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Canadian Cartel Law: Canada Ups The Ante In 2010 KATHERINE L. KAY ([email protected]) STIKEMAN ELLIOTT LLP PREPARED FOR THE 2010 CBA COMPETITION LAW SPRING CONFERENCE (MAY 2010, TORONTO, ONTARIO)

STIKEMAN ELLIOTT LLP CANADIAN CARTEL LAW: CANADA UPS THE ANTE IN 2010

Canadian Cartel Law: Canada Ups The Ante In 2010 KATHERINE L. KAY ([email protected]) STIKEMAN ELLIOTT LLP Prepared for the 2010 CBA Competition Law Spring Conference ∗ (May 2010, Toronto, Ontario)

Introduction – A Very Busy Year or Two

While there have been no litigated cartel cases in Canada in the last couple of years – and there has never been a litigated international cartel case in Canada – the last couple of years have seen very significant changes to Canadian conspiracy law and the issuance of important statements regarding the approach of the Canadian antitrust enforcement authority, the Competition Bureau (the “Bureau”), to cartel matters.

Without sounding overly dramatic, Canada’s criminal cartel law, which had existed for over 100 years (even longer then the U.S. Sherman Act), was obliterated with one stroke of the pen, by way of amendments buried in omnibus federal budget legislation passed to address the worldwide financial crisis. There was effectively no consultation regarding the amendments to the conspiracy provision, and many commentators1 were highly critical of such a massive change in the law with potentially far-reaching impact and no apparent consideration of the need for change or how it would best be achieved. The legislators were unmoved by the criticism and the Competition Bureau was pleased with the amendments, which make criminal prosecutions much easier by removing the need to prove that the agreement between the alleged co-conspirators resulted in an “undue lessening or prevention of competition”. Effective March 12, 2010, Canada now has a per se cartel offence. At the same time, maximum fines for conspiracies have increased by a factor of 2.5, and maximum prison terms have almost tripled. These are indeed interesting times in Canada.

By way of rundown of recent Canadian developments on the cartel side:

>>>> The Canadian Competition Act2 was amended to enact a new section cartel law,

effective March 12, 2010, which (among other things):

• changes the law from what had been described as a “partial rule of reason” provision to a per se provision;

• increases the maximum fine from $10 million per count to $25 million per count;

• increases the maximum period of imprisonment from five years to 14 years; and

∗ Earlier versions of this paper were presented at the 2010 ABA/IBA International Cartel Workshop and the ABA Spring Meeting.

1 The author included.

2 (hereinafter, the “Act”), R.S.C. 1985, c. C-34, as amended.


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• creates a new civil provision for “competitor collaborations”, under which arrangements that are not “naked restraints” will be analyzed in a civil proceeding with a full consideration of the impact on competition.

>>>> At the end of 2009, the Competition Bureau released “Competitor Collaboration Guidelines”3 which are, in the words of the Bureau, “intended to assist firms in assessing the likelihood that a competitor collaboration will raise concerns under the criminal or civil provisions of the Act and, if so, whether the Commissioner [of Competition] would commence an inquiry in respect of the collaboration.”

>>>> In March 2009, the Competition Bureau released for public consultation a draft “Information Bulletin on Sentencing and Leniency in Cartel Cases”4 (the “Sentencing and Leniency Bulletin”) which formalizes the Canadian leniency program and addresses the Bureau’s approach to sentencing in cartel cases.

>>>> In August 2009, the Competition Bureau updated its Bulletin entitled “Immunity Program Under the Competition Act”5 (the “Immunity Bulletin”). The 2009 update reflects legislative amendments but is otherwise essentially the same as the October 2007 Bulletin regarding the immunity program (which replaced the initial immunity Bulletin from 2000).

>>>> In early 2010, the Competition Bureau updated its document “Cartels - Immunity Program: Frequently Asked Questions”6 (the “FAQs”). The update to these FAQs also reflects legislative amendments; the FAQs are otherwise similar to FAQs issued by the Bureau in 2007 (which replaced earlier FAQs from 2005 and 2003). The FAQs are expressly said in the new Immunity Bulletin to continue to apply.

It should be noted that the Bureau engaged in extensive consultations with members of the Canadian and other bars regarding its immunity and leniency programs and the Competitor Collaboration Guidelines. The Bureau is clearly cognizant of the benefits to the efficient operation of business in Canada for guidance to be issued by the Canadian enforcement authority where practicable.7

Before moving to a discussion of these recent developments, a description of the Canadian “setting” (including points of distinction from the U.S. and jurisdictional issues) is useful.

A Word About the Canadian Landscape

The Canadian Competition Bureau, headed by the Commissioner of Competition, investigates alleged anti-competitive conduct in Canada and, in the case of criminal matters, recommends prosecution to the Department of Public Prosecutions (the “DPP”). In practice, discussions and negotiations regarding criminal matters are conducted on behalf of the Canadian competition enforcement authorities by representatives of both the Competition Bureau and the DPP. Notwithstanding the practice, as a legal matter the DPP has the final legal authority in respect of criminal prosecution issues: it decides whether to accept immunity and leniency applications and has the final say in a negotiated resolution.

