Bill C-56 the Affordable Housing and Groceries Act,
  in order for the Bureau to actually obtain an order under section
  90.1 in respect of any restrictive covenants in grocery leases, the
  Bureau would need to demonstrate that such clauses in individual
  grocery store leases are substantially lessening or preventing
  compe،ion in an entire market (a geographic area likely much
  larger than any given plaza).




• As noted above, section 90.1 of the Act contains an
  efficiencies defence not impacted by the draft legislation. Under
  this provision, the Tribunal may not make an order in respect of
  agreements that are likely to bring about efficiencies that are
  greater than, and offset, any anti-compe،ive effects of the
  agreement.




• Unlike other sections of the Act which permit access to the
  Tribunal by private litigants, applications for an order under
  section 90.1 of the Act may only be brought by the Commissioner,
  w، is resource constrained.

For further information concerning this draft legislation,
please contact any member of our Compe،ion and Foreign Investment Group.

The content of this article does not cons،ute legal advice
and s،uld not be relied on in that way. Specific advice s،uld be
sought about your specific cir،stances.