THE REVIEW OF JOINT VENTURES
UNDER THE CANADIAN COMPETITION ACT

Outline of Speaking Notes for Presentation by
Calvin S. Goldman, Q.C. to the

Federal Trade Commission Joint Venture Hearings
Federal Trade Commission
Joint Venture Project
Washington, D.C.
June 30, 1997

Calvin S. Goldman, Q.C.
and
Richard F.D. Corley
Davies, Ward & Beck
Toronto, Canada

THE REVIEW OF JOINT VENTURES
UNDER THE CANADIAN COMPETITION ACT

Outline of Speaking Notes for Presentation by
Calvin S. Goldman, Q.C. to the
Federal Trade Commission Joint Venture Hearings
Washington, D.C.
June 30, 1997

Calvin S. Goldman, Q.C.(1)
and
Richard F.D. Corley*

I. Introduction

Thank you for the invitation to appear before the Federal Trade Commission to provide you with some observations pertaining to the Canadian experience in relation to the review of joint ventures and strategic alliances.

In Canada, as in the United States, innovation, the accelerating rate of technological change and globalization are leading to an increase in the use of joint ventures to achieve strategic business objectives.

Joint ventures are typically subject to review under the non-criminal reviewable matters provisions of the Competition Act(2) (the "Act"), notably the mergers or abuse of dominance provisions, although they may also raise issues under the criminal conspiracy or price maintenance provisions.

The head of the Canadian competition law enforcement authority, the Director of Investigation and Research (the "Director"), has recognized that joint ventures will generally result in positive innovation and efficiency gains without accompanying negative effects on competition.(3)

The Canadian approach to the review of joint ventures reflects a growing recognition of the need for Canadian law to promote both short-term market efficiency and the longer-term gains in economic efficiency that result from innovation and technological change, in order to protect and advance the international competitiveness of Canadian industry.

This presentation briefly describes the reasons that businesses in Canada are forming joint ventures, the provisions of the Act most likely to be applied to joint ventures, and the Bureau's enforcement policies with respect to joint ventures. We will then make some general observations and recommendations concerning the treatment of joint ventures in Canada and the United States.

II. Rationales for the Formation of Joint Ventures

• Joint ventures and strategic alliances are used to accomplish a wide range of business objectives.
• An important factor is frequently a requirement for businesses to rapidly and flexibly combine complementary core functions to develop improved products and services. Joint ventures may facilitate the rapid formation of new products, businesses or standards and allow businesses to benefit from substantially increased economies of scope and scale. Specific joint venture goals may include the following:
• Information technology joint ventures which permit assets to be quickly and flexibly redeployed and combined to create new products and services while permitting the venturers to remain specialized in their areas of core competency;
• Research and development joint ventures which facilitate the performance of research projects which are too expensive or risky for any single competitor to undertake, and may also help to more rapidly facilitate the widespread adoption and dissemination of the results of such projects;
• Standard-setting joint ventures which help to facilitate more rapid development and widespread adoption of technical standards, especially when formed by small to medium-sized firms; and
• Joint ventures which are used to manage and operate disaggregated assets, thereby creating new potential investment vehicles.
• Examples of different types of recent Canadian joint ventures include:
• Strategic alliances which permit competing suppliers of IT services to each concentrate on their core competencies in a manner that permits each to contribute complementary products and services to create integrated "best of breed" solutions;
• Outsourcing joint ventures pursuant to which manufacturing facilities are sold and supply arrangements are outsourced to a joint venture partner;
• Technology transfer joint ventures used in the context of foreign direct investment in other countries. In such circumstances, use of a joint venture may be desirable due to the local venturer's knowledge of its market or, in some cases, may be mandated by restrictions on foreign direct investment;
• Joint ventures among members of complementary networks which add substantially to the value of the network externalities enjoyed by each network. Examples include the internetworked automated bank machines, telecommunications and courier delivery networks;
• Production specialization agreements which should, at least in theory, allow competitors to achieve cost savings through longer production runs; and
• Joint ventures to manage and operate commercial real estate properties, thereby permitting the subdivision and sale of real estate investments in what would otherwise be sub-economic units.

III. Canadian Competition Act Provisions

1. Overview

The Act applies to all business activity in all sectors of the Canadian economy, with certain limited exceptions. It contains a number of criminal offences, notably price fixing and bid rigging and also contains certain non-criminal matters (referred to as "reviewable matters") which may be the subject of a remedial order by the Competition Tribunal (the "Tribunal"), a quasi-judicial tribunal composed of Federal Court judges and lay members.

The Act is enforced by the Director, who heads the Competition Bureau. The Bureau, like the U.S. Antitrust Division and the FTC, employs staff with legal, economics and business training.

With respect to criminal matters, the Bureau conducts investigations and, if it finds evidence of criminal conduct, the Director may refer the matter to the Attorney General of Canada for prosecution or may recommend that individuals or firms be granted immunity as a result of their cooperation in the detection and investigation of criminal offences. However, decisions to lay criminal charges or grant immunity are ultimately made by the Attorney General.

The Act provides for fines of up to Cdn. $10 million and prison terms of up to five years for price fixing and other conspiracies to unduly lessen competition, and unlimited fines and prison terms of up to five years for bid-rigging.

However, in contrast to the U.S., Canada has a long history of a voluntary, compliance-oriented and less litigious enforcement approach to its competition laws. As such, there have been relatively fewer public and private proceedings. Nevertheless, there has been a recent trend toward increasingly higher fines imposed in price fixing and bid-rigging cases and, more recently, jail sentences have been imposed on individuals convicted of these offences.

In response to the limited number of judicial decisions and the desire of the business and legal communities, as well as the general public, to obtain a greater measure of predictability and transparency in the application of the Act, the Director has issued several detailed Enforcement Guidelines setting out the Director's enforcement policies with respect to certain sections of the Act.

The Director's Enforcement Guidelines, in particular the Strategic Alliances Guidelines discussed in the following section, provide some measure of guidance with respect to application of the Act to joint ventures.

• In our experience, joint ventures and strategic alliances are most frequently dealt with or more often raise possible issues under the non-criminal provisions of the Act relating to mergers or abuse of dominance; in some cases, they may also raise issues under the criminal provisions relating to conspiracies or price maintenance. However, the dividing line between criminal and non-criminal review is a source of continued uncertainty and consequently a matter of some concern to prospective joint venturers. This issue will be addressed in greater detail later in this presentation.
• The Act also provides for the review and registration of specialization agreements, pursuant to which the parties each agree to discontinue the production of certain products and to purchase such products from the other party. However, the Canadian specialization agreement provisions, which were enacted in 1986, have not yet been used.

Mergers

As discussed in more detail later in this presentation, as a matter of policy, the combination and integration of resources from multiple parties, and the economic efficiency objectives which typify most joint ventures, suggests that joint ventures, in most cases, could appropriately be assessed under the merger provisions of the Act.(4) For this reason, a brief discussion of the Canadian experience under the 1986 merger provisions is warranted.

Canada's substantive merger law is, in many respects, similar to that of the United States. Under section 92 of the Act, a merger can be successfully challenged if it "prevents or lessens, or is likely to prevent or lessen, competition substantially". In substance, this is similar to the test in section 7 of the Clayton Act. However, the Canadian law goes further than U.S. law in expressly providing that a merger will not be blocked where the likely efficiency gains are greater than and will offset the anti-competitive effects of the merger.

Canada's substantive merger law also includes a non-exhaustive list of factors, set out in section 93 of the Act, that the Tribunal is required to consider when assessing a merger under the Act. These factors include:

- the extent of foreign competition;

- whether a party to the merger is likely to fail;

- the availability of acceptable substitutes;

- barriers to entry, including trade and regulatory barriers;

- the extent of effective remaining competition;

- whether the merger would result in the removal of a vigorous and effective competitor;

- the impact of change and innovation in the relevant market; and

- any other factor relevant to competition in a relevant market.(5)

In particular, section 96 of the Act expressly provides that the Tribunal must not make an order with respect to a merger if it is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition resulting from the merger where the efficiency gains will not likely be attained if an order against the merger were made.