The Canadian criminal competition law climate shares many characteristics with its United States (and, increasingly, worldwide) counterparts: advocacy conducted in meeting rooms

3 Online at http://competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03177.html.




7 Although lavish praise for the Bureau does not flow frequently from this author, the Bureau’s consultation efforts with respect to these publications are laudable

and appreciated.


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rather than courtrooms, and negotiated rather than litigated outcomes. There are, of course, very good reasons for this, falling primarily in the risk management category: a negotiated resolution of criminal charges won’t leave anyone on the pleading defendant’s side happy, but it will create certainty and a measure of finality, should contain adverse public relations, and allows for the proverbial “turning of the page”.

Those benefits exist across jurisdictions and irrespective of the particular legal issues in any jurisdiction. That said, there are a few particular “facts of life” in Canada which seem to lead inexorably to negotiated resolutions of criminal exposure on the competition side. First is the virtual absence of litigated cases, leaving us with no guidance on many crucial points of Canadian law; this is a notable difference to the U.S. situation. The second is the reality of life as a close neighbour to the United States and its aggressive antitrust enforcement authorities (and plaintiffs’ class action lawyers): exposure to U.S. proceedings looms large and will almost certainly be addressed, and once exposure in the United States is being resolved, Canadian issues will almost always be resolved as well. The third is the reality that the Canadian volume of commerce is virtually always a fraction (as a rough rule of thumb, 10%) of the U.S. volume of commerce.

So, a company accused of criminal competition law violations in Canada probably faces similar allegations in other places in the world; as a practical matter, the existence of exposure in the United States is what drives defendants to the Competition Bureau’s door. If that company is settling its exposure in the United States, a Canadian settlement based (as it almost invariably is) on the Canadian volume of commerce is likely to be seen by the company as a rounding error.

Hence the Canadian defence lawyer’s lament: so many issues, so little opportunity to litigate. As a practical matter, much of the advocacy in Canadian cartel cases takes place at the negotiating table rather than in a courtroom. Nevertheless, vigorously asserting defences, including jurisdictional arguments, and laying out all of the frailties in the prosecution’s case is a key role for defence counsel to play, whether the setting is the negotiating table or the courtroom.

A negotiated resolution can take many forms: immunity, where there is actually no prosecution or fine to be negotiated, but there will be a lot of interplay with the Bureau and the DPP and much expense and effort (and a fair bit of negotiating, to be sure) in meeting a party’s obligations under the immunity program; leniency, where there will be a guilty plea and a fine, to be negotiated and which will include the relevant reduction for the party’s status in the leniency program; and a negotiation outside of the leniency program, where virtually all of the same sentencing principles and negotiation dynamics apply.

Points of Distinction Between the United States and Canada

Because of Canada’s proximity to the United States, both physically and commercially, most antitrust enforcement activities which occur in the U.S. have at least some spill-over into Canada. Thus, for a company accused of violating Canadian competition law, there are several points of distinction between Canadian and U.S. antitrust law which will be of interest to the company and its non-Canadian legal advisors and which require consideration. Some notable ones are:

>>>> There is no limitation period for criminal offences under the Canadian Competition Act.

>>>> As discussed above, the Canadian conspiracy offence has moved from what has been described as a “partial rule of reason” offence to a per se offence. We have a brand new criminal conspiracy provision, which is completely untested.


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>>>> There are no formal sentencing guidelines in Canada as in the United States, although (as discussed herein) the Bureau’s approach to sentencing (at least in a leniency context) is the subject of a recent draft Bulletin which is out for consultation.

>>>> In an immunity context, the failure by an immunity applicant to disclose the commission of another competition law offence to the prosecution does not give rise to “penalty plus” in respect of subsequent offences. Instead, the penalty for failure to disclose is said to be revocation of the immunity granted in respect of the first offence.

>>>> In civil actions which follow on criminal investigations (including class actions), treble damages are not available; damages are meant to be compensatory only.

Jurisdictional Issues

There are no cases in Canada which deal with the issue of jurisdiction of Canadian courts in respect of a conspiracy allegation under section 45 of the Act (the criminal cartel provision) where the conduct took place wholly outside of Canada but is alleged to have had an impact in Canada.

Outside of the competition law area, Canadian legal authority from the Supreme Court of Canada (the country’s highest court) states that as a general rule, no person can be convicted in Canada of an offence committed outside Canada.8 For a Canadian criminal court to act, there must be a “real and substantial link” between the conduct and Canada.

In a civil context where the issue of criminal liability was not before the court, a judge in Ontario (the largest province in Canada) observed in a price-fixing class action that “the language of section 45 is not directed to only those conspiracies entered into within Canada.”9 One would hope that in a contest between the Supreme Court of Canada’s approach to jurisdiction in criminal matters and the musings of an Ontario judge in a different context, the Supreme Court’s approach would be preferred. As noted, however, there is no case which has considered the jurisdictional issue as a matter of Canadian criminal competition law.

In addressing jurisdictional issues where the Bureau has commenced an inquiry regarding a non-Canadian company and is trying to get that company to come to a negotiated resolution, the Canadian competition authorities will first point to any sort of physical contact with Canada: a meeting in a Toronto airport hotel, a shared limo to a trade association meeting in a resort at Whistler, etc. (all hypothetical examples). Whether such a fleeting contact would be considered sufficient to establish jurisdiction on a “real and substantial link” test has not (of course) been litigated.

