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Fees and Services Standards Annex A - Definitions of Complexity and Guidelines Related to Service Standards

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Definitions of Complexity

Non-Complex Merger Transactions

Non-complex transactions are readily identifiable by the absence of competition issues and the minimal amount of work required to complete assessments. Generally, there is no (e.g. most conglomerate mergers) or minimal competitive overlap between the parties. For example, mergers where the parties combined post merger market share is less than 10% of a market based on a straightforward market definition would fall within this category. Also mergers in unconcentrated industries such as truck-load trucking, up stream oil and gas exploration and extraction (this would exclude pipelines, processing/refining and distribution), global mineral commodities where the parties are not significant players in Canada, and many real estate transactions such as the acquisition of hotels, office buildings and shopping centres fall within the non-complex category.

As well, changes in ownership in a corporation from de facto to de jure control (i.e. 40% to 55% control), securitizations1 and international mergers where only one of the parties has a significant presence in Canada also fall within the non-complex category.

Most non-complex transactions are brought to the Bureau?s attention by way of Advance Ruling Certificate requests or short form prenotification filings. The amount of work required is usually limited to a few phone calls with counsel, reviewing precedent cases in the industry in question and, in some instances, a few phone calls with third parties to verify the merging parties submissions.

It is the experience of the Mergers Branch that approximately 85% of merger transactions fall within the non-complex category.

Complex Merger Transactions

Complex mergers involve transactions between direct or potential competitors as well as mergers between customers and suppliers where there are indications that the transaction may create or enhance market power according to the enforcement policies set out in the Merger Enforcement Guidelines. Generally, mergers in this category occur in concentrated industries where there are barriers to entry. Merger transactions that generate unsolicited, creditable complaints where market power indicia are also present also fall within the complex merger transaction category.

The assessment of complex merger transactions usually presents one or more analytical challenges, such as defining the correct relevant market, evaluating the effectiveness of remaining competition, assessing potential sources of new competition, or determining the impact of change and innovation in a market. Complex merger examinations potentially could develop into Tribunal cases; however, this is not immediately obvious when the matter first comes to the attention of the Bureau. In addition to reviewing issues with counsel for the merging parties and reviewing precedent cases, complex merger examinations require third party contacts to obtain information and test the merging parties submissions, information requests as well as meeting with the merging parties and, occasionally, third parties. The examination may involve two or more officers working as a team, and these cases require a written assessment to be prepared for the review of management.

It has been the experience of the Mergers Branch that approximately 10% of merger transactions fall within the complex category.

Very Complex Merger Transactions

A very complex case is typically characterized by indications early in the preliminary examination that the transaction is likely to create or enhance market power according to the enforcement policies set out in the Merger Enforcement Guidelines, and Tribunal proceedings are a strong possibility. Generally, mergers between the leading participants in concentrated industries, where it is reasonable to conclude that the market share and concentration thresholds set out in the Merger Enforcement Guidelines are surpassed, and where high barriers to entry are evident fall within this category. These transactions often involve considerations of complex areas of inquiry such as the failing firm or efficiencies defence as well as other considerations such as the availability of a practical remedy or a unique theory of anti-competitive harm. The latter consideration is particularly important in merger cases where a prevention of competition or vertical issues are evident. Differing interests of third parties, for example customers and suppliers, well articulated complaints or competing public policy objectives, for example trade protection and competition, are often evident in the analysis of very complex merger transactions.

Very complex merger transactions are characterized by rigorous assessments and the volume of work required is much greater than in the case of complex transactions. Usually, very complex cases quickly progress to the formal inquiry stage and may involve the use of formal powers to obtain information. The volume of work necessitates the use of case teams consisting of three or more officers, economists from the Economic Policy and Enforcement Division, legal counsel as well as outside experts. Contracts for experts have to be prepared and, occasionally, requests justifying the need for outside counsel. In addition to preparing written assessments, very complex cases usually involve negotiating hold-separate arrangements and preparing Tribunal pleadings.