It is important to note that the Canadian merger provisions are applicable not only to transactions that involve an acquisition of control over another entity, but also where there is an acquisition of a "significant interest" in all or part of the business of another entity. Acquisition or establishment of a significant interest is defined in the Canadian Merger Enforcement Guidelines as including the ability to materially influence the economic behaviour of another business, which can occur through contractual or other joint venture arrangements.(6)

The merger provisions were enacted in 1986 as part of a major overhaul of the Act and therefore better reflect modern economic thinking with respect to the careful balancing that is required in respect of conduct which may both increase efficiency and lessen competition.

The limited number of contested cases litigated by the Director under the merger provisions(7) reflects the cautious approach that the Director has adopted to ensure that the enforcement of the Act does not interfere with pro-competitive transactions or the flexibility that businesses typically require in an increasingly competitive global economy.

In our view, the better approach to mergers, and to joint ventures, in cases where the anticipated anti-competitive effects are unclear and where such transactions are likely to generate relatively certain efficiency gains, is to allow the transactions to proceed, subject to monitoring by the antitrust authority, where necessary to ensure the actual competitive trade-off is not significantly different from that expected.

The importance ascribed by the Act to the long-term goal of increased economic efficiency is also reflected in section 95, which exempts research and development joint ventures from substantive review under the merger provisions if the joint venture in question contemplates: (i) a project or program which would not otherwise be likely to take place; (ii) no change in control over any party to the joint venture; (iii) all of the parties to the joint venture having entered into a written agreement that imposes on one or more of the parties an obligation to contribute assets to the joint venture and governs the continuing relationship between them; (iv) the written agreement restricts the range of activities that may be carried on by, and provides for termination of, the joint venture upon completion of the project or program; and (v) the joint venture is not likely to prevent or lessen competition except to the extent reasonably required to undertake and complete the venture.

This joint venture provision has not been considered in any Tribunal decisions to date.

Abuse of Dominant Position

In the event that a joint venture is used to create or enhance a dominant position in the market, the parties' conduct may be subject to review under the abuse of dominance provisions set out in sections 78 and 79 of the Act.(8)

The abuse of dominance provisions employ a test of "preventing or lessening competition substantially in a market". As interpreted by the Tribunal, these provisions address the conduct of a dominant firm which prevents or impedes market access through the creation of or raising of barriers to entry. As such, it is the conduct of the dominant firm rather than the fact of dominance itself which is the focus of the abuse provisions.

• Abuse of dominance under the Act involves a practice of anti-competitive acts by one or more persons who substantially or completely control a class of business, where the practice has had, is having, or is likely to have the effect of preventing or lessening competition substantially. Section 78 of the Act sets out a non-exhaustive list of anti-competitive acts.
• A consistent theme in the enumerated anti-competitive acts is that a dominant firm is targeting a smaller rival. Consequently, the creation, by way of a joint venture, of a dominant position may well give rise to concerns and the possibility of proceedings under these provisions.

• The Director has specifically indicated that strategic alliances may be reviewable under the abuse provisions if the parties to the alliance substantially control a business and the other statutory requirements are satisfied.(9)

  The concept of joint abuse by two or more firms, which is increasingly being recognized and addressed in Canada and in other jurisdictions such as the E.U., may be particularly applicable to joint venture arrangements.

  A recent Tribunal case demonstrated the effectiveness of the abuse provisions in addressing barriers to entry created by closed joint venture networks. The case involved the Interac Association ("Interac"), an electronic banking network which provides a shared cash dispensing service and electronic funds transfer which allows consumers to make purchases at participating retail outlets using Interac trademarked debit cards. In that case, the Director obtained a consent order against Interac and nine of Canada's major financial institutions, which are the charter members of Interac.(10)

Anti-Competitive Agreements

The principal provision prohibiting anti-competitive agreements is found in section 45 of the Act which prohibits agreements that have the effect of "unduly" lessening or preventing competition in a market.(11) The Act also contains per se prohibitions against bid-rigging and certain other specific forms of anti-competitive agreements.

The Supreme Court of Canada has recently described the conspiracy provision set out in section 45 as remaining "at the core of the criminal part of the Act" and as prescribing the use of a "partial rule of reason" approach.(12) Unlike the merger provisions, no statutory or judicially created efficiency exception applies to the conspiracy provisions.

Successive Directors have publicly stated that the investigation and prosecution of anti-competitive agreements that contravene section 45 is one of the Competition Bureau's foremost priorities and that the Director will aim to maximize deterrence by seeking higher levels of fines against offending corporations and, where appropriate, jail sentences against individuals.

Consequently, the possible application of this provision to joint venture arrangements is a significant concern to parties to joint ventures which may be viewed as potentially having an adverse effect on competition. It would be beneficial to those proposing joint ventures to know that such ventures will not be subject to review under the conspiracy provision if the joint venture agreement and activities are not implemented in a covert manner.

Price Maintenance

The criminal price maintenance provisions in section 61 of the Act create the per se offence of attempting to influence upward the price at which an unaffiliated business sells products or services in Canada.(13) As originally enacted, this provision prohibited only resale price maintenance. However, in 1976 the section was substantially broadened and now purports to apply to any agreements, threats or promises relating to price, whether horizontal or vertical in nature. The majority of recent prosecutions under this provision have related to horizontal relationships between competitors.

In the joint venture context, the per se prohibition, under section 61, of agreements that influence upward or discourage the reduction of price may raise concerns where, for example, the parties to a joint venture work together to create a product and would like to agree to sell that product at a certain price. While the parties would be entitled to set the price if they merged, or incorporated a joint venture corporation (which unilaterally set the price and sold the products), section 61 appears to limit the flexibility of the parties to set the prices of the products of an unincorporated joint venture.

This issue does not arise in the same manner in the U.S. due to the judicially developed rule of reason doctrine.

Specialization Agreements

Specialization agreements are agreements under which each party agrees to discontinue producing a certain product on the condition that the other party to the agreement agrees to discontinue producing another product, and include agreements under which parties agree to buy certain products exclusively from each other.(14)

Section 86 allows the Tribunal to authorize a specialization agreement where the Tribunal concludes that the implementation of the agreement will bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that will result from the agreement and where the efficiency gains would not likely be obtained in the absence of the agreement, provided that there has been no attempt to coerce any person to become a party to the agreement. If the Tribunal is satisfied that the statutory requirements have been satisfied, it may order that the agreement be registered for a period of time specified in the order. Registration of a specialization agreement immunizes the agreement from the possible application of the conspiracy or exclusive dealing provisions of the Act.

Although the specialization agreement provisions have been in force for more than 10 years, to date there have been no applications to the Tribunal under those provisions.

IV. Canadian Joint Venture Enforcement Policy

The Strategic Alliances Bulletin

As the FTC has recognized, certainty is critical to business planning. Conversely, uncertainty can have a serious chilling effect on potentially pro-competitive business activity. In our experience, this is as true in Canada as it is in the United States and other parts of the industrialized world.

In recognition of this fact, a long succession of Directors have endeavoured to reduce the potential chilling effect of the Act and the Bureau's enforcement policies by issuing detailed guidelines, information bulletins, press releases and backgrounders regarding the Bureau's conclusions and underlying analysis in specific cases, and by making speeches outlining the Director's views concerning topical matters from time to time.

In addition, the Program of Compliance, since the latter part of the 1980s, has been progressively refined with a view to better assisting business persons to structure their affairs to avoid running afoul of the Act, and to provide them with greater comfort regarding proposed courses of action.

In an effort to help to reduce uncertainty with respect to the treatment of joint ventures under the Act, in 1995 the Director released an information bulletin entitled Strategic Alliances Under the Competition Act(15) (the "Bulletin"). The initiative was initially widely viewed as a worthy one and, as discussed below, the Bulletin has provided useful guidance in several respects.

Nevertheless, the Canadian experience has given rise to a number of issues where the Bulletin does not provide the type of clear guidance that was hoped for at the time of its announcement. It leaves a significant "grey zone" where the enforcement mandates under the criminal (e.g., conspiracy and price maintenance) and non-criminal (e.g., mergers, abuse of dominance, joint ventures and specialization agreements) provisions of the Act overlap. Of course, it is a very difficult task to eliminate this "grey zone" in its entirety; however, because of the possibility that joint ventures can be concurrently reviewed under the non-criminal and criminal provisions of the Act, and may be subject to the very different remedies and penalties available in non-criminal and criminal proceedings, it is of paramount importance for the enforcement authority to attempt to delineate, to the greatest extent possible, the circumstances in which a review will shift from non-criminal to criminal enforcement.

