Businesses are given the liberty to freely conduct their operations to improve the country’s economy. However, certain acts and practices by businesses are regulated – or outright prohibited – by the country’s competition and antitrust laws.
What is the unfair competition law in Canada?
The Canadian competition policy encourages healthy and dynamic competition among businesses and industries in Canada. It is believed that competition will increase the country’s productivity growth because:
- businesses are pushed to use their labour and resources more efficiently, over the assumption that lower productivity will have negative effects on their business
- businesses will likely innovate and invest in new products and processes to have an advantage over their competitors
- businesses will now have attractive goods and services that can be offered in the international market because of a healthy competitive environment
Ultimately, this competition policy of Canada protects consumers. It ensures a variety of quality products available to consumers for a reasonable price.
With this policy framework in mind, the country has enacted its unfair competition and antitrust law: the Competition Act.
What is the Competition Act of Canada?
The Competition Act is Canada’s law that protects consumers by ensuring that there is sufficient and viable competition among businesses.
Aside from governing competition in the country, the Act also has civil and criminal provisions which prohibit certain acts in relation to advertising and marketing. Our guide on Canadian advertising law offers a more detailed review.
The Act is enforced by the Competition Bureau, which is headed by the Commissioner of Competition. In addition, the Competition Tribunal has the power to hear and decide cases for violations of the Act.
Purpose
The primary purpose of the Competition Act is to maintain and encourage competition throughout the country.
It aims to:
- promote the efficiency and adaptability of Canada’s economy
- balance the opportunities for local and foreign businesses operating in Canada
- ensure that businesses of all sizes have equal opportunities to participate in Canada’s economy
- offer consumers various product choices at reasonable prices
The Act prohibits the formation of cartels and monopolies, which is a result of the absence or lessened competition.
Application
The Competition Act applies to all Canadian companies, corporations, or businesses operating in Canada. It also applies to foreign companies doing business or is operating within Canada.
What transactions are covered by the Competition Act?
Transactions become reviewable by the Bureau when certain thresholds set by the Competition Act are reached. In addition, the Act also provides for criminal and civil liabilities when the law has been violated.
Criminal provisions
There are two crimes under the Competition Act:
- Bid-rigging
- Conspiracies, including price fixing, market allocation, and supply restriction
To know more about bid-rigging, watch this video:
Read about bid-rigging and other similar offences in our guide to Canadian competition law.
Civil reviewable practices
Aside from criminal offenses, the Act has also provided for civil reviewable practices.
Upon application by the Bureau, the Tribunal can prohibit such practices if it finds that it lessens or prevents competition.
The civil reviewable matters under the Act are:
- Competitor agreements
- Abuse of dominance
- Price maintenance
- Refusal to deal
- Tied selling
- Exclusive dealing
- Vertical market restriction
Mergers and acquisitions (M&As)
When businesses merge, or when a business is acquired by another, it is important that such a merger or acquisition follows the process laid out in the Act when certain thresholds have been reached.
Under the Competition Act, a “merger” is the direct or indirect acquisition or establishment of a business’s control or significant interest (in whole or in part). It can be done either:
- by purchase or lease of shares or assets;
- by amalgamation; or
- by combination.
The target business of an M&A is usually the other business’s competitor, supplier, or customer.
The purpose of this notification requirement is for the Bureau to review and assess whether the M&A may gravely affect or lessen the competition over the industry of the merging businesses.
Notifiable mergers
The law states that a merger that exceeded the set thresholds cannot be completed, unless a pre-closing notification is sent to the Bureau.
This pre-closing notification may be in of any of the following forms:
- Filing a Notifiable Transactions Form
- Requesting an Advance Ruling Certificate (ARC)
After that, the merging parties are subject to a 30-day waiting period. During this time, they cannot complete the merger and would have to wait for the Bureau’s decision.
The merger may only be completed upon the following actions of the Bureau:
- Issuance of ARC or No-Action Letter: the Bureau has completed its review, and found that the transaction does not raise any competition concerns, which will now allow the closing of the merger; or
- Waiver by the Bureau: the 30-day waiting period has expired, and the Bureau has not released any order which prohibits the closing of the merger or has not submitted the merger to the Tribunal to challenge the merger.
Even if there are no apparent competition concerns, once an M&A has reached the set threshold, the pre-merger notification must be complied with.
However, when the Bureau has allowed the merger to proceed, it still has one year from its completion to challenge the merger before the Tribunal.
Non-notifiable mergers
An M&A that does not fall as a notifiable transaction may still be reviewed by the Bureau if it raises competition concerns.
Entities engaged in a non-notifiable transaction may voluntarily contact the Bureau and submit themselves for any review by requesting an ARC.
Thresholds
There are two kinds of thresholds which parties to an M&A must be wary of:
- “Size of transaction” threshold: C$93 million, which is either the –
- value of the target business’s Canadian assets; or
- gross revenues from sales in or from Canada generated from the Canadian assets.
- “Size of parties” threshold: C$400 million, which is either the –
- value of the Canadian assets of the parties and their affiliates; or
- gross revenues from sales in, from, or into Canada (exports and imports) of the parties and their affiliates.
These thresholds are reviewed every year by the Minister of Innovation Science and Industry, according to the GDP-indexed formula provided by the Competition Act.
In addition to these financial thresholds, the Act also provides for thresholds regarding voting shares. The transaction will become notifiable if the voting shares of the acquiring company and their affiliates exceed the following:
- 20% voting shares: if any of the voting shares are publicly traded; or
- 35% voting shares: if the voting shares are not publicly traded; or
- 50% voting shares: if the purchaser already owns 20% or 35% voting shares in the above-mentioned circumstances.
If you’d like to know more about mergers and acquisitions, read our guide on M&A laws.
Interested to know more about Canada’s Competition Act? Hear more from the best competition lawyers in Canada as ranked by Lexpert.