American And Canadian Antitrust/Competition Law: Convergence?

Wednesday, October 1, 2008 - 01:00

Editor: Would each of you gentlemen tell our readers something about your professional experience?

Wofford: I am a partner in the Atlanta office of King & Spalding and a member of the antitrust and business litigation groups. My practice includes a particular emphasis on the interplay between intellectual property and antitrust and on healthcare and antitrust issues.

Brown: I am a partner in the Ottawa office of Stikeman Elliot LLP, where I am a member of the firm's competition law group. This extends into foreign investment review and unfair trade practices. Much of my time is spent in dealing with merger-related issues.

Editor: You both have practiced in the antitrust/competition area. For starters, would each of you give us an overview of the regime prevailing in your country?

Wofford: Two federal agencies are charged with enforcing U.S. antitrust laws: the Department of Justice and the Federal Trade Commission ("FTC"). The Antitrust Division of the Department of Justice operates in both the civil and the criminal arenas, and the FTC has civil enforcement authority on unfair competition issues. The Department of Justice acts under the Sherman and Clayton Acts, while the FTC derives its authority from the FTC Act. Although the precise degree to which the two statutes ought to, and in fact do, differ is a matter of intensifying public debate (and some disagreement between the federal agencies), in many respects the two treat antitrust issues similarly. In addition to federal enforcement agencies, nearly all of the U.S. states and territories have antitrust statutes of their own.

The U.S. regulators have developed three priorities: in descending order of importance, collusive behavior between competitors, merger policy and unilateral behavior. Collusive behavior, or horizontal restraints on competition, is often clearly illegal and can invite criminal prosecution. With respect to merger policy, over the past 50 years or so there has been a trend toward consolidation in the American and now the global economy. This trend challenges the agencies to strike the right balance as between encouraging efficiency, innovation and economies of scale, on the one hand, and avoiding consolidation that dampens competition, on the other. Unilateral behavior has to do with a single company's actions that may have an impact on competition - refusing to deal with certain potential customers, or imposing restrictions on resales, to cite some examples. Some recent developments have highlighted that the Department of Justice and the FTC are not always on the same page with respect to these unilateral issues. On top of federal and state enforcement, of course, are the private actions authorized under the Clayton Act.

Brown: Canada's Federal Competition Bureau is trying to accomplish, essentially, what its counterpart agencies in the U.S. are trying to do. To this extent most competition regimes are similar, and when an agency looks at a potential merger it is using an economics-based analytical framework to assess the transaction. The nationality of the parties does not enter into the discussion. As with the Americans, the Canadian regulators are focused on protecting competition and the competitive process, not competitors.

Editor: As you know, our publication is directed at general counsel and the members of corporate legal departments. What should we be alerting our corporate counsel readership to in the case of an American corporation considering operations in Canada? A Canadian corporation considering setting up in the U.S?

Brown: As we've indicated, a foreign enterprise coming into Canada is going to be dealing with government at the federal level, and the enforcement responsibility is that of the Commissioner of Competition. That allows for a certain element of predictability in the process, as compared, for example, with the U.S., where both the federal government and various states are involved. In addition, there are two general categories that the Canadian statute covers: criminal, including bid rigging, conspiracy, price maintenance, misleading advertising, predatory pricing, and so on, which can lead to substantial fines and even the risk of imprisonment; and what are called "reviewable practices," civil offenses which usually come under the rubric of unilateral behavior in the U.S. and include such practices as refusal to deal, market restriction, abuse of dominance, and the like. This area can also include misleading advertising, and the difference between a civil and criminal response here has to do with misleading advertising that is done knowingly, i.e. with fraudulent intent. Reviewable practices may also include conduct that is quite legitimate but recognized by the authorities as having a potential impact on competition. American general counsel coming into Canada should be aware of these trends.

Counsel on both sides of the border need to understand that the law is not the same in both jurisdictions. Compliance is tailored to the jurisdiction where the company is conducting its business, and it must be adjusted to accommodate the compliance requirements of the other jurisdiction. So, for example, an American company may unwittingly violate Canadian competition law in the areas of price discrimination or promotion allowances, both of which are subject to stricter laws than in the U.S. In the worst case scenario, the American enterprise may believe that, in complying with U.S. law, they are in compliance with Canadian law when, in fact, they are committing a criminal offense.

Wofford: Going in the opposite direction, Canada to the U.S., private enforcement of U.S. antitrust laws is far more extensive than in Canada, where most enforcement is carried out by the public authorities. The treble damages that may be recovered in the U.S. have a great deal to do with this, of course, and Canadian companies should be aware that the plaintiff in a private antitrust action before a U.S. court may be entitled to a great deal more than injunctive relief, which, I understand, is the principal remedy in the Canadian reviewable practices cases.

Editor: What are the general antitrust/ competition trends in the two jurisdictions?