The Bulletin was subject to a broad public consultation process which gave rise to numerous submissions from the business and legal community in Canada. Although the final Bulletin contained significant improvements over the initial draft, some commentators have expressed the view that the sections of the Bulletin which refer to the risks of contravening the conspiracy provisions in section 45 of the Act have had a chilling effect which was not offset by sufficiently clear guidance elsewhere in the Bulletin regarding when strategic alliances are likely to be reviewed under the merger provisions, rather than under the conspiracy provisions of the Act. Concerns have similarly been expressed regarding the failure of the Bulletin to clearly delineate the circumstances under which potentially pro-competitive joint ventures may be reviewed under the price maintenance provisions, instead of, or in addition to, the merger provisions.

We believe that there remains room for clarification and further elaboration of the guidelines set out in the Bulletin so as to avoid the possible chilling effect that uncertainty can have on pro-competitive and innovative proposed joint ventures. In particular, given the growing tendency of businesses to structure their joint venture arrangements on a North American rather than a national basis, there may be some benefits to considering a cooperative initiative between the Canadian and U.S. antitrust authorities with a view to providing clearer guidance to the business community regarding the possible application of each country's competition laws to cross-border joint ventures and strategic alliances.(16)

At the present time, the general guidelines set out in the Bulletin include the following:

"In conducting our analysis of a strategic alliance under the Act, we will examine whether an alliance is likely to maintain, create or enhance market power."(17) This makes it fairly clear that firms which do not have market power usually need not be concerned about serious issues arising under the Act in connection with a proposed strategic alliance.

"[I]t is only in circumstances where the parties to the information exchange collectively possess market power and are engaged in the type of information sharing which may adversely impact competitive rivalry in a serious or significant way that section 45 applies."(18) This provides some degree of comfort to parties who do not collectively possess market power and who are proposing to exchange information in a way which is unlikely to adversely affect competition in a serious or significant way.

"Market power of a seller is the ability to increase price above competitive levels (or reduce output, quality, choice, service, promotional activity, innovation or other significant dimensions of rivalry, below competitive levels) for a sustained period of time."(19) This provides some guidance regarding the meaning of this key concept. It would have been even more helpful if it had provided additional guidance regarding the degree of market power likely to trigger potential concerns.

"It is only in very limited circumstances that arrangements between firms which are either vertically related or are in different lines of operation (i.e., conglomerate alliances) are likely to be found to maintain, create or enhance market power."(20) The reader is then referred to the Merger Enforcement Guidelines for a discussion of the circumstances in which such arrangements may raise competition concerns.

"Generally, the Bureau will examine alliances that involve the future acquisition of control as mergers, unless there is a basis for believing that the acquisition of control is a sham."(21) This is one of the most helpful guidelines in the document, although its utility is somewhat undermined by later statements in the Bulletin which are less decisive with respect to the potential application of the conspiracy provisions of the Act to joint ventures and strategic alliances.(22)

"When strategic alliances are examined as mergers, they will be reviewed following the analytical framework set out in the Merger Enforcement Guidelines."(23)

In addition, the Bulletin provides a significant amount of helpful guidance regarding the types of information sharing arrangements that may or may not give rise to concern, the market contexts in which those potential concerns may be exacerbated or alleviated, and the steps which can be taken to reduce the risk of a proposed information exchange being reviewed under the conspiracy provisions of the Act.(24)

However, a number of commentators have suggested that the Bulletin would have been even more helpful if it had provided additional guidance with respect to the following matters:

Acquisitions of a significant interest falling short of de jure control. Absent unusual circumstances, such as evidence of a broader agreement involving the parties, other parties or markets, or evidence of sham negotiations to facilitate an anti-competitive information exchange, all legitimate acquisitions of control of another entity or a lesser interest in another entity should be reviewed as mergers, according to the framework set forth in the relevant merger guidelines, and should not be subject to review under the conspiracy or price maintenance provisions. Adopting and announcing such a policy would provide considerable certainty to business persons contemplating the acquisition or establishment of a significant interest in another entity short of de jure control. Once again, there would be real benefit in trying to draw a clearer line between that which risks criminal investigation and that which is subject to merger review.

Clarifying that strategic alliances, which are not likely to prevent or lessen any competition that would have existed in the absence of the transaction, do not raise serious issues under the Act. Stated alternatively, if restraints are imposed only in respect of potential competition that would not likely have existed in the absence of the joint venture or strategic alliance, those restraints should not be challenged. In essence, a comparison should be made of the two futures, with and without the strategic alliance. This principle is adopted in the 1995 FTC/DOJ Antitrust Guidelines for the Licensing of Intellectual Property,(25) although it may not be entirely consistent with older jurisprudence such as United States v. Topco Associates, Inc.(26) Competition law authorities should only be concerned about the substantial prevention or lessening of competition that would have existed in the absence of the strategic alliance. Extending the reach of competition law to competition which the parties propose to create erects a barrier to the pursuit of such behaviour. The adoption of such a policy can only impact negatively on innovation and competition.

Identifying the types of ancillary restraints that may be considered more likely than others to raise issues under the conspiracy provisions of the Act, as opposed to the types of restraints that are considered to be competitively benign. For a broad range of strategic alliances and joint ventures, the antitrust uncertainty may be raised by the ancillary restraints,(27) rather than the central agreement or arrangement. Some form of guidance, even if only in the form of general principles, would be helpful in this area.

Clarifying the extent to which risk can be reduced by publicly announcing a strategic alliance or joint venture, as opposed to keeping it confidential. Some proposals have been made in Canada for the complete decriminalization of the basic conspiracy provision in respect of agreements which are notified to the Bureau.(28) Consideration should be given to exploring a middle ground. There are three levels of disclosure, or absence of disclosure, that are relevant in this context: public, private and covert (the latter involving steps to protect the entire joint venture against disclosure). In this regard, evidence of a broader agreement than that which is disclosed to the antitrust authority, or evidence of covert conduct which may reflect anti-competitive intent, may be important factors in the antitrust authority's decision as to whether a particular arrangement warrants review under criminal as opposed to non-criminal provisions. If a proposed joint venture is dealt with in an entirely above-board and public manner, or if the entire arrangement between the parties (including those aspects which are not generally of public record) has been reviewed or is subject to review by the antitrust authority under, for example, the merger provisions, it should not be subject to review under the criminal provisions, barring exceptional circumstances such as a "sham" agreement (which means that the entire arrangement was not disclosed in any event). In contrast, a covert agreement may be more likely to warrant investigation under the criminal provisions of the Act.

Clearly, the differences between the substantive antitrust laws and enforcement practices of our two countries may limit the potential usefulness of the Canadian experience and guidelines in this area. We can only bring this experience to your attention for your consideration and possible assistance in your project.

Advisory Opinions

An important way in which uncertainty has been reduced in Canada for business persons contemplating joint ventures and other types of strategic alliances or potentially pro-competitive conduct is through the provision of confidential guidance from the Bureau regarding proposed conduct, pursuant to the Director's Program of Compliance. This confidential guidance may be provided in the form of informal oral advice, in person or over the telephone, or it may be provided in the form of a detailed written advisory opinion. However, it is important to note that these advisory opinions are only available in connection with proposed conduct. They are not available in respect of agreements or other arrangements which already have been implemented.

Although these opinions may have several caveats, especially when they are given at a confidential stage in a proposed transaction without the benefit of a full field investigation by the Bureau, the availability of these forms of confidential guidance can reduce uncertainty by providing business persons with greater comfort regarding potential courses of conduct. This holds true for proposed joint ventures as well. Clearly, the nature of the comfort will vary depending on the type of confidential guidance sought (i.e., informal oral opinion versus written advisory opinion) and the extent of information provided to the Bureau in connection with the request. In some cases, business persons will be reluctant to provide too much detail and may prefer to seek guidance on the basis of a hypothetical fact situation. In other cases, business persons will want the maximum possible degree of comfort confirming that their proposed course of action will not raise serious issues under the criminal provisions of the Act. The attractiveness of the Canadian approach is that business persons have the flexibility to decide for themselves how much comfort they want and how much information they are prepared to provide in order to obtain that comfort.