It is the experience of the Mergers Branch that approximately 5% of merger transactions fall within the very complex category.

Non Complex Advisory Opinions

Non-complex requests are those that deal with proposed business conduct and/or transactions where all related and pertinent information is provided by the requester, and there is a sufficient amount of jurisprudential information and established Bureau policy and procedures for the Bureau to formulate an opinion.

Complex Advisory Opinions

Complex requests are those that deal with proposed business conduct and/or transactions where all related information is provided by the requester, but where the proposed conduct deals with a novel issue where there is little or no jurisprudential information, no previous interpretation on the subject by the Bureau and/or where a legal opinion may be required; and/or where the period of time necessary to review the amount of material submitted will substantially exceed the turn-around time established to deliver a non-complex opinion.

Advisory Opinions - Definition

The specific opinion for which fees will be charged will be based on the written request and information submitted by the applicant as well as on previous jurisprudence, previous opinions, Bureau knowledge and the stated policies of the Director. The Bureau will not undertake third party contacts or verifications.

The Bureau will continue to provide other preliminary views that do not fall within the scope of the advisory opinion as defined above. This may be in the form of a request for the review of existing or proposed business conduct where the requester wishes the Bureau to seek third party advice. There will not be a fee at this time, nor will there be any service standards for a reply. As this type of activity is more within the realm of an investigation, the request will be measured against other priorities within the Bureau and resources will be assigned accordingly.

Information usually required to assist the Bureau in meeting turn-around times

Advisory opinions are prepared with the objective of assisting business people in implementing strategies that they believe will improve their competitive position, without coming into conflict with the Competition Act. The Bureau attempts to provide these opinions in as flexible a manner as possible, recognizing the importance of anonymity at times, and the level of comfort the requesting parties aspire to receive. It should be understood by the parties that the assurances provided by these opinions are directly proportional to the accuracy and amount of the information upon which they are based.

Information that is helpful to the Bureau in responding to a request for an advisory opinion will, in most cases, relate to the assessment of how the proposed business plan will affect the level of competition in a specific market. Following an initial determination and depending on the complexity of the issue, or on the details of a proposed plan, other specific information may be needed to analyse the manufacturing, distribution, sales, pricing, promotional or other situation contemplated by those requesting the opinion.

Following in this annex are guidelines indicating the information needed by the Bureau to conduct its analysis in the case of the civil provisions other than mergers, mergers, the misleading advertising and deceptive marketing practices provisions, and other criminal provisions.

Civil Provisions (other than Mergers)

Information Guidelines

Introduction

On occasion, advisory opinions are requested by companies or individuals who are inquiring as to whether the actions they propose to engage in would raise concerns under the civil provisions of the Competition Act. An advisory opinion is based on actual facts and not hypothetical situations; however, if such facts are incomplete or have changed, the opinion will be subject to review.

Information which is useful in responding to a request for an advisory opinion will, in most cases, relate to the assessment of how the proposed business plan will affect competition in a specific market. While each of the civil provisions refers to a particular competitive situation, the core of the analysis of a proposed plan will relate to determining, as accurately as possible, the actual product and geographic markets involved. Following this determination, other specific information will be needed to analyse the business plan being contemplated by those requesting the opinion.

Described below are the two categories of information which, if provided, would greatly enhance both the speed of response and the utility of the opinion to the requesting party. The first category relates to the general information useful for the product and geographic market definition and the second is a description of the type of information needed, under the various sections of the civil provisions of the Act, which is specific to the proposed plan.

Step 1: Defining the Markets

In order to determine whether a company's proposed activities would adversely affect competition or an individual's business, one must be able to define, quite specifically, the nature, use and attributes of the product and of its substitutes, if any. It is then necessary to determine within which geographic market the product is produced and sold. The following is a non-exhaustive list of elements the Bureau uses to make these determinations:

1. Product Market

a. A physical description of the product; its intended uses; any regulations related to its production, distribution or sale; products which are complementary to its use and any and all substitutes for the product.

b. The availability of the product and the level of choice with respect to quality, size, and selection of the product.

c. Patents, trademarks or other property rights associated with the product.

d. The effect of a rise in price on purchasers? willingness to move to substitute products.