Even in the absence of a physical contact with Canada, the prosecution takes the position that a conspiracy entered into outside of Canada in which Canada is addressed (by way of discussions regarding Canadian pricing, for example) provides the requisite “real and substantial link” to Canada. Even more remote, the same conspiracy without an actual mention of Canada but where there is an impact on Canada (typically, in the form of an alleged price increase for the product in Canada) is also said by the prosecution to meet the jurisdictional test for Canada. Again, there has been no judicial consideration of this issue as a matter of Canadian criminal law.

Even assuming that the Canadian courts have subject-matter jurisdiction over the offence, the matter of personal jurisdiction over the accused also needs to be addressed. Furthermore, the prosecution needs to be able to effect service of legal process (the indictment). There is no express legislative provision authorizing service ex juris of legal

8 Libman v. R. [1985] S.C.R. 178 at 213. 9 VitaPharm Canada Ltd. v. F. Hoffman-LaRoche Ltd., [2002] O.J. No. 298 (S.C.) (QL) at para. 59.


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process in respect of offences under the Competition Act. This means that service on a non-Canadian company with no physical presence in Canada cannot likely be duly effected as a matter of Canadian law. That said (more lamenting here), that issue has also never been litigated.

The existence of interesting legal arguments regarding the limits of the jurisdictional reach of Canada’s cartel law has not stopped dozens of guilty pleas in Canada in international price-fixing cases, typically entered into where companies are resolving their cartel exposure in multiple jurisdictions in the world.

New Criminal Cartel Offence

The former (and longstanding) Canadian criminal conspiracy law required (in addition to proving an arrangement, agreement, understanding or other form of “meeting of the minds” between the alleged co-conspirators) proof of an undue lessening of competition. As of March 12, 2010, the requirement to show market impact is no longer a feature of the conspiracy provision.

New section 45 provides (in part) as follows:

45(1) Conspiracies, agreements or arrangements

between competitors – Every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges

(a) to fix, maintain, increase or control the price for the supply of the product;

(b) to allocate sales, territories, customers or markets for the production or supply of the product; or

(c) to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product.

(2) Penalty – Every person who commits an offence under subsection (1) is guilty of an indictable offence and liable on conviction to imprisonment for a term not exceeding 14 years or to a fine not exceeding $25 million, or to both.

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

(4) Defence – No person shall be convicted of an offence under subsection (1) in respect of a conspiracy, agreement or arrangement that would otherwise contravene that subsection if

(a) that person establishes, on a balance of probabilities, that

(i) it is ancillary to a broader or separate agreement or arrangement that includes the same parties, and


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(ii) it is directly related to, and reasonably necessary for giving effect to, the object of that broader or separate agreement or arrangement; and

(b) the broader or separate agreement or arrangement, considered alone, does not contravene that subsection.

Subsection 45(8) defines “competitor” as “includ[ing] a person who it is reasonable to believe would be likely to compete with respect to a product in the absence of a conspiracy, agreement or arrangement…”

All of the defences which had existed under the predecessor section 45 continue to apply, along with the new “ancillary restraints defence” (or “ARD”) in subsection 45(4). In consultations regarding prior proposed language which was similar to the ARD, many parties criticized the ARD as being too narrow and potentially subjecting many widely-accepted agreements (such as exclusive distribution arrangements) to criminal prosecution.

It seems reasonable to expect that the “rule of reason” analysis seen in the U.S. will make its way into arguments made in Canada, as our courts interpret the new defence.

Along with changing the criminal law to make prosecutions easier, the amendments to the Act also introduced a new civil provision, section 90.1, which applies to agreements or arrangements between competitors which prevent or lessen or are likely to prevent or lessen competition substantially in a market. Such cases are dealt with before a specialized administrative tribunal, the Competition Tribunal, in a civil proceeding and using a full rule of reason analysis.

Competitor Collaboration Guidelines

The Canadian Competition Bureau published the “Competitor Collaboration Guidelines”10 (the “Guidelines”) on December 23, 2009, less than three months before the coming into force of the new criminal cartel provisions and the companion civil provisions. The Guidelines, which were preceded by an earlier consultation draft published in May 2009, answer several questions raised by the new sections 45 and 90.1 of the Act, but leave many more to be answered by the courts and the Competition Tribunal.

As noted repeatedly in this paper, under new section 45, agreements between competitors (which the new provisions define to include potential competitors) to fix prices, to allocate sales, customers or markets, or to fix or control production or supply of a product will be illegal – full stop. No longer will the prosecution be required to prove the anti-competitive effect of such agreements in order to obtain a conviction in so-called “hard core” cartel cases.

