Program of Compliance

March 1993

(PDF: 52 KB; 29 Pages)

Foreword

The Director of Investigation and Research has responsibility for administering and enforcing the Competition Act, legislation which is designed to maintain and encourage competition in Canada. This Bulletin, originally issued in June 1989 and now revised, provides information on the approach taken by the Director to promote and to ensure compliance with the provisions of the Competition Act.

The Director is a statutory official responsible for the Bureau of Competition Policy, which is a part of the federal Department of Consumer and Corporate Affairs. Because the Competition Act confers powers and duties on the Director and not on the Bureau, this Bulletin makes frequent reference to the Director. Readers should be aware, however, that many of the activities ascribed to the Director in this Bulletin may be carried out on behalf of the Director by members of the Director’s staff. Moreover, these activities come under the direct responsibility, by delegation or otherwise, of Deputy Directors of Investigation and Research appointed under the Act.

This Bulletin provides practical guidance on the Director’s current compliance policy and is not intended to be a binding statement of the Director’s position in any particular case. Individual enforcement decisions are based upon the particular circumstances of each case. Readers should refer to the Competition Act when questions of law arise. Some questions of specific enforcement policy are also addressed in the Director’s published Enforcement Guidelines.

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Part 1 - Introduction and Overview

The purpose of the Competition Act, as stated in section 1.1 of the Act, is:

"...to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy, in order to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competition in Canada, in order to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and in order to provide consumers with competitive prices and product choices."

The Director of Investigation and Research is responsible for ensuring that the Act is enforced in a fair, effective and timely manner. Historically, enforcement of the Act and the deterrence of anticompetitive activity has focussed on the investigation of violations of the Act with a view to prosecution and the imposition of criminal penalties. This approach will continue to be the primary method of enforcement in various instances. However, it has become clear that in other instances the goals of maintaining and encouraging competition can be pursued with greater effectiveness and certainty, and with less time and expense, through an approach to enforcement which:

• stresses the promotion of continuing voluntary compliance with the Act; and
• relies on a broader range of responses to non-compliant behaviour including, but not limited to, contested proceedings.

The Director believes that the majority of business persons will respect the Competition Act if they understand how it applies to their business affairs. Therefore, the Director attempts to encourage general compliance with the Act through a program of communication and education. In addition, compliance in particular situations is facilitated through advisory opinions, information contacts and advance ruling certificates.

The Director complements these efforts to encourage and facilitate compliance with careful monitoring of conduct in the marketplace. When there are reasonable grounds to believe that there has been a violation of the Act or that grounds exist to seek a remedial order relating to a reviewable matter, the Director can choose from a broad range of instruments to resolve cases, ranging from investigative visits to contested proceedings. The flexibility provided by this approach enables the Director, in enforcing the Act:

• to address matters using the most effective means, and
• to focus resources on cases of greater potential economic significance, consumer benefit or deterrent effect.

This Bulletin describes the four principal components of the Director’s compliance approach:

• encouraging compliance with the Act generally through a program of communication and education,
• facilitating compliance with the Act in specific instances through advisory opinions, information contacts and advance ruling certificates,
• monitoring compliance with the Act, and
• responding to possible violations of the Act and reviewable matters through a variety of instruments available to resolve cases.

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Part 2 - Encouraging Compliance

The Director recognizes that compliance with the Competition Act can best be achieved when business persons have a sound understanding of the provisions of the Act. Therefore, the Director places a great deal of emphasis on communication and education to foster a better understanding of the Act and its application.

The Communication and Education Program

The Director and senior staff of the Bureau undertake speaking engagements throughout the year on a variety of subjects relating to the Act. Bureau staff often conduct seminars for businesses and associations on topics of particular interest to them. Seminars have addressed such topics as the detection and prevention of bid-rigging when calling for tenders, notification and review procedures for large mergers, and the preparation of promotional materials to conform to the misleading advertising provisions of the Act. Other issues addressed include the application of the Act to joint ventures, specialization agreements and other strategic arrangements contemplated to respond to the demands for structural adjustment in the economy. These sessions, while general in approach, often lead to further, more specific, consultation through the Program of Advisory Opinions, discussed below. In addition, the Bureau occasionally staffs information booths at trade shows across the country to discuss the Act and to provide informal guidance on its application.