2. Geographic Market

a. The markets in which the product is produced and sold. The names of competitors of the company requesting the opinion.

b. The transportation costs associated with distributing the product; the willingness of customers to accept the transportation costs as part of the price and over what distance.

c. Tariff and non-tariff trade barriers; regulatory restrictions on transporting, exporting or importing the product.

d. The effect of a rise in price on purchasers? willingness to source product from distant markets.

Step 2: Plan-specific Information in Respect of the Civil Provisions

Section 75: Refusal to Deal

A company that is considering changing its method of distributing products may request an advisory opinion under section 75 of the Act. It may decide to supply its products in certain regions or to customers who meet certain criteria. As a result, existing customers may be cut off or potential customers may be refused supply. The following information, as may be relevant to the proposed business plan, would be necessary in order to prepare a complete advisory opinion:

a. If available to the supplier, information regarding who are its customers and a list of what products they purchase from the company and the type of business that they operate.

b. A list of names of companies that sell the same products and compete in the same market as the supplier.

c. A description of the usual trade terms that must be met by existing and potential customers. Are the trade terms non-discriminatory, clearly defined and made known to customers? Information regarding existing customers who have failed to meet usual trade terms in the past.

Inventory records which would demonstrate whether or not the product is in ample supply. Any information regarding changes in distribution resulting from the inability to furnish products through all channels of distribution or due to changes in the supply structure.

Section 77: Exclusive Dealing, Tied Selling and Market Restriction
Sections 78, 79: Abuse of Dominant Position

A company that intends to implement a particular plan (which includes any of the above types of contracts) may request an advisory opinion to determine whether or not concerns would be raised under the Act. The following information, as may be relevant to the proposed business plan, would be necessary in order to prepare a complete advisory opinion:

A complete description of the proposed plan, including any known possible effects of the plan on current or potential customers and competitors as well as the purpose for the plan (i.e. efficiency reasons).

  1. An assessment of market power, which would include market share information, as well as a description of the barriers to entry and exit, excess capacity, time and costs required to enter the market, and the degree of sunk costs faced by potential entrants.
  2. A discussion of the factors affecting competition in the particular industry, including price sensitivity, transportation costs and technological innovations.

Information regarding whether or not the plan in question would constitute a practice, that is a series of acts or a single act repeated a number of times.

A discussion of the defences, limitations and exceptions provided in sections 77(4), 77(5), 77(6), 70(3), 79(4), 79(5), 79(6) or 79(7) and whether or not they apply to the proposed plan. If the parties are affiliated companies, detailed records of the relationship between the companies and documents that substantiate the relationship. Any government regulation to which the activities of the industry are subject.

Merger Provisions Information Guidelines

Non-Complex Merger Transactions

Introduction

Non-complex merger transactions are characterised by an absence of competition issues. Conglomerate mergers, where the parties are not direct or potential competitors, and mergers in unconcentrated industries where the parties combined market share is less than 10% of a market based on a straightforward market definition fall within this category. In most of these cases, a minimal amount of information is required by the Bureau to prepare a timely decision to meet targeted service standards, and it is usually not necessary for Bureau staff to obtain a significant amount of information from third parties such as customers, competitors and suppliers to verify the submissions of the parties. Some examples of non-complex transactions involve typical securitization agreements, real estate transactions and minor upstream oil and gas transactions.