The more stringent approach to competitor agreements reflected in the new section 45 is accompanied by an alternative, civil track for non-hard core cartels: agreements between competitors that are not appropriate for criminal prosecution but may nonetheless have anti-competitive effects. The new section 90.1 of the Act (which came into effect on March 12, 2010), creates a civilly reviewable matter in respect of existing or proposed agreements between persons, two or more of whom are “competitors”, that prevent or lessen competition substantially (or are likely to do so). The factors to be considered by the Competition Tribunal in undertaking this assessment are effectively the same as those applicable to the existing merger review provisions (i.e., effective remaining competition, barriers to entry, change and innovation, etc.). In terms identical to the existing merger review provisions, an efficiencies defence will apply if the agreement brings about “gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition” and

10 Supra note 3.


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the efficiency gains would not be attained if a prohibition order were issued. In contrast to section 45, available remedies under section 90.1 are purely injunctive in nature, and no private actions for damages are available for alleged breaches of section 90.1.

One concern expressed in relation to the dual-track approach to cartels was that it could permit the Bureau to delay choosing between the criminal and civil tracks, and use the threat of criminal prosecution to encourage civil settlements. To address this concern, the Guidelines state that “at no time will the Bureau use the threat of criminal prosecution to induce settlement in cases proceeding by way of the civil track.” The Guidelines also state that “the Bureau will make every effort to arrive at a timely decision on the appropriate section to be applied in evaluating an agreement.”

As to the question of “what is an agreement”, the Guidelines take the position that both explicit and tacit agreements can violate the criminal prohibition against price-fixing and other hard core cartel behaviour. Accordingly, while so-called conscious parallelism (a few competitors independently deciding, for example, not to compete on the basis of price since to do so would only incite a price war) is recognized not to be illegal, the Guidelines state that conscious parallelism plus facilitating practices such as sharing sensitive pricing information could be enough to prove the existence of an agreement between the parties.

A useful aspect of the Guidelines is the explicit recognition that the Bureau will not view market restriction elements of dual-distribution agreements or franchise agreements as potentially subject to criminal prosecution under section 45 (provided, of course, that such agreements are truly limited to the supplier/distributor or franchisor/franchisee in question, and do not mask a broader conspiracy among suppliers, distributors, franchisors or franchisees).

A consistent theme through the Guidelines is that the Bureau regards section 45 as applying only to so-called “naked restraints” on competition, which it describes as “restraints that are not implemented in furtherance of a legitimate collaboration, strategic alliance or joint venture.” Such an enforcement approach is welcome, and is reflected in several hypothetical examples included in the Guidelines.

The Competition Bureau has said that although it intends to use its new criminal powers to act against hard core cartel activity, it is nonetheless looking for test cases to clarify the ambit of the new law. In addition, it is important to note that the Guidelines reflect the enforcement approach of the Bureau and the DPP, and are not binding on private litigants or, indeed, the courts, which will have the ultimate say on the meaning of the new competitor agreement provisions.

The Canadian Immunity Process

Immunity under the Canadian process11 means total amnesty or immunity from prosecution. If a defendant qualifies for immunity, no prosecution will be brought against that party, provided the conditions of the immunity program are met. Immunity is available only to the “first-in”, being the first party to contact the Bureau and qualify for immunity. Subsequent cooperating parties who wish to acknowledge their guilt and cooperate with the authorities, including by pleading guilty and providing cooperation by way of evidence, witnesses and documents, may qualify for the leniency program, discussed below.

As in all other jurisdictions in the world, the Bureau’s immunity program has been remarkably successful in allowing for the discovery of cartel activity and in facilitating further prosecutions. As stated in the preface to the Immunity Bulletin, the immunity program “has proven to be the Bureau’s single most powerful means of detecting criminal activity. Its 11 The Bureau’s immunity program is contained in the Immunity Bulletin (supra note 5) and the FAQs (supra note 6).


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contribution to effective enforcement is unmatched. Its continued appeal to those who would otherwise remain undercover is pivotal to our enforcement efforts.”

As in other jurisdictions, because immunity is available only to the first-in, the quest for immunity can be “a race to the door” in Canada. This is particularly a factor in this country, where Canadian immunity applications are often made in conjunction with amnesty applications in the United States (and elsewhere); the clock is ticking across the world, and there is a great deal of coordination required and consideration of consequences and consistency of approaches is very important (and Canada is not always top of mind for people putting out worldwide fires).

Immunity will be available if the Bureau is not aware of the offence and the party is the first to disclose it, or the Bureau is aware of the offence and the party is the first to come forward before there is sufficient evidence to warrant a referral of the matter to the DPP.

The party must terminate its participation in the illegal activity.

The party must not have coerced another to be a party to the illegal activity.

Immunity is not available for single party conduct (you only get immunity if you can “rat out” someone else).

Throughout the course of the Bureau’s investigation and subsequent prosecutions, the party must provide complete, timely and ongoing cooperation, including not disclosing its immunity status; revealing all conduct that is an offence under the Act; providing full, complete, frank and truthful disclosure of all non-privileged information, evidence and records in its possession, under its control or available to it, wherever located; taking all available measures to secure the cooperation of current directors, officers and employees for the duration of the investigation and any ensuing prosecution and doing so with respect to former employees as agreed by the Bureau; facilitating interviews of current and former personnel; and doing all of that at the party’s own expense and at locations chosen by the Bureau.