The Bureau also makes various publications and other material available through the offices listed at the end of this Bulletin. The following are now available:

• Information Bulletins and Enforcement Guidelines, which provide an outline of specific provisions of the Act and its administration. In addition to this Bulletin, there are seven such publications, as listed at the end of this Bulletin.
• The Misleading Advertising Bulletin, which is published quarterly and contains information relating to the misleading advertising and deceptive marketing practices provisions of the Act. It also includes a list of convictions under those provisions, detailed comments on or interpretations of specific provisions, and summaries of advisory opinions of general application to advertisers. A special edition was published in 1991, entitled Misleading Advertising Guidelines.
• The Director’s Annual Report to the Minister of Consumer and Corporate Affairs, which contains information about proceedings under the Act during the previous year. This report is tabled in Parliament.
• Press releases outlining the assessment and resolution of certain cases.
• Speeches made by the Director and senior staff of the Bureau, a list of judgments and decisions relating to the Competition Act, and the Merger Prenotification Information Kit.

The Bureau, through its Resource Centre, also makes available papers prepared by Bureau staff members and consultants which examine the application of particular sections of the Act and/or general developments in competition policy and industrial organization both in Canada and internationally. These include papers in the Discussion Papers series, put out by the Economics and International Affairs Branch of the Bureau.

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Part 3 - Facilitating Compliance

The general education and communication program of the Director is supplemented by advisory opinions and information contacts which are designed to facilitate compliance with the Act in particular situations. Advance Ruling Certificates are also available for parties to a proposed merger who wish assurance that it will not give rise to proceedings under the merger provisions of the Act.

Advisory Opinions

The Director facilitates compliance by providing advisory opinions to those who wish to avoid coming into conflict with the Act. Under this program, the Director invites company officials, lawyers, and others to request an opinion on whether the implementation of a proposed business plan or practice would comply with the Act. Opinions take into account previous jurisprudence, previous opinions and the stated policies of the Director, especially those set out in published Enforcement Guidelines. In providing an opinion, the Director is not seeking to regulate business conduct or pronouncing on the legality of the proposal, but is only indicating whether or not the proposal, if implemented as set out, would cause an inquiry to be initiated as required by section 10(1)(b) of the Act. Those who seek an opinion are not bound by the advice provided and remain free to adopt the plan or practice in question on the understanding that the matter may be tested before the Competition Tribunal or the courts. Similarly, an opinion cannot bind the current or a future Director. In addition, advisory opinions are given in relation to a specific set of facts. Should the details of the proposed plan differ when implemented from the plan presented to the Director, or should conditions change in a way that would alter the impact of the proposed plan on the market, the matter could be subject to further examination.

For example, the Director may provide an advisory opinion to:

• A professional association wishing to promulgate a suggested fee schedule or restrict certain forms of advertising, without violating the conspiracy provisions of the Act.
• A company that wants to know whether the conditions of a proposed rebate policy would violate the price discrimination provisions of the Act.
• A company that would like to stop dealing with a particular customer and is unsure whether this would cause the Director to commence an inquiry.
• A company that would like to ensure that a performance claim which it intends to make in its advertisements does not violate the misleading advertising provisions of the Act.
• An advertiser who wishes to clarify compliance with the disclosure requirements of the Act’s contest provision.
• An association of purchasers who are uncertain whether proposed group buying activities would raise questions under either the price discrimination or conspiracy provisions of the Act.
• An association of fishermen who wonder whether a proposed contract is subject to the Act.

In each of these situations the Director may provide an opinion on whether the implementation of the proposed business plan or practice would constitute grounds to commence an inquiry under the Act. The Director may also provide a subsequent opinion in response to revised proposals.