Examination Process
No or Minimal Competitive Overlap

In cases where the parties request that the Director provide an Advance Ruling Certificate regarding a transaction where there is no competitive overlap, it is suggested that the following information be provided with the request:

A description of the parties to the transaction, any relevant timelines and the estimated market value of the transaction;

A description of whether the transaction is an acquisition of assets or shares, an amalgamation, joint venture/strategic alliance or other form of transaction;

Statements describing the industry and the competitive environment of the subject transaction, including a description of the reasons why there is no or minimal competitive overlap between the merging parties;

Statements outlining the reasons why there are no competition issues that arise as a result of the transaction;

Moderate Competitive Overlap

In cases where there is a moderate degree of competitive overlap and industry concentration, the Bureau typically will require more information than referred to immediately above. Examples would include mergers in markets where the combined market shares of the parties are greater than 10%, but less than 35%, based on a straightforward market definition and there are no concerns about the merger enhancing inter-dependent market power, and mergers where barriers to entry are very low. In these circumstances, where the parties are either requesting that the Director issue an Advance Ruling Certificate and/or are filing a short-form prenotification of the proposed transaction, additional information may be required to substantiate submissions that the matter is non-complex and not likely to raise any competition issues.

It is suggested that the following information be provided:

  1. List of the current suppliers and customers of the parties where competitive overlap is evident that account for more than 2% of the total annual volume or dollar value of purchases and sales respectively, together with their addresses, contact names, telephone numbers, and dollar or volume amounts purchased from each supplier or sold to each customer;

  2. Description of the geographic regions of sales for the parties to the proposed transaction;

  3. Estimated market value of the transaction;

  4. Summary description of any product overlap or geographic overlap among the products that make up the subject businesses of the parties;

  5. Estimate of the pre-merger and post-merger market shares of each of the overlapping products in the product and geographic markets as defined by the parties; and

  6. Existing competitive impact analysis, competition brief or other documents that address the basis for the parties? market definition and market share/concentration submissions, as well as the other relevant factors under section 93 of the Act such as conditions of entry and effectiveness of remaining competition.
Service Levels

Once the Competition Bureau has determined whether a proposed merger is non-complex, it will undertake best efforts to finish its examination within 14 days of such determination. As in the case of complex and very complex mergers, if the initial prenotification filing or Advance Ruling Certificate request is deficient in information as suggested above, the 14 day period will start once the additional information is provided.

Generally, it is not necessary for the Bureau to obtain information from third parties in non-complex matters unless the parties are direct competitors and their combined market shares exceed 10%. In cases where some moderate competitive overlap exists, some substantiation with third parties may be necessary. In these cases where the transaction is not already in the public domain, a representative of the Bureau will provide prior notice that market contacts will be required. As indicated in the guidelines for complex and very complex mergers, in these instances the 14 day period will commence once the Bureau is in a position to make third party contacts.

Merger Provisions Information Guidelines

Complex and Very Complex Merger Transactions
Introduction

Since the implementation of the merger provisions of the Act in 1986, the Competition Bureau has adopted a flexible, compliance-oriented approach for the great majority of merger cases that it reviews. Where a merger case appears to be either complex or very complex, counsel to the parties typically will produce a competition brief, which will provide background information on the transaction and the industry, and present the views of the parties on the major issues that have to be analysed. In some cases supporting documentation is provided. These materials and initial discussions with the parties are often useful as an introduction to the matter and may help focus the subsequent examination on key issues.

These initial materials and discussions are complementary to, but not a substitute for, the normal examination process. Depending on the circumstances of the matter, written or oral requests for information and documents will be made to the parties. In a few cases, such requests may be very extensive and requested under oath, or formal powers may be exercised. In addition, an important part of the examination in many complex and very complex cases will be the collection of information from other market participants, which could include customers, competitors, suppliers, industry associations and government regulatory agencies. In a few cases, particularly in very complex cases, the Bureau will engage outside economic and industry consultants to assist in the examination process.

