November 18 2004
Sheridan Scott, Canada's recently appointed commissioner of competition, gave her inaugural address to the Canadian Competition Bar at its annual conference on September 23 2004.(1) The commissioner's address focused on the initiatives which the Competition Bureau intends to take in response to an increasingly global business environment and the bureau's priorities for developing better practices in enforcement. In this context, the commissioner announced some important new initiatives and goals for the year to come.
Keeping up with the global economy
The commissioner began her address by noting that the continuously evolving nature of business today poses a special challenge to competition authorities. Scott acknowledged that competition authorities must strive to keep current and understand how changes in technology and globalization affect Canadian businesses.
In order to boost the bureau's "understanding of how Canadian businesses are dealing with globalization, technology and deregulation", the commissioner announced the following initiatives:
Developing better practices
Borrowing a phrase used by Bill Kovacic (general counsel of the Federal Trade Commission), in a prior speech to the American Bar Association, Scott referred to the need for "critical self-assessment" at the bureau. This self-assessment contemplates an internal review of the bureau's prior enforcement initiatives and administrative processes. As part of this self-assessment, the commissioner identified the following six areas where the bureau will strive to develop "better practices":
On September 23 2004 the bureau released the text of a letter sent by the commissioner
to major Canadian airlines clarifying the bureau's approach to enforcing the
Competition Act's abuse of dominance provisions as they apply to the airline
industry.(2) The commissioner's letter marks the latest chapter in the bureau's
attempt to deal with the competitive fall-out of Air Canada's acquisition of
Canadian Airlines almost five years ago.
In December 1999 the bureau approved Air Canada's acquisition of Canadian Airlines
on the basis that Canadian Airlines was facing "imminent insolvency"
and there was not likely to be a "competitively preferable" purchaser
to Air Canada. At the time, Air Canada was the country's largest domestic air
carrier and Canadian Airlines was its closest competitor. The bureau's approval
was subject to a set of undertakings provided by Air Canada to the commissioner,
which were designed to promote domestic airline competition (the so-called '1999
undertakings'). The acquisition also prompted the Canadian government, at the
request of the bureau, to introduce a new set of regulations under the Competition
Act dealing specifically with abuse of dominance in the airline sector.
In March 2001, less than two years after the Canadian Airlines acquisition, the bureau launched an abuse of dominance application based on these new regulations. The application was heard by the Competition Tribunal, which issued its Phase 1 decision in July 2003, concluding that Air Canada had engaged in "anti-competitive acts" by operating capacity below "avoidable costs" on certain routes in eastern Canada. The tribunal indicated that Phase 2 of its decision would decide the remaining elements that are required to be proved under the abuse of dominance provisions, namely:
With Air Canada finally scheduled to emerge from bankruptcy protection at the
end of September 2004, the commissioner released her letter on September 23
2004, re-affirming the bureau's commitment to investigating allegations of anti-competitive
conduct in the airline industry. However, the commissioner also acknowledged
in her letter that the past few years have seen major changes in the Canadian
airline industry, including the entry and growth of a number of low-cost domestic
carriers and a corresponding decline in Air Canada's market share to approximately
57% (based on capacity). In light of these changes, the commissioner's letter
The commissioner's September 23 letter set the stage for the bureau's subsequent announcement on October 29 2004 that it had resolved its litigation with Air Canada and would not be proceeding with Phase 2 of the tribunal hearing. The commissioner explained this decision by saying that it would not be in the public interest to pursue the case "in light of the passage of time and the significant changes in the industry".(3)
The bureau's decision to settle the Air Canada Case no 11.1 is not a surprise, given the changed competitive landscape in the Canadian airline industry. This brings to an end a lengthy – and sometimes bitter – chapter in the enforcement of the act's abuse of dominance provision. It remains to be seen, however, what longer-term effect this will have for future bureau enforcement affecting the airline industry.
The bureau announced on September 22 2004 that VAW Carbon of Germany had pleaded
guilty in the Federal Court in relation to its involvement in an international
conspiracy to fix the price of carbon cathode blocks.(4) VAW pleaded guilty to
a similar offence in the United States in 2002.(5)
According to the bureau, VAW is one of only a limited number of manufacturers
of carbon cathode blocks, which are commonly used in the production of primary
aluminium. Between 1996 and 1997 VAW participated in an international cartel
that agreed to implement and maintain price increases affecting sales in Canada
and elsewhere. In its plea, VAW agreed that this conduct violated Section 45
of the Competition Act, which makes it a criminal offence to enter into an agreement
that has the effect of preventing or lessening competition unduly. VAW was fined
C$500,000, based on Canadian sales of approximately C$3.6 million over the duration
of the conspiracy.