In order to provide an informed opinion, the Director requires adequate disclosure of the material facts relating to the proposed plan and pertinent to the elements of the applicable provision of the Act. The more complete and more accurate the information provided, the less qualified the opinion will be and the less likely it is that the matter would be subject to further examination because of new information received. Where the relevant provision contains a competitive impact test, as a general rule, persons requesting an opinion in relation to a proposed plan or practice should provide a complete description of the companies and the products involved in the proposed plan, the competition faced by the company, including an estimate of the market share of the company and each of its competitors, and a description of the markets that might be affected by the plan. In particular, they should describe the possible effects of the plan on current or potential customers, suppliers and competitors. Less detailed information may suffice for a so-called per se provision. Different information will likely be required to obtain an opinion on the misleading advertising or deceptive marketing provisions of the Act.

Requests for opinions on a "no names" basis or without complete supporting information may be accepted. However, they may be of limited value, as the reliability of opinions depends on the extent of information provided. The necessary caveats will be added to these opinions.

Advisory opinions may be provided orally or in writing. Oral opinions can generally be provided relatively quickly. Written opinions may take considerably longer to prepare, depending on the complexity of the issues involved and the resources available at the time.

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Information Contacts

An information contact may be initiated when the Director is of the opinion that a person may be unaware of a particular provision of the Competition Act or of its application. For example, should the Director become aware that the parties to a proposed merger intend to close before there is an opportunity for a review of the merger or one aspect of it under the Act, the parties may be informed of the provisions of the Act and their implications. Should a first-time complaint be received about a retailer allegedly selling products above the advertised price, the Director may choose to facilitate compliance by contacting the retailer to explain how the provisions of the Act apply to such advertising and pricing. Persons contacted are not under any obligation to justify their conduct or even to discuss the matter with the Director, but may choose to take advantage of the opportunity to do so. Following an information contact, the Director may decide to continue the examination, monitor the conduct in question for a reasonable period of time or close the file.

Advance Ruling Certificates

Persons who are planning a merger may wish to seek some assurance that the transaction they are contemplating will not be challenged by the Director. Under section 102 of the Act, the Director has discretion to issue an advance ruling certificate when satisfied by a party or parties to a proposed merger that there are insufficient grounds on which to apply to the Competition Tribunal under section 92 for a remedial order. A certificate is binding on the Director, provided the transaction is completed within one year, as set out in section 103. If the Director decides not to issue a certificate, a non-binding advisory opinion can nonetheless be provided indicating the Director’s views on the proposed merger. Readers will find more detailed information on these certificates in Information Bulletin No. 2, Advance Ruling Certificates.

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Part 4 - Monitoring Compliance

Despite efforts to increase compliance with the Competition Act on a voluntary basis, instances of non-compliance will continue to arise. For this reason, Bureau staff monitor conduct in the marketplace so that the Director will be aware of possible contraventions of the Act. The staff of the Bureau rely on a number of information sources including:

• complaints received from business persons, consumers, government departments and others.
• material submitted pursuant to undertakings or to orders of the Competition Tribunal or the courts.
• material submitted pursuant to the notifiable transactions provisions of the Act,
• industry contacts, news reports and trade journals.

Advance Notification of Mergers

The notifiable transactions provisions, contained in Part IX of the Act, require persons who are proposing certain large acquisitions, amalgamations or combinations to notify the Director before completing their transaction and to supply certain information. The notification requirements come into effect when two thresholds are exceeded, relating to the size of the parties to the transaction and the size of the transaction itself. Both thresholds are specified in the Act and the transaction threshold, in part, depends on the nature of the proposed transaction. These provisions facilitate monitoring efforts by enabling the Director to examine certain transactions before they are completed in order to determine whether they raise an issue under the Act and bring an application for injunctive relief if necessary.

The conditions under which a party is required to notify the Director and the information requirements in such circumstances are described in more detail in the Merger Prenotification Information Kit. A party wishing to give additional information in order to expedite the Director’s examination should consult Information Bulletin No. 5, Merger Enforcement Guidelines, to determine which issues should be addressed.

It should be noted that the issuance of an Advance Ruling Certificate for a proposed transaction provides an exemption from the notifiable transactions provisions.