An application for immunity may be made by a company or by an individual. If a company qualifies for immunity, all current directors, officers and employees who admit their involvement in the illegal cartel and who provide complete, timely and ongoing cooperation also qualify for immunity. Former directors, officers and employees who offer to cooperate with the Bureau’s investigation may qualify for immunity, based on the Bureau’s review (this is typically a point for negotiation). As noted above, even where a company does not qualify for immunity, current or former directors, officers, employees or agents may be considered for personal immunity.

The steps in the immunity process are as follows:

>>>> Step 1: Initial Contact (Marker): a request for immunity is initiated by a communication to the head of the Bureau’s Criminal Matters Branch to discuss the possibility of receiving immunity from prosecution in connection with an offence under the Act. Typically the initial call is made by Canadian legal counsel to the defendant who names the product at issue and asks for a “marker” as the first-in, which preserves that party’s place in the immunity queue.

>>>> Step 2: Proffer: by way of a proffer, the party provides a detailed description of the illegal activity and discloses sufficient information for the Bureau to determine whether the party qualifies for immunity. The proffer is usually made by legal counsel and can be made on a hypothetical basis. Proffers can be made orally or in writing; the Bureau recognizes the sensitivity to providing written material and frequently Canadian proffers are made orally. The FAQs state that the proffer must be provided within 30 days of the


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marker request, although the FAQs also acknowledge that extensions can be provided (communication with the Bureau regarding timing challenges is crucial; in practice, if there are good reasons for an extension, one will be given). Question 19 in the FAQs describes in some detail that on a proffer the Bureau will expect to receive information regarding: the parties, the product, the industry, market definition (which will be less relevant under the new law), the conduct, impact of the conduct, evidentiary process (available witnesses, records, etc.), and immunity applications in other jurisdictions. The Bureau may ask to interview an employee or other company witness before deciding on the immunity application. If the Bureau concludes that the party will provide cooperation and meet the requirements of the program, the Bureau will recommend to the DPP that immunity be granted. The DPP has an independent discretion as to whether to accept the Bureau’s recommendation.

>>>> Step 3: Immunity Agreement: if the DPP accepts the recommendation, a written immunity agreement will be entered into between the party and the authority.

>>>> Step 4: Full Disclosure and Cooperation: after the immunity agreement is entered into, the obligation to provide full disclosure and cooperation applies.

The Bureau treats as confidential the identity of a party requesting immunity, except as required by law, is necessary for judicial authorization or to secure the assistance of a Canadian law enforcement agency, if the party consents, if the immunity status has already been disclosed, or if necessary to prevent the commission of a serious criminal offence. The Bureau will share information with a foreign enforcement authority if a waiver is provided by the immunity applicant; the Bureau will expect a waiver where immunity applications have been made in other jurisdictions.

If, after receiving immunity, the party fails to comply with its obligations under the immunity agreement, the DPP may revoke a party’s immunity and take action against the party. A witness that refuses to provide complete, timely and ongoing cooperation with the Bureau’s investigation may be “carved out” of the immunity agreement. The FAQs state (and the practice is) that the Bureau will in the normal course discuss the situation with the immunity applicant and provide a reasonable opportunity to the applicant to address any shortfalls in its conduct before the Bureau would recommend revocation to the DPP. The DPP will provide 14 days written notice to the party before revocation. Where a company loses immunity, its employees continue to be immunized, except for employees who fail to meet their cooperation obligations.

The Canadian immunity program includes “Immunity Plus”, whereby a company may not qualify for immunity in respect of Offence A because it was not first-in, but it may disclose to the Bureau a new (typically related) Offence B, previously unknown to the Bureau. The company will get immunity with respect to Offence B (assuming it otherwise qualifies), and will receive a credit (or “plus”), which is not specified, but is typically significant, in respect of Offence A.

The Canadian Leniency Process

The Bureau is taking steps to formalize its leniency program in the form of the draft Sentencing and Leniency Bulletin,12 released in draft in 2009 for public consultation. As noted above, leniency applies to a party which is not the first-in (the first-in party gets immunity), but comes in to the Bureau further down the line, would like to admit its guilt and qualify for lenient treatment.

12 Supra note 4.


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As with the immunity program, the leniency program is an important part of the Bureau’s enforcement efforts. As noted in the preface to the Bulletin: “Parties are more likely to come forward and cooperate (rather than litigate) where they are aware of sentencing principles and leniency considerations, and are confident that the Bureau will follow them in its recommendations to the DPP.”

The Sentencing and Leniency Bulletin “sets out the factors that the Bureau considers in making a recommendation to the DPP for lenient treatment of individuals or business organizations accused of criminal cartel offences”. The original plan was for the final version of the Sentencing and Leniency Bulletin to be accompanied by the publication of a Bureau-DPP Memorandum of Understanding that will address their “respective responsibilities in administering” the leniency program; more recent developments suggest that the MOU may be issued before the Sentencing and Leniency Bulletin is finalized.

Although it will be formalized by way of the Sentencing and Leniency Bulletin, a form of leniency process has in fact existed in Canada for many years. The Sentencing and Leniency Bulletin provides more specific guidance and creates a framework which was not in place previously, and addresses some issues about which there had previously been uncertainty.