This information guideline is not intended to change the current flexible approach that the Bureau has adopted to the enforcement of the merger provisions of the Act. It is intended to provide guidance as to the type of information that should be considered for inclusion as part of a competition brief or additional submissions appended to a prenotification filing in a complex or very complex case. These materials will assist the Competition Bureau in its determination of whether the proposed transaction will be classed as a complex or very complex merger and help expedite the review process. The experience of the Competition Bureau has been that the more substantive and complete the competition brief and accompanying documents are at the initial stages of a matter, the more focused and expeditious the review process becomes. This generally translates into specific and shorter subsequent requests for information and fewer, more focused third party contacts. This should result in a more timely resolution of the issues in complex and very complex merger cases, while at the same time ensuring that a thorough examination of all the relevant issues has been undertaken.

Suggested Information

The key points that need to be addressed in any merger review are the definition of product and geographic markets, conditions of entry, market shares/concentration and the degree of effective competition remaining after the proposed transaction. Where gains in efficiencies or the failing firm factor are relevant, these also need to be assessed. The competition brief should provide the parties? views on these issues and provide supporting documentation. In preparing these materials, it will be useful to review the Merger Enforcement Guidelines which set out in detail the approach taken by the Bureau to each of the factors to be considered in a merger review.

The Competition Bureau has found that relevant pre-existing business documents used in the normal course of operations are very useful in assessing the factors to be considered. Consideration should be given to the inclusion of the following documents:

  1. presentations, studies, reports or other documents prepared for the Board of Directors or senior management that discuss the rationale for the proposed transaction and that provide information on aspects of the transaction likely to be relevant (e.g. impact on pricing, output, efficiencies, competitors, market share, sales growth);

  2. pro-forma business plans/strategic plans for the merged entity (if they exist);

  3. relevant business plans/strategic plans of each party for the past three years;

  4. marketing plans for each party for the past three years for those products that they both produce and which compete;

  5. a copy of relevant sales or promotional materials that depict or describe the products made by both parties and which compete;

  6. sales and production capacity (dollar and unit volume) for each of the parties for the products they produce which compete for the past three years and the location of relevant production facilities (it may be more convenient to summarise this information than produce underlying documents);

  7. documents which describe the market share of the parties over the past three years. (third party sources are often useful and should be provided if available);

  8. internal studies, consultants? reports, industry studies, financial analysts? reports or industry publications that are relevant. Such materials, for example, may contain information on competitors, such as plant location, sales and capacity, or provide useful descriptions of the economics of the industry;

  9. studies or reports prepared by or for the company which discuss the strengths or weaknesses of actual or potential competitors in each of the products made by both parties;

  10. documents which describe any non-compete agreements or other types of agreements, arrangements or licences that the parties may have with third parties which would impede the ability of actual or potential competitors to compete with the parties now or in the future; and

  11. documents that describe existing co-production agreements, joint ventures or strategic alliances with any competitor in relation to the overlapping products.

In considering what documentation to include, the parties should exercise judgement about relevancy, duplication and usefulness. In addition, where such documents may leave a false impression or provide an incomplete picture, the parties should provide a commentary which addresses these deficiencies. Failure to do so may undermine the value of the advice that the parties receive from the Bureau or may result in extending the period of time required by the Bureau to conduct its review.

The parties and their counsel are encouraged to discuss any questions or concerns they may have about the type of information or documents that may be useful in any particular circumstances with the staff of the Competition Bureau.

Service Levels

The level of complexity will normally be determined and conveyed to the parties within five business days of receipt of the prenotification filing and additional submissions or materials as suggested herein. Where the information provided at the time of the prenotification filing is insufficient to determine if a matter is complex or very complex, additional information will be requested.

Once the Competition Bureau has determined that it has received sufficient information from the parties on the key analytical points outlined above, it will undertake its best efforts to finish its examination of complex cases within 10 weeks of such determination, and within 5 months of such determination in the case of a very complex merger matter.

As noted above, market participants are often an important source of information in the examination process. Accordingly, the Bureau must be in a position to discuss the proposed transaction with such participants. It is suggested that the proposed transaction be made public at or before the time of prenotification or application for an Advance Ruling Certificate. Where the parties would prefer to delay the public announcement of the proposed transaction, the Bureau will defer making market contacts, provided that there will be sufficient time before closing to conduct such contacts as the Bureau considers necessary. In such instances, however, the time periods for review noted above will not begin to run until such time that the Bureau is in a position to make third party contacts.

