Changes to Canadian Competition Law

On March 18, 1999, Bill C-20, an Act to amend the Competition Act (the "Act"), was proclaimed in force. This Act brings significant changes to a number of areas of competition law, including mergers and misleading advertising. It also introduces an entirely new telemarketing offence. Contrary to the initial proposals for amendment, however, The Act does not repeal the price discrimination provision or provide private parties with a right to bring proceedings before the Competition Tribunal.

Mergers
The changes with respect to merger pre-notification are not yet in force. It is expected that they will be proclaimed in force later in 1999, once regulations relating to them are in place.

The Act will make important changes in the pre-merger notification requirements. The waiting periods after filing notification and before the transaction can be implemented are to be doubled, to 14 days in respect of short-form filings, and 42 days in respect of long-form filings. This change will have to be factored in the timeline for transactions. As well, the type of information which must be provided in respect of long-form filings is expected to be significantly increased by regulation. This will present cost and timing considerations in merger planning.

In addition to merger notification changes, the Director of Investigation and Research (now renamed the Commissioner of Competition) is given enhanced powers to obtain interim orders to prevent mergers. The Commissioner will no longer have to show that the proposed merger is likely to substantially prevent or lessen competition to obtain an injunction. Rather, where it is shown that there is an inquiry being made, and that more time is required to complete that inquiry, an injunction may be granted. Interim injunctions will be in effect, as a general rule, for 30 days, and may be extended to 60 days. As a practical matter, the Commissioner will have greater ability to delay closings through his formal powers, and therefore will also be in a better position to negotiate delays and hold separate agreements.

Advertising Amendments
Very significant changes to misleading advertising law have been made. The provisions with respect to false or misleading representations (previously in section 52 of the Competition Act), reasonable tests and testimonials (previously in section 53) and certain other specific marketing practices (previously in sections 57-59) are to be repealed, but will be substantially reproduced in a new reviewable conduct provision. The provisions with respect to referral selling are repealed outright.

The new reviewable conduct regime for misleading advertising will be paralleled by a continuing criminal offence. The criminal provision will address materially false or misleading representations which are made knowingly or recklessly. If the conduct is not knowing or reckless, it will be dealt with under the new civil regime. The pyramid-selling provisions will also remain criminal in nature, as will the double-ticketing provisions.

An interesting aspect of the new provisions deals with regular price claims. For many years, the Competition Bureau took the position that the "regular" price of an article is determined by looking at the volume of sales at that "regular" price. That caused difficulties for retailers who frequently sold high volumes of products during relatively short sale periods. One could enjoy two-thirds of annual sales during a one-month-long clearance sale, and that price could be considered the "regular" selling price, against which any claim of "sale" or "discount" pricing would be measured. The amendments permit ordinary price comparisons to be justified either by a test based on a substantial period of time offered for sale, or a test based on substantial volume of product sold.

The new civil reviewable conduct regime provides for pure cease and desist orders; for orders requiring the placement, in appropriate advertising media, of corrective notices; and for civil monetary penalties of up to $200,000 in the case of a repeat corporate offender. Given the lower (civil) standard of proof, it is expected that there will be a much higher volume of such civil proceedings than there were criminal advertising prosecutions.

Telemarketing
The Act adds a new substantive criminal provision dealing specifically with telemarketing. Telemarketing (defined as using interactive telephone communications to promote a product or a business interest) is prohibited unless there is disclosure in a "fair and reasonable manner at the beginning of each telephone communication" of the identity of the person on behalf of whom the communication is made, the nature of the product or business interest being promoted, and the purpose of the communication. Also, appropriate disclosure must be made of the price of the product being promoted and any material restrictions, terms or conditions applicable to its delivery. False or misleading telemarketing representations are simply prohibited.

There will also be specific criminal prohibitions on telemarketing contests involving a requirement for payment in order to receive a prize.

Breaches of the telemarketing provisions may give rise to criminal liability against the company involved, employees who are personally involved in the conduct, and against officers and directors who have failed to exercise due diligence to prevent such conduct. This last provision is likely to give rise to corporate compliance programs to prevent breaches of the statute, and ensure a due diligence defence for officers and directors.

Miscellaneous Amendments
In addition to the amendments noted above, the Act also makes some changes to the prohibition-order provisions of the Competition Act and makes a number of housekeeping amendments. These include changing the name of the Director of Investigation & Research to "Commissioner of Competition" and increasing the fine for failure to pre-notify in respect of a merger from $5,000.00 to $50,000.00. They also include statutory protection for "whistleblowers" who report suspected breaches of the Act, and a provision for judicially-authorized wiretaps to collect information respecting certain suspected Competition Act offences.

Conclusion
The current amendments to the Competition Act while not representing wholesale change, are the most significant amendments in more than a decade. They will promote significant changes in the way telemarketers operate, and will also significantly influence marketing law enforcement and merger planning. Further proposals for amendment, specifically with regard to private access to the Competition Tribunal, and confidentiality/international information exchanges are expected to be proposed.

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