As in other jurisdictions, the context for the leniency program is a negotiated resolution which will involve the party pleading guilty and the negotiation of an agreed sentence (typically a fine), subject to approval of the court. As noted in the Sentencing and Leniency Bulletin, in recent years courts have approved all sentencing recommendations made by the DPP. A judge will only depart from a sentencing recommendation where accepting the recommendation would either be contrary to the public interest or bring the administration of justice into disrepute.

The draft Bulletin states that “As an overarching principle, the Bureau’s recommendation for leniency is directly proportionate to the contribution a leniency applicant makes to the Bureau’s cartel investigation and any subsequent prosecutions.” One might say that the goal of a leniency program is to “get the good stuff” to go after even more participants in a cartel, which is why the “overarching principle” is articulated in this way. Having said that, in practice, the consequences of lenient treatment (basically, the amount of a fine reduction) depend principally upon which place the party holds in the leniency queue. Thus, later in the draft Bulletin the following statement is made:

Later applicants will not receive more lenient treatment than previous applicants unless exceptional circumstances exist; for example, if the cooperation provided by a later applicant is of a significantly higher value in terms of either evidentiary value or timeliness. In any event, benefits for earlier leniency applicants will not diminish as a result of a later applicant providing significantly higher value.

The following basic conditions apply in order to qualify for the leniency program:

>>>> The DPP must not have filed charges against the party.

>>>> The party must have terminated its participation in the illegal activity.

>>>> The party must cooperate fully with the Bureau’s investigation and any subsequent prosecution by the DPP.

>>>> The party must admit that it has engaged in anti-competitive conduct which may constitute an offence under the Act, and agrees, if charged, to plead guilty and to be sentenced for its participation in the illegal activity.


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The Bureau prioritizes both the timeliness and value of cooperation. This is evaluated according to the utility of the evidence that a party can provide and the quality of that cooperation, including how quickly a party fully cooperates. A party seeking leniency must satisfy the Bureau that it has taken all appropriate steps to locate and produce relevant evidence, including full disclosure if it is suspected that individuals have hidden or destroyed evidence.

The first leniency applicant who meets (and continues to meet) the Bureau’s qualifications is eligible for a reduction of up to 50% of the fine that would otherwise be recommended. Where the party is a business organization, the Bureau will also typically recommend that no separate charges be laid against the applicant’s directors, officers and employees (subject to exceptions in extreme cases of wrongdoing). Subsequent leniency applicants may qualify for reductions in fines of up to 30%, and up to 50% where their evidence has exceptional value (or in cases where the first leniency applicant fails to satisfy the requirements).

The Bulletin describes five steps for leniency applications, similar to those applicable to immunity:

>>>> Contacting the Bureau.

>>>> Proffering evidence.

>>>> Qualifying for a conditional lenient treatment recommendation.

>>>> Providing full and frank disclosure.

>>>> Qualification for a final sentencing recommendation to the DPP.

Contact with the Bureau is usually made by the party’s Canadian legal counsel and a place in the leniency queue is provided by the Bureau (second-in, etc.). The proffer follows as soon as possible, typically within 30 days. The proffer is made on a “without prejudice” basis, and must include a detailed description of the illegal activity and sufficient information for the Bureau to determine whether the party qualifies for the leniency. The Bureau may request (on a without prejudice basis) the opportunity to review the documentary evidence and to interview witnesses. If the Bureau is satisfied with the proffer, it will recommend lenient treatment, conditional on the party’s ongoing cooperation with its investigation, which will include full and frank disclosure of the party’s evidence.

The Bureau will treat as confidential the identity of the party requesting leniency (and the information provided by the party in furtherance of that request) except where that information is already public, disclosure is required by law, to a Canadian law enforcement agency for the purposes of the administration and enforcement of the Act, is necessary to prevent the commission of a serious criminal offence, or disclosure is authorized by the party.

Sentencing Principles for Canadian Cartel Offences

The new draft Bulletin dealing with the leniency program also covers sentencing principles, which is perhaps not surprising insofar as applicants for leniency will want to know the Bureau’s approach to sentencing as part of its evaluation of whether to engage in the leniency process. That said, the sentencing principles described in the Sentencing and Leniency Bulletin really do apply to all cases – including, one would have thought, litigated


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cases13 - and so would perhaps be better found in a separate Bulletin which applies no matter what the context for sentencing discussions.

As with the leniency aspects of the draft Sentencing and Leniency Bulletin, the principles covered in the Bulletin are generally not new, but are formalized in the draft document. As discussed below, however, there are aspects of the section on sentencing which reflect a more recent approach, which is certainly not without controversy.

As noted in the Sentencing and Leniency Bulletin, the fundamental purpose of sentencing in Canada, as set out in the Criminal Code, is “to contribute to respect for the law and the maintenance of a just, peaceful and safe society.”14

The fundamental principle of sentencing in Canada is that a sentence must be proportionate to the gravity of the offence and the degree of responsibility of the offender.15 Other sentencing principles are found in the Criminal Code (and are referenced in the draft Bulletin).