Most mergers proceed unchallenged but, where the anticipated impact on competition is unclear, the Director may decide to monitor the actual effects of a merger during the three-year period within which the Act permits completed mergers to be challenged. Proceeding in this fashion allows the Director to monitor the actual effects of the merger on the market and to respond quickly should circumstances arise that would warrant remedial steps in relation to the merger.

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Part 5 - The Enforcement Process

In order to provide a clear perspective on the role of the Director in facilitating and monitoring compliance and responding to non-compliance, it may be useful to describe briefly the enforcement process.

Matters which the Director pursues proceed through one or more distinct stages. Normally the Director begins with a preliminary examination of a matter to determine whether it raises a question under any of the provisions of the Act. At this stage, the matter may not be pursued if in the Director’s opinion further examination is not justified. If a possible issue under the Act is identified, the Director may proceed with an information contact or further examination of the matter.

If, upon further examination, the Director believes on reasonable grounds that there has been a contravention of the criminal or reviewable matters provisions of the Act or of an outstanding order, the Director is required to commence an inquiry into all such matters as are considered necessary to determine the facts. The Director is also required to commence an inquiry when directed to do so by the Minister of Consumer and Corporate Affairs under section 10(1)(c) or when six Canadian residents make an application under section 9.

Once an inquiry has been commenced, the Director can apply for authorization from a court to search for and examine records, to conduct oral examinations and to exercise the other investigative powers provided by the Act. The Director may also enter into discussions with the Attorney General of Canada on appropriate consideration that might be extended to companies or individuals who voluntarily provide information or evidence with respect to a matter at an early stage. Such consideration of favourable treatment, particularly any possibility of immunity from prosecution, can only be granted by the Attorney General and in accordance with the general policy of the Attorney General in respect of federal offences. However, the recommendations of the Director, as the official responsible for the overall enforcement of the Act, have historically received careful and serious consideration. A variety of factors are considered in determining whether favourable treatment, especially an immunity agreement, would be in the public interest.

At any stage of an inquiry relating to the criminal provisions of the Act, the Director may refer a matter to the Attorney General for consideration for prosecution or such other action as the Attorney General may wish to take. When a matter is referred to the Attorney General, the Director normally includes a recommendation as to appropriate disposition of the matter. The Attorney General nevertheless retains complete discretion as to the action to be taken.

In the case of an inquiry into a reviewable matter, the Director may apply to the Competition Tribunal for a remedial order.

An inquiry may be discontinued at any stage if, in the Director’s opinion, further inquiry is not justified. The Director is required to make a report in writing to the Minister on any inquiry that has been discontinued. If the inquiry was commenced as the result of a six-resident application, the Director must inform the applicants of the decision and the grounds for the discontinuance. The Minister may, on the written request of the applicants or on the Minister’s own motion, review the Director’s decision and, if in the Minister’s opinion the circumstances warrant, instruct the Director to make further inquiry.

The Director has a public responsibility to allocate the Bureau’s limited resources efficiently in light of the stated purposes of the Act. In determining which matters should be given more attention, the Director is influenced by a number of considerations such as the nature and character of the conduct in question, its impact on the economy as a whole or on particular markets within it, its effect on individual consumers and businesses, and the likely deterrent effect of successful proceedings.

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Part 6 - Responding to Situations of Non-Compliance

In dealing with possible contraventions of the Act, the Director has available a number of instruments to resolve cases. These instruments include investigative visits, undertakings, orders on consent and contested proceedings.

Instruments to Resolve Cases
Investigative Visits

At any stage of an inquiry the Director may contact a person alleged to be involved in anticompetitive conduct in order to obtain information. If the information obtained indicates that further inquiry is not justified, the Director will discontinue the inquiry. The Director may also resolve certain cases after an investigative visit, when further inquiry is not warranted because of voluntary corrective action. The types of cases that could be resolved in this fashion may include those of lesser economic consequence and those involving certain vertical restraints of trade in which correction of the practice can be readily verified.