Wofford: In just the past few years we have seen more cases accepted and decided by the United States Supreme Court than in many years. In these cases the Court has shown a real tendency to reject bright-line rules and labels as determinative, and to accept economic analysis as the driver in identifying anticompetitive conduct. As a result, the gray area has grown considerably.

An equally important trend has been the internationalization of antitrust and competition law. Over the past 30 years or so the number of countries adopting competition statutes has exploded - China is but the latest example - and that has led to an increased focus on how different nations can cooperate and coordinate among their various competition enforcement agencies. There is no question but that, notwithstanding the obstacles, there is a movement toward convergence underway.

Brown: I would certainly agree that, while we tend to focus on the differences as antitrust/competition practioners, there is a real sense overall of convergence as between the U.S. and Canada. As but one example, where the Sherman Act divides conduct into per se offenses - conduct deemed anticompetitive irrespective of its actual impact - and conduct which may have a positive impact on competition and which may be dealt with pursuant to a "rule of reason" which takes actual impact into account, the Canadian Competition Bureau has been attempting to adopt language that would mirror the American approach. In addition, there is a trend to decriminalize certain offenses - price discrimination, promotion allowances, predatory pricing and price maintenance come to mind - originally thought worthy of criminal treatment, and this may be a reflection of that the gray area to which Russ has referred is indeed larger than we thought. In any event, the movement toward convergence is underway, although I would not characterize its progress as galloping.

Editor: As antitrust/competition lawyers, you have both been engaged in the resale price maintenance discussion in recent years. Would you give us an overview of this area?

Wofford: From 1911 until last year, American antitrust law on most forms of retail price maintenance was governed by the Dr. Miles rule, which stated that it would be per se illegal to enter into an agreement that a product sold by one person to another could not be resold by the latter above or below a certain price. "Per se" means so obviously anticompetitive that courts presume harm to competition and requires no evidence of this from plaintiffs who can prove the other elements of their claim. A few years later, in 1919, the U.S. Supreme Court modified this doctrine with the Colgate rule, which indicated that where the resale price was simply dictated by, say, the manufacturer - and not set by agreement - then the concerted-action requirement of §1 of the Sherman Act was not satisfied and, in effect, a manufacturer was able to impose resale prices despite Dr. Miles' condemnation of them as per se illegal. The fact that resale price maintenance was rarely challenged under §2 of the Sherman Act, which does not require an agreement, to my mind only shows the weakness of the economic presumptions about the policy that Dr. Miles installed. As you can imagine, a regime that allowed a manufacturer to impose resale prices but did not allow that manufacturer to talk about the policy made for a very artificial and stilted exchange between the manufacturer and the retailer or distributor.

Leegin Creative Leather Products, Inc. vs. PSKS, Inc. involved dictated minimum resale prices for ladies' shoes and accessories. (In 1997 the Supreme Court had removed maximum resale price maintenance with the Khan vs. State Oil decision.) A very small retailer who had sold these products at discount, violating the manufacturer's dictated resale pricing policy, managed to get the case before the United States Supreme Court, which overturned Dr. Miles . The Court held that minimum resale prices would not be presumed anticompetitive but, rather, that a rigorous economic analysis would be required of plaintiffs if they were to prevail. In effect, the standard of proof has been raised, and, given the nuances that must now be incorporated into the economic analysis of such a policy, more uncertainty prevails in this area than was the case in the past. The old Colgate rule has become less important because Leegin eliminates the economic presumptions about a policy that Colgate avoided by other means - the lack of agreement. Giving advice to clients here is something of a challenge, which is what happens when, as I mentioned earlier, the gray areas expand.

Brown: Canadian law respecting price maintenance is very different from U.S. law, and after Leegin even more so. A manufacturer can suggest a price, but once there is some incentive imported into the arrangement - a promised benefit or a threat - a line has been crossed and per se criminal conduct is at issue.

With respect to Leegin , even prior to the recent decision it was possible to be in compliance with the Colgate rule and run afoul of the law in Canada. With Leegin , price maintenance has been coverted to a full-blown "rule of reason" offense, and that has served to further widen the gap between American and Canadian law in this area.

Editor: How is this decision going to impact cross-border trade?

Brown: It is probably too early to tell what kind of impact this decision may have on cross-border trade. I think it does reinforce the importance of understanding how the law differs in the two jurisdictions on the part of enterprises engaged in this kind of activity.

Wofford: I agree. Since Leegin was issued, I would have thought there was reason for continued caution about entering into resale price maintenance agreements because of the hostility of a number of American states, including some of the larger states, toward the greater leniency offered by Leegin. The enhancement of the difference between American and Canadian law that results from Leegin would reinforce that caution. Some evidence suggests, however, that a number of manufacturers have been aggressive about instituting minimum resale price policies. I expect that we'll see a number of test cases, at least some related to Leegin itself, on how resale price maintenance fares under a rigorous economic analysis.

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