In contrast to the Business Review Letters issued pursuant to the Department of Justice's Business Review Procedure, advisory opinions and other forms of guidance provided by the Bureau are not usually made public. This factor encourages greater use of the Program of Compliance by businesses. Moreover, further guidance is sometimes given to business planners through the subsequent publication of advisory opinions -- albeit on a generic basis -- through bulletins or speeches by Bureau officials, which inform others about the Bureau's views on specific issues.(29)

In addition, written advisory opinions frequently provide important information regarding the reasons for the Bureau's principal conclusion. For example, they often provide the Bureau's conclusions on issues such as product and geographic market definition, market shares, barriers to entry, the effectiveness of remaining competitors, and other relevant issues. Insofar as this additional information from the regulator can often help to narrow the issues and range of possible concerns, these types of letters typically provide a higher degree of comfort regarding the antitrust risks associated with pursuing a particular proposal.

In most cases, this type of detailed information tends to be more helpful than a simple statement to the effect that there would not be sufficient grounds to commence an inquiry in respect of the proposal, or that the enforcement authority has no present intention to challenge the proposal. (These latter forms of language may leave the recipient with a significant degree of uncertainty regarding how close to the line the conduct might be.)

It may interest you to note that in May of this year the Director initiated a public consultation process with respect to user fees for merger filings and advisory opinions. The two key issues in respect of which the Director is seeking feedback relate to the level of the fees to be charged and the service standards to be adhered to by the Bureau. In short, the Bureau recognizes that if it is going to charge for advisory opinions and pre-merger notification filings, the public has a right to expect something in return, in terms of the content of the advisory opinions and the time frame within which such opinions will be provided. This is something that the FTC may wish to consider for its own purposes, as it relates directly to certainty and timing - two critical considerations for business persons.

Process Considerations

Process considerations, including the independence of enforcement officials, the philosophical approach to enforcement policy (e.g., compliance-oriented versus adversarial approach), the degree of transparency in the administration of the law, and the choice of remedy, may also influence the implementation of the objectives of competition policy. For example, the Canadian experience, with its compliance-oriented approach to enforcement, has proven to be conducive to the voluntary supply of information to the Director by private parties. As a result, the Director is better able to make informed judgments when balancing competing interests and objectives.

Similarly, the publication of Enforcement Guidelines in both the United States and Canada usually enhances certainty by increasing the predictability of decision-making by the antitrust authority and providing consequential guidance to business persons.

The independence of enforcement officials is essential for ensuring that the balancing of competing interests and objectives will occur in an unbiased and objective manner, guided by established legal rules and enforcement policies.(30)

V. Observations and Recommendations

General

The flexibility, speed, ability to combine complementary core competencies and other benefits associated with the use of joint ventures are increasing the use of this form of business vehicle. This trend can be expected to continue as more markets become increasingly open to international competition.

The fundamental question, therefore, is whether and when the Canadian or the United States' antitrust law authorities should interfere with potentially pro-competitive joint ventures and strategic alliances.

Where joint ventures and strategic alliances give rise to potential issues of prospective anti-competitive effects, competition law enforcement ought to be cautious and should refrain from intervening in cases where the anticipated anti-competitive effects are unclear and where the transaction or conduct in question is likely to generate relatively certain efficiency gains.

However, in cases involving anti-competitive conduct that is egregious and covert, efficiency considerations ought rarely to be sufficient to overcome the anti-competitive effects of such conduct.(31) In addition to the relative certainty of the effects of such conduct, deterrence is often an important consideration in and of itself.(32)

The Impact of Uncertainty in the Antitrust Analysis of Joint Ventures

• The review and/or prosecution of a joint venture under U.S. or Canadian antitrust laws may give rise to criminal liability, civil damages (treble damages in the U.S.), adverse publicity, possible director or officer liability, and investigative expenses.
• The seriousness of these consequences and continuing uncertainty with respect to the nature and the results of antitrust review of joint ventures is a negative factor which may reduce the attractiveness of potentially efficiency-enhancing joint ventures among competing businesses.
• The possible consequences of uncertainty in enforcement policy to the business community may include:
• the inhibition or prevention of innovation and the achievement of potential efficiency gains;
• limitations on the creation of new businesses;
• distortions in international investment;
• the prevention of the creation of new standards;
• the inhibition of technology transfers; and
• the distortion of the forms and structures used to carry on business (e.g., uncertainty with respect to the antitrust treatment of joint ventures and the possibility of civil or criminal liability may tend to encourage companies to merge rather than create joint ventures).

Suggestion for Future Joint Venture Guidelines

Guidelines should reduce the risk of uncertainty in planning joint ventures. However, the virtually unlimited range of possible joint venture arrangements requires that guidelines be sufficiently flexible so as to accommodate a very wide range of possibilities. In this regard, we would suggest that guidelines incorporate generic criteria that can apply to a wide variety of conduct in relation to different product and geographic markets. Hypothetical case examples -- illustrative of the application of the generic criteria -- can also be very helpful, as in the case of several guidelines issued by the Canadian and U.S. antitrust authorities in the past.

In our view, the most important general criterion -- at least from a Canadian perspective -- is the delineation of what types of joint venture or strategic alliance arrangements and conduct will attract criminal review, as opposed to non-criminal review.

Generally, joint ventures should be reviewed under the rule of reason in the U.S. and under the civil (mergers or abuse) provisions in Canada. However, covert relationships which fix prices or restrict output in a significant anti-competitive manner, or which have other substantially anti-competitive effects, would remain subject to per se treatment in the U.S. and subject to review under the criminal provisions (conspiracy or price maintenance) in Canada.

We would favour the review of most joint ventures under the substantive provisions of the Canadian merger laws, or on a rule of reason, non-criminal basis in the United States. This approach would have the following benefits:

• in some cases it would obviate any requirement that the potential scope of the joint venture be defined or limited (if the competition law authorities are satisfied that a full merger of the relevant businesses would raise no issues under the merger provisions, the precise scope of the joint venture becomes less important, provided, of course, that there is full disclosure);
• the merger provisions and guidelines are well suited for assessing, prospectively, the likely impact of the proposed integration of business functions;
• the availability of the failing firm and efficiencies defences; and
• avoidance, in Canada, of any real risk of private actions and claims for damages (only the Director may bring applications challenging transactions under the merger provisions).

Detailed Review Factors

The principal factors that the Director ought to balance when assessing joint ventures which pose a risk of anti-competitive effects and also promise pro-competitive benefits are as follows:

• the likelihood, scope, character and seriousness of the potential anti-competitive effects;
• the likelihood, scope, significance and expected duration of any pro-competitive effects;
• the likelihood and magnitude of any potential efficiency gains;
• the rate of innovation and technological change in the relevant markets;
• the scope of the joint venture and of the relevant markets that will be affected by the joint venture;
• the permanence of any anti-competitive effects; whether it will be possible to reverse the anti-competitive effects and, if so, how long will this take?;
• transparency; will any effects on competition which result from the joint venture be readily apparent to the antitrust authorities?;
• the transfer of technology, development of new standards, benchmarking or other pro-competitive consequences;
• barriers to entry, effective remaining competition, failing firm and other evaluative criteria; and
• the nature of the remedial measures available to the law enforcement authorities.

Process Issues

The Canadian experience, or more appropriately the lack of same, with statutory specialization agreements under section 86 and the research and development joint venture exemption under section 95 of the Act, highlight the extent to which proposed regulatory inducements must be sufficiently attractive that potential joint venturers will view the benefits as outweighing the costs of satisfying the applicable criteria and therefore decide to make use of them.

In the case of specialization agreements, the limited scope of the protection provided under those provisions, combined with the requirement that the proponents demonstrate that the gains in efficiency will be greater than and will offset any anti-competitive effects, together with the possibility of third party intervention and delays in Tribunal proceedings (as occurred in early Tribunal proceedings), have made the specialization agreement provisions sufficiently unattractive that they have remained unused to date.

Similarly, the absence of Competition Bureau or Tribunal precedents in relation to the research and development joint venture exemption provided under section 95 of the Act is likely attributable, at least in part, to the very narrow restrictions on the types of arrangements which would qualify for that exemption, including the requirement that the joint venture lessen competition no more than reasonably required in order to achieve the objectives of the joint venture.

