Last fall, the federal Competition Bureau started a criminal investigation into possible collusion involving the Quebec construction industry. The investigation is separate from an ongoing investigation by the bureau of Quebec into bid-rigging, intimidation, fraud and influence in the construction industry. This investigation, together with others, shows that the Competition Bureau has significantly stepped up its enforcement efforts against the construction and other industries and is being closely watched by companies in British Columbia.
In 2011 alone, the BC Competition Bureau has assessed over $28 million in fines against companies for price-fixing, including $3 million against suppliers of air compressors, $17 million against air cargo suppliers, $2.7 million against gasoline suppliers and $5.6 million against hydrogen peroxide suppliers.
The federal bureau tends to take enforcement action against companies, including when there is evidence of a criminal conspiracy, abuse of dominance, misleading advertising or deceptive marketing. Of these, the criminal conspiracies and abuse of dominance remain top enforcement priorities. With the commissioner of competition recently remarking that the bureau had 42 ongoing criminal investigations in Canada, this is also not merely enforcement agency bluster.
Under the Competition Act, it is illegal for individuals or companies to, among other things, fix prices with competitors, rig bids or engage in intentional misleading advertising. The Competition Act also regulates a variety of civil (i.e., non-criminal) conduct, including some types of marketing and advertising, mergers and companies that abuse their dominant position. In addition, the act applies to virtually all businesses and industries in Canada.
Last March, the Competition Act was significantly amended. Changes included three new criminal offences for price-fixing, market/division and supply restriction agreements. It is now “per se” illegal (i.e., without needing to show any adverse market effects) for competitors to, for example, fix the prices of their products or agree to divide geographic territories, customers or product lines.
The maximum penalties for criminal conspiracy agreements have also now more than doubled, with fines of up to $25 million (per count), imprisonment for up to 14 years, or both. The penalties for criminal bid-rigging agreements have also been increased with a new bid-rigging offence having been introduced.
Based on the significant penalties, as well as director and officer liability, the potential risks associated with price-fixing activities are clear. Issues can, however, also arise in connection with many types of common commercial activities including joint ventures and strategic alliances between competitors and trade association activities (e.g., meetings, information exchanges, collective negotiations or attempts to regulate member fees or marketing).
In addition, certain industries and markets are more at risk than others – for example, industries that are declining, highly consolidated or where it is difficult to compete other than on price (e.g., construction, cement, steel, chemical inputs, etc.).
The bureau’s increased enforcement efforts and penalties mean that there is heightened risk associated with some types of business activities.
As such, B.C. companies should be aware of the new rules, the potential risks related to some types of activities and steps that can be taken to reduce potential liability. These include:
- Competition compliance and document retention programs. Adopt a competition compliance and document retention program to reduce potential liability. An effective document retention program is particularly important, given that many investigations are based on a company’s own internal documents produced on a voluntary or compelled basis (i.e., based on a court order);
- Trade associations. Trade associations should have competition compliance programs or at minimum competition law guidelines for key activities, including meetings, get-togethers, contract negotiations, etc., before companies permit employees to join and participate;
- Accurate communications. Ensure that all employees are aware of the importance of accurate internal and external communications from a competition law perspective, i.e., not incorrectly suggesting that prices/fees have been fixed, markets or customers have been divided or that an agreement or arrangement exists to limit supply;
- Joint ventures and strategic alliances. Ensure that significant initiatives with competitors – for example, joint venture and strategic alliance agreements – are reviewed by competent legal counsel for potential competition law concerns;
- Information exchanges. Avoid the exchange of competitively sensitive information with competitors and potential competitors (e.g., current or future pricing, costs, customers or business or strategic plans).
- Competitive bids and tenders. Do not agree with competing bidders to arrange the terms of a bid, withdraw a bid already made or not submit a bid. In addition, if participating in a bid consortium, ensure that the rules requiring disclosure before a bid is made are complied with (which can act as a defence); and
- Dealing with competitors. Ensure that employees are aware of what is and isn’t appropriate to discuss with competitors, as well as the types of competitor collaborations that can raise competition law issues in some cases (e.g., trade associations or joint ventures/strategic alliances).
We recommend consulting with competition lawyers for advice on compliance with the Competition Act.