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Partnering with the competition during COVID-19

The pandemic has business competitors looking to collaborate with one another, but they must proceed cautiously.

Supply cargo image

Concerns abound among practitioners that the Competition Bureau's guidance on collaboration during the COVID-19 pandemic does not adequately clarify what firms can do to keep supplies moving and maintain their operations.  

"It certainly is not going to give people comfort as to what conduct is permissible," says Beth Riley of Bennett Jones in Calgary. "People had hoped that it would be a bit more detailed in its help." 

Competition lawyers started hearing their clients in March that some wanted to partner with competitors to manufacture critically needed goods and services or share supply-chain resources. Others saw mergers and acquisitions as a means to ensure their survival. But certain forms of collaboration are forbidden under the federal Competition Act. Businesses are understandably wary about having any type of conversation with competitors. 

First, Section 45 bars competitors from agreeing to fix prices, allocate markets or restrict output. Section 45 penalties can include imprisonment and companies can be fined up to $25 million for each count. "On top of that, private parties can sue the infringers for damages in civil court," says Huy Do, CBA Competition Law Section Chair, who practises with Fasken in Toronto.

The Competition Section executive has been in close contact with the Bureau, including a scheduled virtual meeting with Competition Commissioner Matthew Boswell and his management team in early April.

The Competition Bureau subsequently released a statement on April 8, saying it will "generally refrain from exercising scrutiny" in cases where there "is a clear imperative for companies to be collaborating in the short-term to respond to the crisis."

The Section has asked the Bureau for more guidance on examples of conduct that might be permitted now but would not be allowed under s. 45 in a non-pandemic situation. For instance, could competitors agree to restrict the sale of certain essential goods to consumers, which would mitigate hoarding and ensure continued supply? What about agreements to restrict the supply of certain personal protective equipment to front-line workers? Or to prevent price-gouging? Or that allocate markets to restrict the export of certain goods during the crisis?

"There is likely a high element of uncertainty with a lot of potential conflicts," says Riley, who practises corporate and securities law in addition to competition and foreign investment matters. What's more, the guidance also doesn't identify the types of products and services that are critical to Canadians. One can only presume that it pertains to medical and food supply chains.

Other global competition authorities gave guidance to businesses in March. The U.S. Federal Trade Commission and Justice Department, for instance, committed to a seven-day response time to all COVID-19-related requests for specific guidance on proposed collaborations.

The Section recommended that the Competition Bureau commit to the same timeline to respond to requests under the guidance process.  At a CBA-organized virtual panel on April 28, Bureau representatives said they would strive to respond to such requests within a more defined timeline. It says a team of officers from the Cartels and Monopolistic Practices Directorate will respond to a request within 24–48 hours and give its recommendation to the Commissioner within 7 to 10 business days (usually it takes months). After that, "the parties will receive confirmation from the Commissioner of the Bureau's position on the collaboration."

Do also wrote to Navdeep Bains, Federal Minister of Innovation, Science and Industry on April 9. He called on the Minister and not the Bureau to exercise exemption powers on public interest grounds, that powers that exist under the Competition Act. The letter states that as an enforcement agency, the Bureau is not well suited to undertake public interest assessments. Exemptions of certain agreements from the criminal and merger provisions of the Act would best resolve these concerns.

"We believe urgent action is required to ensure the Competition Act does not have a chilling effect on businesses' ability to supply products and services to meet the needs of Canadians. As the COVID-19 emergency deepens and lengthens, there is a real potential for supply chains to seize-up, businesses to fail and essential products and services to become unavailable," he wrote.

Also, based on the Bureau's April 8 statement, there is no guarantee that firms are shielded from private actions, Do pointed out. The only way to achieve that would be by passing a legislative amendment. 

Do says the Section is seeking two changes. The first is an amendment to the Competition Act that would essentially provide a public interest override in limited circumstances. The second is for the Bureau to give guidance on its plans for enforcing the Act's provisions.

The Section sent another letter on April 17 to the Bureau and members have given feedback and commentary in the hopes of improving the guidance. 

According to Do, the prospect of the Bureau contacting market participants to ask for input on a proposed competitor collaboration will make businesses think twice about reaching out to the Bureau.

"By doing so, their proposed competitor collaboration may be made public and expose them to potential civil lawsuits, regardless of the Bureau's views on its own enforcement."