The VAW guilty plea follows a number of other recent guilty pleas obtained
by the Bureau from participants in international cartels. For example, on July
16 2004 the bureau announced that Morganite Canada Corporation had pleaded
guilty and was fined C$450,000 for its role in implementing an international
conspiracy in Canada relating to carbon brushes.(6) Interestingly, the evidence
before the court was that the executives of Morganite Canada were not aware
of any illegal agreement. Rather, Morganite Canada simply implemented pricing
directives issued to it by its affiliate, Morganite Electrical Carbon Corporation
of Wales (MECC), which had been arrived at by agreement between MECC and some
of its competitors. Nonetheless, this was sufficient to establish guilt under
Section 46, which prohibits a corporation that carries on business in Canada
from implementing a directive or instruction from a person outside Canada in
order to give effect to a conspiracy that was entered into outside of Canada
would be a criminal offence under Section 45 of the Competition Act. A corporation
can be convicted under Section 46 even if its officers and directors had no
knowledge of the foreign conspiracy.
In her reasons delivered at sentencing, Justice Chapnik, the presiding judge, commented upon the implications of Section 46 for multinational corporations carrying on business in Canada:
Chapnik also noted that it was important that Morganite Canada would itself be paying the fine imposed by the court as this: "sends a message to the corporate community that not only does the parent company expose itself to penal sanction when [it engages] in such illegal activity but that the affiliates will also be severely punished".
In related proceedings, Morgan Crucible Company PLC, the parent holding company
of the Morgan group of companies, pleaded guilty under Section 139(2) of
the Canadian Criminal Code and was fined C$550,000 for obstructing the bureau's
investigation into the carbon brush cartel. Specifically, former senior executives
of Morgan Crucible and some of its subsidiaries initially denied in interviews
with bureau officers that Morgan entities had participated in, or had any knowledge
of, the carbon brush cartel. This is one of only a very few cases in which the
bureau has proceeded against a party for obstruction.
Finally, on May 28 2004 the bureau announced that Crompton Corporation had
pleaded guilty under Section 45 and was fined C$9 million for its part in an
international price-fixing conspiracy in the rubber chemicals industry.(7)
Crompton is a US-based global marketer of specialty chemicals, polymer products
and processing equipment. According to documents filed in court, from at least
July 1995, senior and mid-level executives of Crompton participated in meetings
and other communications with various other producers at which the parties agreed
to coordinate the timing and amount of price increases for certain rubber chemicals.
The parties also agreed to exchange sales data and customer information on a
periodic basis in order to monitor and enforce adherence to the agreement. All
of these meetings and communications took place outside Canada, but affected
pricing for products sold in Canada.
Crompton is the first party to plead guilty in Canada in relation to the international rubber chemicals cartel, but may not be the last. The bureau has stated that it is continuing to conduct extensive inquiries into the rubber chemicals industry in Canada. In addition, Crompton sought and received immunity with respect to certain other chemical products and is cooperating with the bureau's investigation into those products. Accordingly, there may be additional prosecutions stemming from this investigation at some point in the future.
For further information on this topic please contact Mark Katz, Anita Banicevic, Christopher Margison or Charles Tingley at Davies Ward Phillips & Vineberg LLP by telephone (+1 416 863 0900) or by fax (+1 416 863 0871) or by email (email@example.com or firstname.lastname@example.org or email@example.com or firstname.lastname@example.org). The Davies Ward Phillips & Vineberg LLP website can be accessed at www.dwpv.com.
(1) The commissioner's speech is available at http://competition.ic.gc.ca/epic/internet/incb-bc.nsf/en/ct02950e.html.
(3) Competition Bureau, "Competition Bureau Settles Case with Air Canada" (October 29 2004), http://strategis.ic.gc.ca/epic/internet/incb-bc.nsf/en/ct02973e.html.
(4) Competition Bureau, "VAW Carbon Fined C$500,000 for Role in International Price-Fixing Conspiracy" (September 22 2004), http://strategis.ic.gc.ca/epic/internet/incb-bc.nsf/en/ct02949e.html.
(5) US Department of Justice, "Japanese and German Companies to Plead Guilty and Pay Fines for Role in International Price-Fixing Conspiracy" (April 1 2002), http://www.usdoj.gov/atr/public/press_releases/2002/10908.htm. The Japanese company referred to in the press release is Nippon Electrode Company Ltd, which pleaded guilty in the United States at the same time as VAW for participation in the carbon cathode block cartel.
(6) Competition Bureau, "Morgan Companies Fined C$1 Million for Obstruction and Price-Fixing" (July 16 2004), http://competition.ic.gc.ca/epic/internet/incb-bc.nsf/en/ct02917e.html. Carbon brushes are used to transfer electrical current from wires or rails to vehicles such as subways, streetcars and light rail trains.
(7) Competition Bureau, "Crompton Corporation Fined C$9 Million for Role in Rubber Chemicals Cartel" (May 28 2004), http://competition.ic.gc.ca/epic/internet/incb-bc.nsf/en/ct02853e.html.
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