A more positive view, which we share, of the Canadian experience under the specialization agreement and research and development joint venture provisions might, however, attribute the lack of interest in those provisions to the generally constructive and positive experience of the business community with the Bureau under the merger provisions and the Director's Merger Enforcement Guidelines, which have proven to be broad enough and flexible enough to apply to a wide variety of types of transactions.

At the same time, we would caution against too much specificity in guidelines, unless the enforcement authority is confident that the specific statements would apply in all or nearly all relevant circumstances. In the U.S. context, it is possible that the need for greater specificity could be alleviated if the U.S. antitrust authorities were to consider providing confidential guidance similar to that provided in Canada, so that business planners and their counsel could confer with the antitrust authorities confidentially -- and in advance -- regarding specific proposals before they are implemented.

Monitoring

Canada has made extensive use of monitoring in merger cases which raised competitive impact concerns. During the period from 1986 through 1995, the Director permitted over 50 mergers to close, subject to some form of monitoring. In these circumstances, the parties recognize, although the transaction will not be subject to challenge at that time, that there will be some form of ongoing observation by the Bureau -- perhaps combined with some form of periodic reporting requirement.

This is an approach which, in our view, might be usefully considered in "close call" cases. Although monitoring gives rise to some continued uncertainty, the experience in Canada has been that most businesses would rather have a monitoring resolution in close cases than face an immediate challenge to a proposed transaction.

While antitrust authorities need to avoid becoming regulatory agencies, given the rapid rate of technological change in many industries and the authorities' desire to avoid inhibiting or preventing potentially pro-competitive joint ventures, we would suggest that monitoring can play a positive role in selected appropriate cases.(33)

VI. Conclusion

We hope these brief comments will be of some assistance to you as you examine the many issues which arise in relation to joint ventures and antitrust law. While the comments are based on Canadian competition law experience, it is increasingly the case that the factors relevant to the manner in which businesses conduct their planning, and antitrust authorities in different jurisdictions conduct their assessments, are both converging.

APPENDIX A

Relevant Provisions of the Competition Act (Canada)

CONSPIRACY

Section 45

45(1) Every one who conspires, combines, agrees or arranges with another person

(a) to limit unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any product,

(b) to prevent, limit or lessen, unduly, the manufacture or production of a product or to enhance unreasonably the price thereof,

(c) to prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, storage, rental, transportation or supply of a product, or in the price of insurance on persons or property, or

(d) to otherwise restrain or injure competition unduly, is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years or to a fine not exceeding ten million dollars or to both.

45(2) Idem - For greater certainty, in establishing that a conspiracy, combination, agreement or arrangement is in contravention of subsection (1), it shall not be necessary to prove that the conspiracy, combination, agreement or arrangement, if carried into effect, would or would be likely to eliminate, completely or virtually, competition in the market to which it relates or that it was the object of any or all of the parties thereto to eliminate, completely or virtually, competition in that market.

45(2.1) Evidence of conspiracy - In a prosecution under subsection (1), the court may infer the existence of a conspiracy, combination, agreement or arrangement from circumstantial evidence, with or without direct evidence of communication between or among the alleged parties thereto, but, for greater certainty, the conspiracy, combination, agreement or arrangement must be proved beyond a reasonable doubt.

45(2.2) Proof of intent - For greater certainty, in establishing that a conspiracy, combination, agreement or arrangement is in contravention of subsection (1), it is necessary to prove that the parties thereto intended to and did enter into the conspiracy, combination, agreement or arrangement, but it is not necessary to prove that the parties intended that the conspiracy, combination, agreement or arrangement have an effect set out in subsection (1).

45(3) Defence - Subject to subsection (4), in a prosecution under subsection (1), the court shall not convict the accused if the conspiracy, combination, agreement or arrangement relates only to one or more of the following:

(a) the exchange of statistics;

(b) the defining of product standards;

(c) the exchange of credit information;

(d) the definition of terminology used in a trade, industry or profession;

(e) cooperation in research and development;

(f) the restriction of advertising or promotion, other than a discriminatory restriction directed against a member of the mass media;

(g) the sizes or shapes of the containers in which an article is packaged;

(h) the adoption of the metric system of weights and measures; or

(i) measures to protect the environment.

45(4) Exception - Subsection (3) does not apply if the conspiracy, combination, agreement or arrangement has lessened or is likely to lessen competition unduly in respect of one of the following:

(a) prices,

(b) quantity or quality of production,

(c) markets or customers, or

(d) channels or methods of distribution, or if the conspiracy, combination, agreement or arrangement has restricted or is likely to restrict any person from entering into or expanding a business in a trade, industry or profession.

45(5) Defence - Subject to subsection (6), in a prosecution under subsection (1) the court shall not convict the accused if the conspiracy, combination, agreement or arrangement relates only to the export of products from Canada.

45(6) Exception - Subsection (5) does not apply if the conspiracy, combination, agreement or arrangement

(a) has resulted in or is likely to result in a reduction or limitation of the real value of exports of a product;

(b) has restricted or is likely to restrict any person from entering into or expanding the business of exporting products from Canada; or

(c) has prevented or lessened or is likely to prevent or lessen competition unduly in the supply of services facilitating the export of products from Canada.

(d) [Repealed, R.S., 1985, c. 19 (2nd Supp.), s. 30]

45(7) Defences - In a prosecution under subsection (1), the court shall not convict the accused if it finds that the conspiracy, combination, agreement or arrangement relates only to a service and to standards of competence and integrity that are reasonably necessary for the protection of the public

(a) in the practice of a trade or profession relating to the service; or

(b) in the collection and dissemination of information relating to the service.

45(7.1) Exception - Subsection (1) does not apply in respect of an agreement or arrangement between federal financial institutions that is described in subsection 49(1).

45(8) Exception - Subsection (1) does not apply in respect of a conspiracy, combination, agreement or arrangement that is entered into only by companies each of which is, in respect of every one of the others, an affiliate.

[R.S., 1985, c. C-34, s. 45; R.S., 1985, c. 19 (2nd Supp.), s. 30; 1991, c. 45, s. 547, c. 46, s. 590, c. 47, s. 714.]

Section 45.1

Where application made under section 79 or 92

45.1 No proceedings may be commenced under subsection 45(1) against a person against whom an order is sought under section 79 or 92 on the basis of the same or substantially the same facts as would be alleged in proceedings under that subsection.

[R.S., 1985, c. 19 (2nd Supp.), s. 31.]

PRICE MAINTENANCE

Section 61

61(1) No person who is engaged in the business of producing or supplying a product, who extends credit by way of credit cards or is otherwise engaged in a business that relates to credit cards, or who has the exclusive rights and privileges conferred by a patent, trade-mark, copyright, registered industrial design or registered integrated circuit topography, shall, directly or indirectly,

(a) by agreement, threat, promise or any like means, attempt to influence upward, or to discourage the reduction of, the price at which any other person engaged in business in Canada supplies or offers to supply or advertises a product within Canada; or

(b) refuse to supply a product to or otherwise discriminate against any other person engaged in business in Canada because of the low pricing policy of that other person.

61(2) - Subsection (1) does not apply where the person attempting to influence the conduct of another person and that other person are affiliated corporations or directors, agents, officers or employees of

(a) the same corporation, partnership or sole proprietorship, or

(b) corporations, partnerships or sole proprietorships that are affiliated, or where the person attempting to influence the conduct of another person and that other person are principal and agent.

61(3) Suggested retail price - For the purposes of this section, a suggestion by a producer or supplier of a product of a resale price or minimum resale price in respect thereof, however arrived at, is, in the absence of proof that the person making the suggestion, in so doing, also made it clear to the person to whom the suggestion was made that he was under no obligation to accept the suggestion and would in no way suffer in his business relations with the person making the suggestion or with any other person if he failed to accept the suggestion, proof of an attempt to influence the person to whom the suggestion is made in accordance with the suggestion.

61(4) Idem - For the purposes of this section, the publication by a supplier of a product, other than a retailer, of an advertisement that mentions a resale price for the product is an attempt to influence upward the selling price of any person into whose hands the product comes for resale unless the price is so expressed as to make it clear to any person to whose attention the advertisement comes that the product may be sold at a lower price.

61(5) Exception - Subsections (3) and (4) do not apply to a price that is affixed or applied to a product or its package or container.

61(6) Refusal to supply - No person shall, by threat, promise or any like means, attempt to induce a supplier, whether within or outside Canada, as a condition of his doing business with the supplier, to refuse to supply a product to a particular person or class of persons because of the low pricing policy of that person or class of persons.