Misleading Advertising and Deceptive Marketing

Practices Provisions - Information Guidelines

Advisory opinions may be requested by parties that will be making the representation or their agents or legal counsel, on proposed representations, advertisements, promotional material, and business plans to determine whether the situation described raises an issue under the misleading advertising or deceptive marketing practices provisions of the Competition Act. Examples of the materials that may be submitted for an advisory opinion are: any proposed advertisement; representations that include claims relating to performance, efficacy or length of life of a product; multi-level marketing plans; and promotional contests. The information required by the Director to prepare a timely opinion to meet targeted service standards is described below.

General Information Required for All Requests
  1. Requests for advisory opinions are assessed based on the information provided. A clear description of the proposed representation accompanied by all relevant supporting information as set out in the following paragraphs will ensure that the representation is assessed in relation to the most appropriate provisions of the Act.

  2. If a promotion involves both French and English material, a person making a request should indicate which material should form the basis for the opinion. Note that if a review of material in both languages is desired, two opinions will be required.

  3. If the request is for an opinion in respect of one of the misleading advertising and deceptive marketing practices provisions of the Act other than sections 55, 55.1 and 59, then a specific proposed representation should be identified together with a draft of the advertisement or the context in which the representation will appear so that an informed assessment can be made of the general impression created by the representation. In addition there should be a statement of the facts which are relevant to the representation.

  4. Describe the medium in which the proposed representation will appear (i.e. newspapers, television, packaging, internet, etc.) and provide the approximate time frames and the geographic area where it will run.

  5. Include the name, address and phone number of the requester, advertiser, or proposed business.

The more complete and accurate the information provided, the less likely that the opinion will include qualifications or be subject to revision because of new information received.

Additional Information Required for Paragraph 52(1)(b) Advisory Opinions (Adequate and Proper Tests)

Representations that include any statement, warranty or guarantee of the performance, efficacy or length of life of a product would be considered for advisory opinions under paragraph 52(1)(b) of the Act. Each performance claim has to be based on an adequate and proper test, the proof of which lies on the person making the representation. The additional information required by the Director to prepare an opinion is the following:

  1. A copy of all tests known to the advertiser which relate to each performance claim, including the test methodology, all test data and results, and any other relevant information.

  2. A description of who performed the tests and where and when they were conducted.

  3. An independent certification from a credible source that the tests fully substantiate the proposed claim.

  4. A description of all standards and standards setting and monitoring organizations, which relate to the production or use of the advertised product and which are relevant to the proposed performance claims.

Note that opinions in relation to paragraph 52(1)(b) of the Act may not be provided if it is necessary for the Competition Bureau to commission experts to perform tests or assessments of tests in order to form an opinion.

Additional Information Required for Sections 55 and 55.1 Advisory Opinions (Multi-level Marketing Plans and Pyramid Selling)

Multi-level marketing plans and amendments to these plans would be considered for advisory opinions under sections 55 and 55.1 of the Act. The additional information required by the Director to prepare a timely advisory opinion to meet targeted service standards is the following:

  1. Adequate disclosure of all material facts relating to the proposed plan, such as the disclosure of typical earnings in cases where the plan contains representations relating to compensation; the plan's buy-back or refund policy; or a description of any purchases that may be required to join the proposed plan.

  2. Description of the compensation plan.

  3. Copies of all promotional brochures, pamphlets, videos, audiotapes, contractual agreements and any other material which provides information relating to the marketing plan.

  4. A description of when and how any promotional material will be used.

  5. Confirmation that the proposed plan raises no issues that are being considered by any other law enforcement agency in Canada or abroad.