The Sentencing and Leniency Bulletin starts with the proposition that the magnitude of economic harm caused by the cartel goes to the gravity of the offence “and is thus of fundamental importance to sentencing in cartel matters.” The starting point for the Bureau’s recommendation for fines in cartel cases begins with an assessment of the magnitude of the economic harm. As noted by the Bureau, the usual notion of economic harm from the cartel is the “overcharge”.

Economic harm has a quantitative dimension (higher prices for consumers) as well as a qualitative dimension (the stifling of competition and innovation in the economy as a whole). Because economic harm is difficult to quantify, the Bureau uses a proxy: the “volume of commerce” related to the cartel activities multiplied by an “overcharge” factor. The “volume of commerce” is the aggregate value of sales of the product in question in Canada over the term of the offence. The overcharge is the amount of money paid by victims of the cartel above what they would have paid if the cartel was not in effect. The Bureau uses a proxy of 20% as the overcharge generally applicable in every case, which is applied to the relevant volume of commerce. (The draft Bulletin states that while numerous studies estimate that any overcharge is closer to 10%, the lesser figure would not capture the qualitative effects of the harm caused, nor produce an adequate deterrent.) The draft Bulletin specifically says that “the Bureau will always consider relevant and compelling evidence presented by defendants that demonstrates an overcharge greater or less than the 10% proxy.”

Once the Bureau has established an estimate of the economic harm caused, it will adjust its recommended sentence to reflect the aggravating or mitigating circumstances of the case. The Bulletin contains a long list of aggravating factors: recidivism/criminal record; coercion, instigation or management; corporate size and sophistication; degree of planning, covertness and complexity of the cartel activity; obstruction (in the discussion regarding obstruction, the Bulletin says it will address obstruction “either as a separate offence under the Act or the Criminal Code or as a particularly aggravating factor in recommending the sentence for the cartel offence”); lengthy duration of illegal activity; nature of the victims; and widespread senior involvement. The list of mitigating factors is shorter: cooperating with authorities; acceptance of responsibility; early termination of conduct and restitution for victims (but the Bureau does not consider exposure to lawsuits to be a mitigating factor).

13 Paragraph 22 of the draft Sentencing and Leniency Bulletin states that “This section sets out general principles of sentencing that the Bureau considers in

making sentencing recommendations to the DPP and that courts use in sentencing.” [emphasis added]

14 Kind of brings a tear to your eye, doesn’t it?

15 Section 718.1 of the Criminal Code.


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The Bulletin also highlights the Bureau’s view that a significant deterrent in cartel cases is the exposure to criminal prosecution for the individuals involved. Individual accused are liable to fines or imprisonment (to a maximum of 14 years as of March 2010) or both. The factors that may be weighted in the Bureau’s sentencing recommendations with respect to individuals include the degree to which an individual has profited from the cartel’s activities, whether that person has been involved in similar activities in the past, and whether he or she is being punished in other ways (for example, through loss of employment).

The draft Sentencing and Leniency Bulletin takes a stab at addressing when the Bureau will recommend the prosecution of an individual for a cartel offence. Throwing individuals in jail is not a focus of the Canadian enforcement authorities in the way that it is with our neighbours to the south, but it is an important tool in the enforcement and deterrence arsenal, and it is being used. As a matter of legal culture, jail in Canada is to be a last resort; indeed, the Criminal Code states specifically that “an offender should not be deprived of liberty, if less restrictive sanctions may be appropriate in the circumstances.”16 The Bulletin says very little about when the Bureau will seek to prosecute individuals and what sentence, including prison, it would seek in such a prosecution.

Where the draft Bulletin courts particular controversy is in describing the Bureau’s treatment of “economic harm arising from indirect sales.” The genesis of the approach would appear to be those international cartel cases where the Bureau would argue there is a “real and substantial link” to Canada (discussed above), but where there is little to no direct commerce by the cartel members in Canada. Insofar as manufacturing activities in Canada have been substantially reduced in recent years, Canadians are not big purchasers of “input” products; thus, in some cases involving inputs or ingredients, the direct volume of commerce in Canada is low. In those cases, the Bureau seems to want a way to be able to extract a fine based not on direct commerce, but rather on indirect commerce. Thus, the Bureau states in its draft Sentencing and Leniency Bulletin: “In cases where economic harm arising from indirect sales of a cartelized product into Canada is likely and significant, the Bureau will include it in its overall assessment of economic harm in Canada caused by the cartel.”

Rather than try to describe how the Bureau proposes to do this, reproduced below are the Bureau’s own words on the topic:

In cases where there are indirect sales of a cartelized product into Canada, the relevant volume of commerce will be the volume of sales of the cartelized input contained in the intermediate or final products sold into Canada. If reliable evidence of the volume of indirect sales of the cartelized product into Canada is not available, the Bureau may derive the volume of commerce affected from available data. For example, the Bureau may aggregate the sales of a cartel member to its top customers, which then sold the intermediate or final product containing the cartelized input into Canada. Consistent with its approach to direct sales, the Bureau will use 20 percent of the volume of commerce affected in Canada by the cartel as a proxy for the economic harm caused in Canada by the indirect sales of the cartelized product. As in all cases, the Bureau will adjust the proxy of 20 percent of the volume of commerce affect if the accused brings forward evidence of actual harm to rebut this proxy.17 [footnotes omitted]