(7) and (8) [Repealed, R.S., 1985, c. 19 (2nd Supp.), s. 36]

61(9) Offence and punishment - Every person who contravenes subsection (1) or (6) is guilty of an indictable offence and liable on conviction to a fine in the discretion of the court or to imprisonment for a term not exceeding five years or to both.

61(10) Where no unfavourable inference to be drawn - Where, in a prosecution under paragraph (1)(b), it is proved that the person charged refused or counselled the refusal to supply a product to any other person, no inference unfavourable to the person charged shall be drawn from that evidence if he satisfies the court that he and any one on whose report he depended believed on reasonable grounds

(a) that the other person was making a practice of using products supplied by the person charged as loss-leaders, that is to say, not for the purpose of making a profit thereon but for purposes of advertising;

(b) that the other person was making a practice of using products supplied by the person charged not for the purpose of selling the products at a profit but for the purpose of attracting customers to his store in the hope of selling them other products;

(c) that the other person was making a practice of engaging in misleading advertising in respect of products supplied by the person charged; or

(d) that the other person made a practice of not providing the level of servicing that purchasers of the products might reasonably expect from the other person.

[R.S., 1985, c. C-34, s. 61; R.S., 1985, c. 19 (2nd Supp.), s. 36; 1990, c. 37, s. 30.]

ABUSE OF DOMINANCE

Section 78

78 For the purposes of section 79, "anti-competitive act", without restricting the generality of the term, includes any of the following acts:

(a) squeezing, by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the supplier, for the purpose of impeding or preventing the customer's entry into, or expansion in, a market;

(b) acquisition by a supplier of a customer who would otherwise be available to a competitor of the supplier, or acquisition by a customer of a supplier who would otherwise be available to a competitor of the customer, for the purpose of impeding or preventing the competitor's entry into, or eliminating the competitor from, a market;

(c) freight equalization on the plant of a competitor for the purpose of impeding or preventing the competitor's entry into, or eliminating the competitor from, a market;

(d) use of fighting brands introduced selectively on a temporary basis to discipline or eliminate a competitor;

(e) pre-emption of scarce facilities or resources required by a competitor for the operation of a business, with the object of withholding the facilities or resources from a market;

(f) buying up of products to prevent the erosion of existing price levels;

(g) adoption of product specifications that are incompatible with products produced by any other person and are designed to prevent his entry into, or to eliminate him from, a market;

(h) requiring or inducing a supplier to sell only or primarily to certain customers, or to refrain from selling to a competitor, with the object of preventing a competitor's entry into, or expansion in, a market; and

(i) selling articles at a price lower than the acquisition cost for the purpose of disciplining or eliminating a competitor.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 79

Prohibition where abuse of dominant position

79(1) Where, on application by the Director, the Tribunal finds that

(a) one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business,

(b) that person or those persons have engaged in or are engaging in a practice of anti-competitive acts, and

(c) the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market, the Tribunal may make an order prohibiting all or any of those persons from engaging in that practice.

79(2) Additional or alternative order - Where, on an application under subsection (1), the Tribunal finds that a practice of anti-competitive acts has had or is having the effect of preventing or lessening competition substantially in a market and that an order under subsection (1) is not likely to restore competition in that market, the Tribunal may, in addition to or in lieu of making an order under subsection (1), make an order directing any or all the persons against whom an order is sought to take such actions, including the divestiture of assets or shares, as are reasonable and as are necessary to overcome the effects of the practice in that market.

79(3) Limitation - In making an order under subsection (2), the Tribunal shall make the order in such terms as will in its opinion interfere with the rights of any person to whom the order is directed or any other person affected by it only to the extent necessary to achieve the purpose of the order.

79(4) Superior competitive performance - In determining, for the purposes of subsection (1), whether a practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market, the Tribunal shall consider whether the practice is a result of superior competitive performance.

79(5) Exception - For the purpose of this section, an act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived under the Copyright Act, Industrial Design Act, Integrated Circuit Topography Act, Patent Act, Trade-marks Act or any other Act of Parliament pertaining to intellectual or industrial property is not an anti-competitive act.

79(6) Limitation period - No application may be made under this section in respect of a practice of anti-competitive acts more than three years after the practice has ceased.

79(7) Where proceedings commenced under section 45 or 92 - No application may be made under this section against a person

(a) against whom proceedings have been commenced under section 45, or

(b) against whom an order is sought under section 92 on the basis of the same or substantially the same facts as would be alleged in the proceedings under section 45 or 92, as the case may be.

[R.S., 1985, c. 19 (2nd Supp.), s. 45; 1990, c. 37, s. 31.]

SPECIALIZATION AGREEMENTS

Section 85

Definitions

For the purposes of this section and sections 86 to 90,

"article" includes each separate type, size, weight and quality in which an article, within the meaning assigned by section 2, is produced;

"registered" means registered in the register maintained pursuant to section 89;

"specialization agreement" means an agreement under which each party thereto agrees to discontinue producing an article or service that he is engaged in producing at the time the agreement is entered into on the condition that each other party to the agreement agrees to discontinue producing an article or service that he is engaged in producing at the time the agreement is entered into, and includes any such agreement under which the parties also agree to buy exclusively from each other the articles or services that are the subject of the agreement.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 86

Order directing registration

86(1) Where, on application by any person, and after affording the Director a reasonable opportunity to be heard, the Tribunal finds that an agreement that the person who has made the application has entered into or is about to enter into is a specialization agreement and that

(a) the implementation of the agreement is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that will result or is likely to result from the agreement and the gains in efficiency would not likely be attained if the agreement were not implemented, and

(b) no attempt has been made by the persons who have entered or are about to enter into the agreement to coerce any person to become a party to the agreement, the Tribunal may, subject to subsection (4), make an order directing that the agreement be registered for a period specified in the order.

86(2) Factors to be considered - In considering whether an agreement is likely to bring about gains in efficiency described in paragraph (1)(a), the Tribunal shall consider whether those gains will result in

(a) a significant increase in the real value of exports; or

(b) a significant substitution of domestic articles or services for imported articles or services.

86(3) Redistribution of income does not result in gains in efficiency - For the purposes of paragraph (1)(a), the Tribunal shall not find that an agreement is likely to bring about gains in efficiency by reason only of a redistribution of income between two or more persons.

86(4) Conditional orders - Where, on an application under subsection (1), the Tribunal finds that an agreement meets the conditions prescribed by paragraphs (a) and (b) of that subsection but also finds that, as a result of the implementation of the agreement, there is not likely to be substantial competition remaining in the market or markets to which the agreement relates, the Tribunal may provide, in an order made under subsection (1), that the order shall take effect only if, within a reasonable period of time specified in the order, there has occurred any of the following events, specified in the order:

(a) the divestiture of particular assets, specified in the order;

(b) a wider licensing of patents or registered integrated circuit topographies;

(c) a reduction in tariffs;

(d) the making of an order in council under section 23 of the Financial Administration Act effecting a remission or remissions specified in the order of the Tribunal of any customs duties on an article that is a subject of the agreement; or

(e) the removal of import quotas or import licensing requirements.

[R.S., 1985, c. 19 (2nd Supp.), s. 45; 1990, c. 37, s. 32.]

Section 87

Registration of modifications

87(1) On application by the parties to a specialization agreement that has been registered, and after affording the Director a reasonable opportunity to be heard, the Tribunal may make an order directing that a modification of the agreement be registered.

87(2) Order to remove from register - Where, on application by the Director, the Tribunal finds that the agreement or a modification thereof that has been registered

(a) has ceased to meet the conditions prescribed by paragraph 86(1)(a) or (b), or

(b) is not being implemented, the Tribunal may make an order directing that the agreement or modification thereof, and any order relating thereto, be removed from the register.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 88

Right of intervention

88 The attorney general of a province may intervene in any proceedings before the Tribunal under section 86 or 87 for the purpose of making representations on behalf of the province.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 89

Register of specialization agreements

89(1) The Tribunal shall cause to be maintained at its Registry established pursuant to subsection 14(1) of the Competition Tribunal Act a register of specialization agreements, and modifications thereof, that the Tribunal has directed be registered, and any such agreements and modifications thereof shall be included in the register for the periods specified in the orders.