Note that an opinion under sections 55 and 55.1 of the Act will not be given in the following situations: where the plan involves gold or silver coins, the travel industry, or discount or debit cards. An opinion will not be given in these situations because of the difficulty of establishing the value of these products. In such cases it is not possible to determine whether consideration is being paid for the right to receive bonuses for recruitment.

An opinion will also not be provided where the operator is situated outside of Canada and there is no entity incorporated in Canada, or no individual located in Canada who could be liable for the actions of the company.

An opinion will not be given where a company discontinues operations and resurfaces under a new name until the new entity is monitored and it is determined that it is a viable business.

Additional Information Required for Section 59 Advisory Opinions (Promotional Contests)

Promotional contests would be considered for advisory opinions under section 59 of the Act. The additional information required by the Director to prepare an opinion is the following:

  1. A copy of the Rules and Regulations for the contest.

  2. A description of the medium in which the proposed promotion will appear (i.e. newspapers, television, packaging, internet, etc.) and provide the approximate time frames and the geographic area where it will run.

  3. The number and value of prizes being awarded.

  4. A description of any regional allocation of prizes.

  5. The contest closing date.

  6. The chances of winning each class of prize or a description of why it is not possible to know the probability.

  7. Any fact within the knowledge of the contest-runner, that would affect materially one's chances of winning.

  8. Copies of all advertising or other material which will be used to promote the contest and a description of when and how this material will be used.

If submitting artwork for an opinion, ensure that all visuals and copy are readable. If the contest is to be advertised in different media or in different versions, ensure that all material relating to each version and media type is submitted as an opinion only applies to the content of the particular submission and is not applicable to any other representations made in the course of the promotion.

Criminal Provisions (other than Misleading Advertising and Deceptive Marketing Practices)

Information Guidelines

Introduction

Advisory opinions are prepared with the objective of assisting business people in implementing strategies which they believe will improve their competitive position, without coming into conflict with the Competition Act. We have endeavoured to do so, in as flexible as manner as possible, recognizing the importance of anonymity at times, and the level of comfort the requesting parties aspire to receive. As such, we have provided some opinions on the basis of a hypothetical situation. It should be understood by the parties, however, that the assurances provided by the opinion are directly proportional to the factual accuracy and detail upon which they are based.

Information which is helpful to the Bureau in responding to a request for an advisory opinion will, in most cases, relate to the assessment of how the proposed business plan will affect the level of competition in a specific market. While each of the criminal provisions refers to a particular competitive situation, the core of the analysis of a proposed plan will relate to determining, as accurately as possible, the actual product and geographic markets involved. Following this determination, and depending on the details of the proposed plan, other specific information will be needed to analyse the manufacturing, distribution, sales, pricing, promotional or other situation contemplated by those requesting the opinion.

Described below are the two categories of information which, if provided, will greatly enhance both the speed of response and the utility of the opinion to the requesting party. The first category relates to the general information useful for the product/geographic market definition and the second is a description of the type of information needed, under the various sections of the Act, which is specific to the proposed plan.

Business plans will vary in complexity and impact. It is not our intention to burden the business community unnecessarily with onerous information requirements. The categories of information mentioned are general. We, therefore, invite those wishing an advisory opinion to contact us in advance of their submitting a written request, which will allow for the submissions to focus on the key aspects of the proposal. In so doing, we may be in a position to streamline the requirements.

Step 1: Defining the Markets

Any assessment of the impact of a proposed plan on the level of competition in a market is one which must assess whether the firms involved are able to impose unilateral changes in a market. To determine whether this is possible one must be able to define, quite specifically, the nature, use and attributes of the product and of its substitutes, if any. Then it is necessary to determine within which geographic market the product is produced and sold. The following is a non-exhaustive list of elements the Bureau uses to make these determinations.

Product Market:
  1. A physical description of the product; its intended uses; any regulations related to its production, distribution or sale; complementary products to usage; any and all substitutes for the product.

  2. The availability of the product and its inputs. The level of choice with respect to quality, size, and selection of the product.