Undertakings

The Director may, in certain circumstances, accept written undertakings which obviate the need to make an application to the Competition Tribunal or refer a matter to the Attorney General. Undertakings have been accepted by the Director since the 1960s, and are based upon the scope of enforcement discretion conferred on the Director by the Act. Undertakings are particularly appropriate in relation to reviewable matters, inasmuch as Tribunal orders are remedial rather than punitive, and a commitment to correct or eliminate the identified issue by a party under inquiry effectively removes the basis for application to the Tribunal.

Undertakings are designed to remedy or overcome the effects or potential effects of an anticompetitive course of action. For example, a company might undertake to refrain from certain behaviour or to engage in certain activities which would resolve the Director’s concerns under the Act. In a merger case, for example, the persons under inquiry might undertake to restructure the merger by disposing of certain assets or shares within a certain period of time. Once undertakings have been given and complied with, the Director may either discontinue the inquiry or continue to monitor conduct in the markets affected for a reasonable period of time.

Orders on Consent

Upon referring a potential criminal offence, the Director may recommend that the Attorney General seek a prohibition order on consent under section 34(2) of the Act. This is not a new procedure and has, in fact, been used to resolve numerous matters pursued under the provisions of the Competition Act and the predecessor Combines Investigation Act. The Director supports the increased use of such orders in a wider range of situations as a means of providing effective and timely remedies for certain types of conduct.

When a Court issues an order under section 34(2), the parties do not plead guilty and do not stand convicted, and no fine or other sentence is imposed. This procedure also avoids the costs of protracted litigation.

In circumstances where the Director is of the view that it is appropriate to seek a conviction and fine in addition to a prohibition order, the Director may recommend that the Attorney General proceed under section 34(1).

Whether the Director will recommend proceeding under either section 34(1) or 34(2) will depend on the facts in each case and on an assessment of the factors listed in the next section of this Bulletin. Orders of the court under section 34(1) or 34(2) may be issued with or without the consent of the parties.

A decision to seek a prohibition order as a means to resolve a case is at the discretion of the Attorney General. Representatives of the Attorney General normally consult the Director concerning such matters as the appropriate terms of a proposed order. Ultimately it is for the court to decide whether, or on what terms, a proposed order should be imposed in the circumstances of a particular case.

The resolution of a matter by a prohibition order, under either subsection, does not affect the right of persons to bring an action under section 36. However, proceedings in relation to section 34(2) do not constitute proof of a violation of the Act in any such action.

The Act also specifically provides for the resolution of reviewable matters through the use of consent orders where application has been made to the Competition Tribunal. Under section 105, the Tribunal may make an order, without hearing the evidence usual in a contested application, in any matter where the Director and the respondents have reached agreement on the terms. The issuance of a consent order is ultimately at the discretion of the Tribunal. The Director supports broad use of section 105 orders in all reviewable matters, to achieve effective, timely and less costly case resolution.

The Director is of course aware of the need to monitor compliance with prohibition orders and orders of the Tribunal to ensure that their potential benefits are realized.

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Contested Proceedings

The Director may refer matters involving alleged offences to the Attorney General with a recommendation to apply for a prohibition order under section 34(2) or to institute a criminal prosecution. In appropriate cases, the Director may recommend that proceedings be instituted against individuals as well as companies. Normally, counsel for the Attorney General consults with the Director to determine the appropriate sentence or prohibition order which should be sought upon a conviction.

In cases involving reviewable matters, the Director may apply to the Tribunal for a remedial order. Any person who would be subject to the order sought may contest the application. Provincial attorneys general are entitled to intervene in certain proceedings before the Tribunal, and other persons may be permitted to intervene by leave of the Tribunal.

Choice of Instrument to Resolve Cases

The resolution of each case is determined individually, on its own merits, in light of the objectives of the Competition Act. However, it is the Director’s general intention to make greater use of the alternative case resolution instruments wherever appropriate.

In such circumstances cases might thus be resolved in a manner that is equally or more effective, and may also prove more timely and less costly, than resorting to contested proceedings before the courts or the Tribunal. In this regard the Director makes every effort to ensure that the case resolution principles discussed in this Bulletin are applied on a fair and consistent basis.