89(2) Public access to register - The register shall be kept open to inspection by any person during normal business hours of the Tribunal.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 90

Non-application of sections 45 and 77

90 Section 45, and section 77 as it applies to exclusive dealing, do not apply in respect of a specialization agreement, or any modification thereof, that is registered.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

MERGERS

Section 91

Definition of "merger"

91 In sections 92 to 100, "merger" means the acquisition or establishment, direct or indirect, by one or more persons, whether by purchase or lease of shares or assets, by amalgamation or by combination or otherwise, of control over or significant interest in the whole or a part of a business of a competitor, supplier, customer or other person.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 92

Order

92(1) Where, on application by the Director, the Tribunal finds that a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially

(a) in a trade, industry or profession,

(b) among the sources from which a trade, industry or profession obtains a product,

(c) among the outlets through which a trade, industry or profession disposes of a product, or

(d) otherwise than as described in paragraphs (a) to (c), the Tribunal may, subject to sections 94 to 96,

(e) in the case of a completed merger, order any party to the merger or any other person

(i) to dissolve the merger in such manner as the Tribunal directs,

(ii) to dispose of assets or shares designated by the Tribunal in such manner as the Tribunal directs, or

(iii) in addition to or in lieu of the action referred to in subparagraph (i) or (ii), with the consent of the person against whom the order is directed and the Director, to take any other action, or

(f) in the case of a proposed merger, make an order directed against any party to the proposed merger or any other person

(i) ordering the person against whom the order is directed not to proceed with the merger,

(ii) ordering the person against whom the order is directed not to proceed with a part of the merger, or

(iii) in addition to or in lieu of the order referred to in subparagraph (ii), either or both

(A) prohibiting the person against whom the order is directed, should the merger or part thereof be completed, from doing any act or thing the prohibition of which the Tribunal determines to be necessary to ensure that the merger or part thereof does not prevent or lessen competition substantially, or

(B) with the consent of the person against whom the order is directed and the Director, ordering the person to take any other action.

92(2) Evidence - For the purpose of this section, the Tribunal shall not find that a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially solely on the basis of evidence of concentration or market share.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 93

Factors to be considered regarding prevention or lessening of competition

93 In determining, for the purpose of section 92, whether or not a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially, the Tribunal may have regard to the following factors:

(a) the extent to which foreign products or foreign competitors provide or are likely to provide effective competition to the businesses of the parties to the merger or proposed merger;

(b) whether the business, or a part of the business, of a party to the merger or proposed merger has failed or is likely to fail;

(c) the extent to which acceptable substitutes for products supplied by the parties to the merger or proposed merger are or are likely to be available;

(d) any barriers to entry into a market, including

(i) tariff and non-tariff barriers to international trade,

(ii) interprovincial barriers to trade, and

(iii) regulatory control over entry, and any effect of the merger or proposed merger on such barriers;

(e) the extent to which effective competition remains or would remain in a market that is or would be affected by the merger or proposed merger;

(f) any likelihood that the merger or proposed merger will or would result in the removal of a vigorous and effective competitor;

(g) the nature and extent of change and innovation in a relevant market; and

(h) any other factor that is relevant to competition in a market that is or would be affected by the merger or proposed merger.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 94

Exception

94 The Tribunal shall not make an order under section 92 in respect of

(a) a merger substantially completed before the coming into force of this section; or

(b) a merger or proposed merger under the Bank Act, the Trust and Loan Companies Act or the Insurance Companies Act in respect of which the Minister of Finance has certified to the Director the names of the parties thereto and that the merger is in the best interest of the financial system in Canada.

[R.S., 1985, c. 19 (2nd Supp.), s. 45; 1991, c. 45, s. 549, c. 46, ss. 592, 593, c. 47, s. 716.]

JOINT VENTURE EXCEPTION

Section 95

Exception for joint ventures

95(1) The Tribunal shall not make an order under section 92 in respect of a combination formed or proposed to be formed, otherwise than through a corporation, to undertake a specific project or a program of research and development if

(a) a project or program of that nature

(i) would not have taken place or be likely to take place in the absence of the combination, or

(ii) would not reasonably have taken place or reasonably be likely to take place in the absence of the combination because of the risks involved in relation to the project or program and the business to which it relates;

(b) no change in control over any party to the combination resulted or would result from the combination;

(c) all the persons who formed the combination are parties to an agreement in writing that imposes on one or more of them an obligation to contribute assets and governs a continuing relationship between those parties;

(d) the agreement referred to in paragraph (c) restricts the range of activities that may be carried on pursuant to the combination, and provides that the agreement terminates on the completion of the project or program; and

(e) the combination does not prevent or lessen or is not likely to prevent or lessen competition except to the extent reasonably required to undertake and complete the project or program.

95(2) Limitation - For greater certainty, this section does not apply in respect of the acquisition of assets of a combination.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

EFFICIENCIES

Section 96

Exception where gains in efficiency

96(1) The Tribunal shall not make an order under section 92 if it finds that the merger or proposed merger in respect of which the application is made has brought about or is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that will result or is likely to result from the merger or proposed merger and that the gains in efficiency would not likely be attained if the order were made.

96(2) Factors to be considered - In considering whether a merger or proposed merger is likely to bring about gains in efficiency described in subsection (1), the Tribunal shall consider whether such gains will result in

(a) a significant increase in the real value of exports; or

(b) a significant substitution of domestic products for imported products.

96(3) Restriction - For the purposes of this section, the Tribunal shall not find that a merger or proposed merger has brought about or is likely to bring about gains in efficiency by reason only of a redistribution of income between two or more persons.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

MERGER PROCESS

Section 97

Limitation period

97 No application may be made under section 92 in respect of a merger more than three years after the merger has been substantially completed.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 98

Where proceedings commenced under section 45 or 79

98 No application may be made under section 92 against a person

(a) against whom proceedings have been commenced under section 45, or

(b) against whom an order is sought under section 79 on the basis of the same or substantially the same facts as would be alleged in the proceedings under section 45 or 79, as the case may be.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 99

Conditional orders directing dissolution of a merger

99 (1) The Tribunal may provide, in an order made under section 92 directing a person to dissolve a merger or to dispose of assets or shares, that the order may be rescinded or varied if, within a reasonable period of time specified in the order,

(a) there has occurred

(i) a reduction, removal or remission, specified in the order, of any relevant customs duties, or

(ii) a reduction or removal, specified in the order, of prohibitions, controls or regulations imposed by or pursuant to any Act of Parliament on the importation into Canada of an article specified in the order, or

(b) that person or any other person has taken any action specified in the order that will, in the opinion of the Tribunal, prevent the merger from preventing or lessening competition substantially.

99(2) When conditional order may be rescinded or varied - Where, on application by any person against whom an order under section 92 is directed, the Tribunal is satisfied that

(a) a reduction, removal or remission specified in the order pursuant to paragraph (1)(a) has occurred, or

(b) the action specified in the order pursuant to paragraph (1)(b) has been taken, the Tribunal may rescind or vary the order accordingly.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 100

Interim order where no application under section 92

100(1) Where, on application by the Director, the Tribunal finds, in respect of a proposed merger in respect of which an application has not been made under section 92 or previously under this section, that

(a) the proposed merger is reasonably likely to prevent or lessen competition substantially and, in the opinion of the Tribunal, in the absence of an interim order a party to the proposed merger or any other person is likely to take an action that would substantially impair the ability of the Tribunal to remedy the effect of the proposed merger on competition under section 92 because that action would be difficult to reverse, or

(b) there has been a failure to comply with section 114 in respect of the proposed merger, the Tribunal may issue an interim order forbidding any person named in the application from doing any act or thing that it appears to the Tribunal may constitute or be directed toward the completion or implementation of the proposed merger.

100(2) Notice of application - Subject to subsection (3), at least forty-eight hours notice of an application for an interim order under subsection (1) shall be given by or on behalf of the Director to each person against whom the order is sought.

100(3) Ex parte application - Where the Tribunal is satisfied, in respect of an application made under subsection (1), that

(a) subsection (2) cannot reasonably be complied with, or

(b) the urgency of the situation is such that service of notice in accordance with subsection (2) would not be in the public interest, it may proceed with the application ex parte.