  3. The speed of innovation and change related to the product. Patents, trademarks or other property rights associated with the product.

  4. The effect of a change in price on purchasers? or suppliers? tendencies to move to substitute products.
Geographic Market:
  1. Sources of supply, for all customers in Canada, of the product or its substitutes.

  2. The transport costs associated with distributing the product; the willingness of customers to accept the transport costs as part of the price and over what distance.

  3. Tariff and non-tariff trade barriers; regulatory restrictions to transporting, exporting or importing the product.

  4. The effect of a rise in price on purchasers? tendencies to source product from distant markets or on distant suppliers? tendencies to sell into the affected market.
Step 2: Plan-specific Information in Respect of the Criminal Provisions
Section 45: Conspiracy
  1. A complete description of the proposed plan, including any known possible effects of the plan on current or potential customers, suppliers and competitors.

  2. An assessment of market power, which would include market share data over a three year period, as well as a description of the difficulties associated with entering and exiting the business, including the time and costs required to enter.

  3. A discussion of the factors affecting competition in the particular industry; price sensitivity; advertising; transport costs; technological innovations, etc.

  4. A description of the countervailing power of those affected by the plan, if any. Details of market response to the proposed plan, such as customer reactions, if they are known.

  5. A discussion of the defences and exceptions provided in sections 45(3), 45(5), and 45(6), if they apply to the proposed plan, as well as the applicability of any other provincial or federal laws or regulations, if any, to the activities and industry involved. In claiming a defence under 45(3) firms may wish to provide an assessment of the impact of the plan on prices, quantity or quality of production, markets or customers, or channels or methods of distribution; as well as whether the plan will restrict anyone from entering into or expanding a business.
Section 50(1)(a): Price Discrimination
  1. A description of the proposed pricing plan, including any proposed fee schedule, discounts, rebates, allowances, price concessions or other advantages available to potential customers. The duration of the plan.

  2. A description of the quantity and quality of articles involved in the proposed plan.

  3. A description of the competing purchasers of the articles, as well as any affiliations between the seller and purchasers, or among the purchasers. An assessment as to whether or not buying groups, franchises or international affiliates are involved.

  4. A description of the terms and conditions upon which the proposal is available to purchasers, for what duration and to whom it is available. Further, an explanation of whether the terms and conditions are to be made known to purchasers, as well as whether or not the terms and conditions are achievable by all potential competing purchasers.
Section 50(1)(c): Predatory Pricing
  1. A description of the pricing plan, its intended duration, the rationale behind the plan, and the desired effect on competitors in the short and long term. A description of the terms and conditions upon which these prices are offered.

  2. An assessment of market power, which would include market share data over a three year period, as well as a description of the difficulties associated with entering and exiting the business, including the time and costs required to enter.

  3. The marginal or average variable cost and average fixed and total costs of producing/selling the product. A discussion of any losses expected as a result of the plan and for what duration. A discussion of the expectation, if any, of recoupment of the losses at a later date or through another profit centre.
Section 61: Price Maintenance
  1. A description of the methods and channels of supply proposed in the plan, including the firm?s marketing objectives, a list of customers and a description of the type of customer and the customers? marketing strategy or niche. A description of the industry norms related to the chain and levels of supply.

  2. A description of the criteria used by the firm to determine which distributors, agents or resellers or other customers will obtain supply. Details of the terms and conditions of supply, such as those governing payment and credit, transportation, cooperative advertising, leases, consignment arrangements, and restrictions, such as exclusivity or granting of geographical territories.

  3. Details of any affiliations between the firm and any of its customers.

  4. Details of any difficulties experienced with existing or previous customers, including pressure to deal with a certain group or class of customer, and on specific pricing terms.

Table of Contents | Annex B | Annex C

Footnotes

1A minimal administration fee of $50.00 will be charged for securitization transactions as it is intended to exempt such transactions from the application of Part IX in the near future.


Date Modified: 2008-12-22

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