This greater reliance on alternative case resolution instruments should not be seen in any way as an indication that the Director will be any less vigorous in recommending that prosecutions be initiated, or in filing applications before the Tribunal for remedial orders, when these responses are deemed appropriate in circumstances of non-compliance.

Rather, the compliance-oriented approach adopted by the Director will enable more effective application of resources to the more significant cases. The Director believes that this approach will deter anticompetitive behaviour and encourage future compliance with the Act.

The Director views conspiracy, bid-rigging and the abuse of dominant position as matters that should normally be addressed through prosecution or an order of the courts or the Tribunal. Having regard to the inherent nature and economic impact of these types of cases, it is less likely that the Director would entertain the use of investigative visits or undertakings as resolution instruments in cases involving such matters.

In respect of mergers, the Director’s compliance preference is for a "fix-it-first" approach, that is to say, restructuring of a transaction before closing so as to alleviate competition concerns. In the event that certain features of the transaction cannot be remedied until after the transaction is completed, the Director may exercise discretion to apply to the Tribunal for a consent order or accept undertakings.

In determining the most appropriate means by which to resolve cases, the Director will examine the merits on a case-by-case basis and consider which means of resolution is most consistent with the objectives of the Competition Act. It is, therefore, difficult to provide specific guidelines to describe the types of cases that might ordinarily be resolved using a particular instrument. However, there are some general factors which will normally be taken into account in the Director’s deliberations as to the most appropriate course of action. The list below is not exhaustive, nor does it place the factors in order of importance.

• Is there a history of anticompetitive activity?
• Does the conduct involve a contravention of a prohibition order or a Tribunal order or a failure to comply with a previous undertaking or to take voluntary corrective action?
• Has the conduct in question significantly affected competition or is it likely to significantly affect consumers, competitors, suppliers or others?
• Was the conduct in question in keeping with the corporate policy of the companies involved? If not, was the conduct terminated as soon as senior company officials became aware of it?
• Has the Director previously provided an advisory opinion or an information contact on a matter substantially similar to the conduct in question?
• Have the persons involved attempted to remedy the adverse effects of their conduct?
• In what other respects does the conduct in question bear directly on one of the stated objectives of the Act?
• Which instrument for case resolution would restore competition to the market most quickly and most effectively?
• Have the persons involved assisted with the investigation or, alternatively, sought to impede it?
• Was the conduct in question undertaken in full awareness of its illegality and in a clandestine manner?

Persons under inquiry may determine, in light of the above factors, that it is in their interest to explore the possibility that the case can be resolved using one or more of the alternative instruments. If this is so, they may contact the Director in writing indicating their desire to discuss the manner in which the Director will proceed with his inquiry. The Director may choose to proceed with the inquiry during the course of discussions, and persons under inquiry will be expected to adhere to a consultation schedule that will not delay the development of the inquiry in the event that consultations are not successful. In those cases where the matter has been referred, contact can be made with the Attorney General.

Confidentiality and Public Disclosure of Information on Case Resolution

The Director must respect a number of statutory requirements in deciding how much information about matters under the Act should be disclosed to the public. Section 10 of the Act requires the Director to conduct inquiries in private and section 29 severely restricts the disclosure of certain types of information. Various provisions in the Access to Information Act and Privacy Act provide for the exemption of specific types of information, when the Director is required to respond to requests under these statutes. The Competition Act also requires the Director to report annually to the Minister on proceedings under the Act and requires the Minister to table the report before Parliament.

Working within these statutory provisions, the Director must balance private and public interests. Parties involved in matters being reviewed under the Act typically have an interest in minimizing the disclosure of their business affairs. On the other hand, public confidence is promoted by timely disclosure of information about activities under the Act and the appropriateness of the resolution instrument chosen in the particular case. Such information may also help the public understand how the Act applies to their own business affairs.

Within the parameters described above, the Director intends to make publicly available information about the resolution of cases under the Act, including the appropriateness of the instrument chosen. Persons involved in discussing the resolution of a case may wish to explore with the Director the extent to which information about the case will be made public.

How to Obtain Publications

Those wishing to obtain copies of this Bulletin or of other publications of the Director of Investigation and Research may contact the Information Centre.