2006 Year in Review: Cartels and other Criminal Matters, Class Actions and Private Access.

Cartels and other Criminal Matters

Notable Cartel Cases

Record fines were imposed for a domestic conspiracy involving Cascades Fine Papers Group Inc., Domtar Inc., and Unisource Canada Inc. Each accused pleaded guilty in the Ontario Superior Court of Justice to two counts of conspiring to lessen competition unduly in contravention of section 45 (conspiracy) of the Competition Act (the "Act"). Each of the companies were fined $12.5 million for conspiring to unduly lessen competition in respect of carbonless sheet markets in Ontario and Quebec. The illegal agreements extended to:

respecting each other's market share to stabilize prices;

coordinating a response to a new market entrant;

implementing a common discount program;

maintaining price discipline to avoid a price war; and

sharing sales and pricing data.

In another case, the Competition Bureau ("Bureau") obtained a prohibition order, in the Federal Court of Canada, against Sotheby's and Sotheby's (Canada) Inc. in connection with an international price-fixing conspiracy that may have affected Canadian sellers participating in U.S. auctions. The Bureau's investigation concerned an international conspiracy to fix auction commission rates. The prohibition order prohibits both companies from contravening sections 45 and 46 (implementing a foreign conspiracy in Canada) of the Act and directs companies to implement and maintain compliance measures for this purpose. The companies were also ordered to pay the investigative costs of the Bureau, estimated to be approximately $800,000.

Bid-rigging

Bid-rigging charges under section 47 of the Act have been laid against Electromega Ltd. and its President and Tassimco Technologies Canada Inc. and its Vice-President. Both companies are suppliers of LED traffic lights. The charges arose following a call for tenders to replace incandescent traffic lights with LED signals in Quebec City. The accused parties could face fines set at the discretion of the court, imprisonment up to five years, or both.

Telemarketing

It is apparent that the Bureau actively pursued deceptive telemarketers in 2006. Charges were laid in four cases against corporations and individuals for offences under the Act and the Criminal Code, and in one case, a guilty plea was obtained for deceptive marketing practices associated with the promotion of supplies used in bank machines. In that case, a $75,000 fine was imposed along with a prohibition order for a period of 10 years.

Bureau Priorities re Criminal Enforcement

In separate speeches given in 2006, the Commissioner of Competition ("Commissioner") emphasized that cartel enforcement (particularly domestic cartels) and bid rigging are top priorities of the Bureau. To this end, the Bureau began implementing plans to increase both spending in its Criminal Matters Branch and the number of criminal matters officers in its regional offices.

Immunity Program Review

The Bureau's efforts to improve its immunity program continue. On February 6, 2006, the Bureau released a consultation paper to elicit commentary on certain substantive issues related to its program, namely: confidentiality; oral applications and the paperless process; an applicant's role in the offence; coverage of directors, officers and employees; "penalty plus"; restitution; revocation of immunity; creation of a formal leniency program; and, pro-active immunity. These issues were selected based on the Bureau's previous experience dealing with immunity cases, input from counsel with experience representing immunity applicants, and the experience of competition authorities in other jurisdictions. Submissions were received until May 10, 2006. The Bureau's consideration of comments and questions received from stakeholders is ongoing and the Bureau expects to release revised immunity program documents in the coming months.

Class Actions and Private Access

Class Actions

Typically, in Canada, proceedings brought in the competition law area by way of class action are "follow on" actions where a criminal conviction has already been obtained against some or all of the accused parties pursuant to the criminal provisions of the Act. The experience of the past year has been no different. Furthermore, with the increased globalization of the regulatory and enforcement process, including the developing cooperative nature of enforcement agencies (exhibited by such mechanisms as dawn raids on a pre-ordained country by country basis), the pace and number of concomitant civil actions remains strong.

However, Canadian jurisprudence in relation to the development of guiding principles in civil class proceedings has not materially advanced. Perhaps as a result, competition matters tend to more frequently land in court only at the settlement stage. As such, principal issues, so often seen in U.S. courts (e.g., whether indirect purchasers have standing to sue for violations of the criminal provisions of the Act), have yet to be fully addressed in Canada.

