Canada: Substantial Overhaul to Merger Control Standards and Procedures

The Government of Canada proposes a number of new amendments to the Competition Act (the “Act”) that will make it easier for the Competition Bureau to challenge mergers.

This follows the Government’s September 2023 proposal to abolish the efficiencies defence, which permits otherwise anti-competitive mergers to withstand legal challenge if they generate efficiencies that exceed and offset anti-competitive effects. See our September 2023 Update, Government of Canada Introduces Legislation to Amend the Competition Act, End the “Efficiencies Defence”.

The new rules may come into force as early as December 2023 or January 2024. Here are the key takeaways:

New Injunction Rules Change Merger Strategy. Currently, where the Bureau wishes to prevent a merger from closing after any applicable waiting periods expire, the Bureau typically seeks an interim injunction from the Competition Tribunal. Obtaining an interim injunction takes time, and parties have succeeded at closing their mergers in the face of Bureau opposition. The new legislation eliminates the race to the court room by imposing an automatic prohibition on a merger closing once the Bureau has applied for an interim injunction; that prohibition is not lifted until the Tribunal has decided the application for an interim injunction. Since parties know the Bureau can automatically prohibit closing by filing for an interim injunction, the calculus for whether and when to enter into a timing agreement with the Bureau during a merger review process may also change.

Key Takeaway

• By barring closing while an interim injunction application is being considered, the new rules create new barriers for parties determined to close without the Bureau’s affirmative approval and may create new incentives for merging parties to enter into timing agreements with the Bureau.

New Role for Market Shares and Labour Market Effects in Canadian Merger Review. The Tribunal may block or remedy a merger if the Bureau can demonstrate that the merger lessens or prevents competition substantially. Currently, the Tribunal is prohibited from relying solely on evidence relating to market share or concentration (‘structural presumptions’) to reach its conclusion. In addition, the Act is not clear on whether the Tribunal can find that a lessening of competition can occur in relation to labour markets.

The new legislation abolishes the prohibition against the Tribunal relying on structural presumptions. Instead, the Tribunal will be expressly permitted to consider “any effect from the change in concentration or market share”, including “any likelihood that the merger… will result in express or tacit coordination.” In addition, the Tribunal is expressly permitted to conclude that a merger lessens competition substantially if the effect is in a labour market. These changes create the possibility that the Tribunal could establish structural presumptions in Canadian merger law (as has been the case in the United States for 60 years since the US Supreme Court decision in United States v Philadelphia National Bank) and may increase the focus on market definition in Canadian merger litigation. In addition, these changes create the possibility that the Bureau could block a merger based only on labour market effects.

Key Takeaways

• It may be easier for the Bureau to challenge mergers that result in high market shares or concentration levels.
• Merging parties need to proactively assess whether their proposed mergers have labour market effects, and be prepared to respond to Bureau information questions about labour market effects.

Reduced Merger Litigation Risk for the Bureau. Litigation at the Tribunal, including merger litigation, follows the ‘loser pays’ rule, whereby the losing party pays a portion of the winner’s costs. For example, the Bureau was required to pay nearly $13 million in costs after it unsuccessfully sought to block Rogers’ acquisition of Shaw, which impacts the Bureau’s budget and its ability to launch litigation in other cases. The new legislation directs the Tribunal to not make cost awards against the Bureau unless “necessary to maintain confidence in the administration of justice” or the “absence of a cost award would have a substantial effect on the ability of the [defendant company] to carry on business.”

Key Takeaway

• By removing most of the risk of an adverse cost award, the Bureau will face less risk when challenging mergers in court.

Extension of Limitation Period for Challenging Non-Notifiable Mergers. Currently, the Bureau is barred from challenging a merger more than one year after the merger has closed. The new legislation keeps the one year limitation period for mergers notified to the Bureau (including voluntary notifications), but extends the limitation period to three years for those mergers not notified to the Bureau.

Key Takeaway

• Parties to non-notifiable mergers should consider the merits of notifying their mergers to the Bureau in order to reduce the risk of a challenge many years after closing, when the competitive dynamics in an industry may have evolved.

Expansion of Number of Mergers Subject to Notification. Parties are generally required to file pre-merger notifications with the Bureau and observe statutory waiting periods when certain financial thresholds are met. The new legislation proposes technical changes to those thresholds that will result in a greater number of mergers being subject to notification. The new financial thresholds will more closely resemble the concept of “turnover” used by European and other international competition authorities. The new legislation also closes some loopholes that allow certain large mergers to proceed without notification, while others remain.

Key Takeaway

• More mergers will now be notifiable to the Bureau. Canadian merger notification rules will be more aligned with common international practices.

Other Proposed Changes

The legislation proposes other changes to the merger provisions, including several changes that resolve disharmony between the text of the Act and the current practices of the Bureau. The legislation also gives the Tribunal the power to make orders (including an order for administrative monetary penalties) against parties that violate consent agreements and parties that retaliate against a person for cooperating with the Bureau.

For further information concerning this draft legislation, please contact any member of our Competition and Foreign Investment Group.