100(4) Terms of interim order - An interim order issued under subsection (1)

(a) shall be on such terms as the Tribunal considers necessary and sufficient to meet the circumstances of the case; and

(b) subject to subsection (5), shall have effect for such period of time as is specified therein.

100(5) Maximum duration of interim order - An interim order issued under subsection (1) in respect of a proposed merger shall cease to have effect

(a) in the case of an interim order issued on ex parte application, not later than ten days, or

(b) in any other case, not later than twenty-one days, after the interim order comes into effect or, in the circumstances referred to in paragraph (1)(b), after section 114 is complied with.

100(6) Duty of Director - Where an interim order is issued under paragraph (1)(a), the Director shall proceed as expeditiously as possible to commence and complete proceedings under section 92 in respect of the proposed merger.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 101

Right of intervention

101 The attorney general of a province may intervene in any proceedings before the Tribunal under section 92 for the purpose of making representations on behalf of the province.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 102

Advance ruling certificates

102 (1) Where the Director is satisfied by a party or parties to a proposed transaction that he would not have sufficient grounds on which to apply to the Tribunal under section 92, the Director may issue a certificate to the effect that he is so satisfied.

102(2) Duty of Director - The Director shall consider any request for a certificate under this section as expeditiously as possible.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 103

No application under section 92

103 Where the Director issues a certificate under section 102, the Director shall not, if the transaction to which the certificate relates is substantially completed within one year after the certificate is issued, apply to the Tribunal under section 92 in respect of the transaction solely on the basis of information that is the same or substantially the same as the information on the basis of which the certificate was issued.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 104

General

Interim order

104 (1) Where an application has been made for an order under this Part, other than an interim order under section 100, the Tribunal, on application by the Director, may issue such interim order as it considers appropriate, having regard to the principles ordinarily considered by superior courts when granting interlocutory or injunctive relief.

104(2) Terms of interim - An interim order issued under subsection (1) shall be on such terms, and shall have effect for such period of time, as the Tribunal considers necessary and sufficient to meet the circumstances of the case.

104(3) Duty of Director - Where an interim order issued under subsection (1) is in effect, the Director shall proceed as expeditiously as possible to complete proceedings under this Part arising out of the conduct in respect of which the order was issued.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 105

Consent orders

105 Where an application is made to the Tribunal under this Part for an order and the Director and the person in respect of whom the order is sought agree on the terms of the order, the Tribunal may make the order on those terms without hearing such evidence as would ordinarily be placed before the Tribunal had the application been contested or further contested.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

Section 106

Rescission or variation of order

106 Where, on application by the Director or a person against whom an order has been made under this Part, the Tribunal finds that

(a) the circumstances that led to the making of the order have changed and, in the circumstances that exist at the time the application is made under this section, the order would not have been made or would have been ineffective to achieve its intended purpose, or

(b) the Director and the person against whom an order has been made have consented to an alternative order, the Tribunal may rescind or vary the order accordingly.

[R.S., 1985, c. 19 (2nd Supp.), s. 45.]

1. Partners, Davies, Ward & Beck, Toronto, Canada. From May 1986 until October 1989, Mr. Goldman was the Director of Investigation and Research, Bureau of Competition Policy, Ottawa, Canada. The authors would like to express their appreciation to their partners Milos Barutciski and Joel Kissack for their assistance in the preparation of these remarks.

2. R.S.C. 1985, c. C-34, as amended.

3. Strategic Alliances Under the Competition Act, Industry Canada, 1995.

4. Sections 91-103 are reproduced in Appendix A to this outline.

5. These factors are, in many respects, similar to those recognized by the U.S. courts and antitrust authorities as being relevant in merger review under section 7 of the Clayton Act. For example, see the Horizontal Merger Guidelines published jointly by the FTC and the U.S. Department of Justice on April 2, 1992.

6. Merger Enforcement Guidelines, Consumer and Corporate Affairs Canada, 1991, at 1-2.

7. There have only been two decisions in contested merger cases to date: Canada (Director of Investigation and Research) v. Hillsdown Holdings (Canada) Ltd. (1992), 41 C.P.R. (3d) 289 (Comp. Trib.); and Canada (Director of Investigation and Research) v. Southam Inc. (1992), 43 C.P.R. (3d) 161 (Comp. Trib.). However, a further five initially contested applications were later resolved on a consent basis. In addition, several proposed mergers have been abandoned following an indication from the Director that he intended to bring an application before the Tribunal.

8. Sections 78 and 79 are reproduced in Appendix A to this outline.

9. Strategic Alliances Under the Competition Act, supra, note 3, at 12-13.

10. Director of Investigation and Research v. Bank of Montreal et al. (1996), 68 C.P.R. (3d) 527 (Comp. Trib.).

11. Section 45 is reproduced in Appendix A to this outline.

12. See R. v. Nova Scotia Pharmaceutical Society et al., [1992] 2 S.C.R. 606.

13. Section 61 is reproduced in Appendix A to this outline.

14. Sections 85-90 are reproduced in Appendix A to this outline.

15. Supra, note 3.

16. Indeed, the Working Group on Trade and Competition established pursuant to Article 1504 of the North American Free Trade Agreement ("NAFTA") may provide a convenient forum for considering such a joint initiative. The Working Group includes senior officials from the competition authorities of all three NAFTA countries. Also, since the NAFTA Parties have agreed in Article 1501(2) to cooperate on issues of competition law enforcement policy, a joint effort to elucidate a common conceptual framework for the review of joint ventures and strategic alliances may be a very useful initiative to promote "soft" harmonization and convergence among the Parties' competition laws without necessitating any statutory amendments to their respective laws.

17. Bulletin, Director's Preface.

18. Ibid., at 9.

19. Ibid., at 3.

20. Ibid., at 5.

21. Ibid.

22. For example, at page 8, the Bulletin notes that "a strategic alliance which may be directed primarily at research and development, but which is likely to have an undue effect on prices, for example, owing to an ancillary arrangement to jointly market and distribute the newly produced goods or services, may cause the Director to initiate an inquiry under the conspiracy provisions".

23. Ibid., at 11.

24. Ibid., at 8-9.

25. See, for example, §1 ("The key competitive issue raised by the licensing arrangement is whether it harms competition among entities that would have been actual or likely potential competitors in the absence of the arrangement"). See also §3.1 ("The Agencies will not require the owner of intellectual property to create competition in its own technology").

26. 92 S.Ct. 1126 (1972).

27. Such as joint marketing or exclusivity arrangements.

28. See P.L. Warner and M.J. Trebilcock, "Rethinking Price-Fixing Law", (1993) 38 McGill L.J. 678.

29. The Bureau has followed this procedure in the area of deceptive marketing practices by publishing generic summaries of advisory opinions. For example, such summaries are often published in the Misleading Advertising Bulletin, an information bulletin relating to misleading advertising and other types of deceptive marketing practices published periodically by the Bureau.

30. For a more detailed discussion of process issues, see C.S. Goldman, J.T. Kissack and C.L. Witterick, "Competition Policy and the Transition from Closed to Open Economy: Lessons from the Canadian Experience", Conference on Competition Policy in a Global Economy, Global Forum for Competition and Trade Policy, New Delhi, India (1997).

31. Although the Supreme Court of Canada has rejected a per se approach to the conspiracy provisions of the Act and has adopted a "partial rule of reason" approach requiring assessment of both the market structure and the behaviour in question, the Court has also suggested that certain types of conduct may be so inherently injurious to competition that "it may also trigger liability even if market power is not so considerable". (See R. v. Nova Scotia Pharmaceutical Society et al., supra, note 12, at 657.)

32. See the discussion of the importance of deterrence in penalties for antitrust offences in the judgment of La Forest J. in Thomson Newspapers Ltd. v. Director of Investigation and Research, [1990] 1 S.C.R. 425 at 514.

33. For example, at the conclusion of its review of the proposed merger between The Boeing Company and McDonnell Douglas Corporation, the FTC recently decided to monitor the potential effects of certain exclusive supply agreements between Boeing and three U.S. airlines. See "Statement of Chairman Robert Pitofsky and Commissioners Janet D. Steiger, Roscoe B. Starek III and Christine Varney in the Matter of The Boeing Company/McDonnell Douglas Corporation", July 1, 1997, File No. 971-0051. Monitoring was also ordered by the FTC in its 1995 order respecting the acquisition of PCS Health Systems by Eli Lilly.