Perhaps the most significant development of the past year with respect to class actions has been outside the area of competition law. In a recent decision of Ontario's Court of Appeal, Cloud v. Canada (A.G.)1, the certification threshold for class action status was referred to as a "low bar". Further, the Court of Appeal held that a certification analysis should not be determined by an assessment of how many individual issues might remain following any trial of common issues. So long as a common issue could constitute a "substantial ingredient" to the claims, and notwithstanding that many individual issues might remain to be decided, the case might be appropriate for certification. To date, there is yet to be a contested certification application in the competition area where the liberal directives of the Cloud case have been considered.

A growing area of controversy in competition class action cases relates to the attempts by plaintiffs in Canada to access discovery materials in companion cases in the United States. In earlier decisions,2 courts in the United States had allowed such access notwithstanding arguments by defendants that such action was contrary to rules of civil procedure in Canada, which precluded such early stage discovery (pre-certification). However, in a recent decision, In Re: Hydrogen Peroxide Antitrust Litigation3, the U.S. court did adhere to the concerns of defendants and found that such requests were both premature and prejudicial. These conflicting approaches remain to be reconciled in future decisions.

Traditionally, class actions in the area of competition have related to cartels; however, the past year has seen new developments in areas relating to false advertising and issues pertaining to distribution channels. It can be said that the plaintiffs' bar in Canada have developed a new appreciation for class action claims in the competition law area and it is expected that the popularity of such claims will expand into other areas of competition practice.

There has also been a dichotomous increase in the level of both cooperation and rivalry in the pursuit of civil claims, particularly across the Canadian-U.S. border. On occasion, the cooperation has led to more timely copycat cases being launched on both sides of the border. However, with respect to rivalries for the pursuit of such suits across the border, Canadian jurisprudence now has a greater acceptance of both North American-wide classes and extraterritorial enforcement of U.S. court decisions where Canadian class members would be affected.4

Private Access

The practice of private parties applying directly to the Competition Tribunal ("Tribunal") for relief in respect of certain reviewable matters (such as refusal to deal, tied selling, exclusive dealing and market restrictions), has yet to develop widely in Canada; to date, only a handful of cases have been brought. The pursuit of Tribunal remedies through private action first requires leave of the Tribunal. Moreover, parties' remedies are limited to various forms of injunctive relief. In exceptional circumstances, the Tribunal itself may also become involved in the matter. To date, leave to proceed has been relatively circumscribed by the Tribunal and, in many respects, there has been very limited use of privately initiated proceedings.

Still, private access remains alive. For instance, in November 2005, the Tribunal granted leave to B-Filer Inc. ("B-Filer") to file an application against the Bank of Nova Scotia ("BNS") for refusing to provide B-Filer with Internet services for its online debit payment system. BNS appealed this decision to the Federal Court of Appeal.5 In the same decision, the Tribunal dismissed B-Filer's application for leave to seek an order to prohibit BNS from engaging in exclusive dealing as proscribed in the Act. In June 2006, the Court upheld the decision of the Tribunal and, in doing so, cited its earlier holding in Barcode Systems Inc. v. Symbol Technologies Canada ULC,6 that:

"The threshold for an applicant obtaining leave is not a difficult one to meet. It need only provide sufficient credible evidence of what is alleged to give rise to a bona fide belief by the Tribunal. This is a lower standard of proof than proof on a balance of probabilities which will be the standard applicable to the decision on the merits."

The B-filer case represents the second successful application for leave since the Act was amended in

2002, adding section 103.1, which provides that private parties may seek leave to make an application before the Tribunal in respect of certain reviewable practices (e.g. refusal to deal and exclusive dealing, but not abuse of dominance).

Footnotes

1 (2004), 73 O.R. (3d) 401 (C.A.); leave to appeal refused by S.C.C., [2005] S.C.C.A. No. 50 (Q.L.).

2 See for example, In Re: Linerboard Antitrust Litigation, 333 F. Supp. 2d 333 (E.D. Pa., 2004).

3 In Re: Hydrogen Peroxide Litigation, July 31, 2006, MDL Docket No. 1682, Order of Stewart Dalzell, J.

4 See on the latter point, in particular: Currie v. McDonald's Restaurants of Canada Ltd. (2005), 74 O.R. (3d) 321 (C.A.)

5 See B-Filer Inc., B-Filer Inc. doing business as GPay Guaranteed Payment and NPay Inc. v. The Bank of Nova Scotia, 2005 Comp. Trib. 31 (November 12, 2005).

6 [2004] F.C.J. No. 1657 (Q.L.).

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