16 Section 718.2(d) of the Criminal Code.

17 Sentencing and Leniency Bulletin, paragraph 41.


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I have not included the footnotes from the original paragraph in the draft Bulletin for ease of reading. While the footnotes attempt to elaborate upon the myriad of issues, questions, challenges, and fodder for litigation, they fail to satisfy even the most elementary of questions.18 Simply put, levying a fine based on indirect commerce is fraught with overwhelming difficulty; Canadian economists everywhere must be rejoicing. Aside from availability and dependability of data – a huge issue – double-counting (and more) is an obvious (insoluble) problem. The Bureau offers this comfort19 on the topic:

Related to the issue of indirect sales is that of double counting. Where cartel members have already been penalized in another jurisdiction for the direct sales that led to the indirect sales in Canada, the Bureau will consider the penalties imposed by other jurisdictions on a case-by-case basis. Factors such as the magnitude of the economic harm in Canada associated with the indirect sales and the adequacy of any penalties imposed in the foreign jurisdiction will be considered relevant.20

The Bureau is continuing its consultations regarding the draft Bulletin, and there are encouraging signs that the message from both sides of the Canada-U.S. border about the difficulties of the Bureau’s proposed indirect commerce approach is receiving further consideration from the Bureau.

The draft Sentencing and Leniency Bulletin states that for a corporate accused, the Commissioner typically recommends a fine as well as a prohibition order (an order saying a company will not break the law21 and requiring some communication within the company about competition law).

The Bulletin does say that the Bureau will take into account the ability to pay a fine of a company and an individual, but little detail is provided.

Negotiating a Resolution

While many negotiations with the Bureau and DPP take place in the context of the leniency process, settlement discussions are very similar whether they occur “in” or “out” of the formal leniency process. With the move to a more formal leniency process, the Bureau is taking the position that a party must declare “up front” its guilt in order to qualify for leniency. In practice, however, a party can enter the leniency process as the second-in (for example) and if a negotiated resolution cannot be achieved because (for example) the Bureau’s view of the relevant volume of commerce is simply not consistent with what the party would accept as the basis for an agreed fine, the party might say “we are done talking” and would no longer be part of the formal leniency process and would not qualify for the 50% reduction its second-in status would otherwise generate. In real life, it’s all a negotiation with several moving pieces: time frame, volume of commerce, affected products, any evidence of actual overcharge, credit for cooperation, leniency discount, etc.

It is, of course, in negotiating the penalty that “the rubber hits the road”. Negotiations are vigorous, including regarding the time period of the conduct to be pleaded to and products covered by the plea. Demonstrable price war or “cheating” periods can sometimes be negotiated out of the volume of commerce calculation for the negotiated fine amount. Quite apart from the obvious incentives to keep the time period and list of price-fixed products as 18 With all due objectivity.

19 Sic.

20 Sentencing and Leniency Bulletin, paragraph 42.

21 I have never understood why the Bureau thinks it is useful to get an order saying a company will not break the law, but that’s just me.


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narrow as possible in terms of the criminal penalty, the consequences in subsequent civil (class action) litigation can be considerable. As a matter of Canadian practice, guilty pleas are accompanied by agreed statements of fact or statements of admissions filed by both parties with the court and publicly available thereafter, in which the particulars of the offence are described. Defence counsel work hard at limiting the damage which will inevitably occur in future class and other civil actions based on the court filings.

The negotiation of guilty pleas almost invariably involves offering up the valuable assistance which this now-cooperating defendant can provide in order that the Bureau can pursue other participants in the alleged conspiracy, who can be persuaded to plead guilty only if the negotiating accused provides the evidence tantalizingly offered during the plea negotiations and the cooperation discussions. This sets up the distasteful spectre of company employees wracking their corporate brains for recall of who was present at a meeting at a golf club, or what additional products were discussed, etc. The obligation to cooperate with the Bureau as part of its ongoing investigation is typically part of the agreed resolution, even outside of a formal leniency application. The way the game is played, of course, the threat of the cooperating party’s evidence is enough to ensure that there are other cooperating parties, and so on, and so on.

One of the key advantages to a negotiated resolution (even outside of a formal leniency application) is the potential ability to negotiate an agreement from the prosecution that no or only limited company individuals will be “carved out” or exposed to being pursued personally for the alleged offences under the Competition Act. While Canadian antitrust authorities do not put notches in their enforcement belts based on person-days in jail (as a cynical Canadian would portray the U.S. enforcement attitude), the threat of individual prosecution is nevertheless a real one in Canada and its removal is of considerable value to a corporation and its employees. Often a negotiated resolution for a company will end the exposure for its directors, officers and employees provided they agree to cooperate (exceptions to this include where the employee occupied a leadership or ringleader position in the conspiracy).

What Next?

The next phase of Canada cartel law will indeed be interesting. Hope springs eternal that the defence lawyer’s lament will be answered in the form of cases to test the new law. More likely, perhaps, are more immunity and leniency applications and more vigorous settlement negotiations with the Bureau and the DPP. Much is new and there are many areas for debate and challenge, so there will be no shortage of activity!

This publication provides general commentary only and is not intended as legal advice. © Stikeman Elliott LLP

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