Once a sleepy regulatory backwater, competition law is moving into the spotlight.

Recent updates to the Competition Act mean that many more companies, including those in the financial services industry, may find themselves altering their business practices in an effort to keep regulators — and shareholders — happy. These changes could range from becoming tight-lipped at trade association meetings to the overall structure and timing of mergers and acquisitions.

“This is a serious issue,” says Julie Soloway, partner with Blake, Cassels & Graydon LLP in Toronto. “In the past, competition matters were not the driver [of deal structures]. But competition issues now are often central.

“When you get strategic mergers, [in which] one competitor is acquiring another in the same space, it is the competition issues that are front and centre,” she adds. “They are shaping how the deal documents, the negotiation of the contract, the risk allocation, the timing. The process is now driven by the need for competition approvals and how this is going to balance out in different [foreign] jurisdictions, with different competition authorities.”

Among the biggest legislative changes is the overhaul of rules governing cartels. Under changes that have been in force since March, if companies make agreements to lessen competition by fixing prices, restricting production or carving up markets by allocating sales and customers among competitors, they could be facing criminal charges; and, for the first time, the offence can be established even if there is no measurable impact on competition.

In the past, the Competition Bureau was often frustrated in its policing efforts because it had to prove that a cartel actually had an “undue” or “unreasonable” impact on competition. That requirement has been replaced by a “per se” criminal offence. Now, all the bureau needs to show is that a conspiracy exists. And the penalties are no joke: there are new maximums of $25 million in fines and 14 years in jail.

“These [sections] deal with hard-core or naked restraints on competition, matters such as price fixing or output allocation,” Soloway notes. “There is no debate about these ones — they are really bad.”

On the other hand, the new legislation also includes a lot of breathing room for competitors who may be discussing typical business matters, such as customers and marketing, with no intent to lessen competition.

Although this type of activity may be reviewed by the bureau, it is dealt with under other sections of the act that use civil remedies, such as a private right to sue competitors. In those cases, companies that are found to be offside of the legislation by the competition tribunal will typically only face an order to cease what they are doing.

To assist companies looking for direction when it comes to conduct that may or may not be found to be anti-competitive, such as joint ventures, the bureau has issued plain-language Competitor Collaboration Guidelines.

These guidelines contain detailed guidance about the specific types of conduct that are, or are not, likely to be caught by the new amendments. They include matters such as dual distribution agreements or other trade practices that involve contact between competitors.

“This addresses the chill,” Soloway notes. “It gives business people involved in these types of activities comfort that they are not going to be sucked into the criminal provisions of the act.”

But if conduct is investigated, that in itself can be “punishing,” Soloway adds. An investigation can potentially involve court orders and extensive time commitments from management and lawyers who are required to answer requests for voluminous amounts of information.@page_break@“Because of the seriousness of these offences,” Soloway says, “we always recommend that counsel and top executives review their compliance programs and consider how to keep everything up to date.”

The amendments also give the bureau new clout when it comes to “abuse of dominance” — that is, policing companies that use their dominant positions to lessen competition.

Under the leadership of Mel-anie Aitken, who was appointed commissioner in August 2009, the Competition Bureau has already demonstrated its resolve on this point by launching an investigation of the pricing practices of the Canadian Real Estate Association.

That case generated considerable public interest and was finally resolved by settlement last month.

A related offence, “joint abuse of dominance,” is also on the bureau’s radar. Regulators can now pursue more than one company in one market without having to show that those companies actually collaborated to abuse their dominant positions.

Other changes to the legislation include new rules for the Competition Bureau’s review of mergers and acquisitions. These new sections, which came into force in March 2009, replace a decades-old, two-tier review process that was sometimes frustrating for the parties involved in deals.

In the past, companies involved in a merger had to choose between two routes for review, each with different time periods, says Mark Katz, partner with Davies Ward Phillips & Vineberg LLP in Toronto.

One route, which gave the bureau 14 days to complete a review, was intended for less complex deals. The other, with a 42-day review period, was for more complex situations.

However, if the wrong route was chosen, further delays could result. The system also created headaches for the bureau because parties were entitled to close if the bureau had not taken a series of complex steps within the 42-day period.

That system has now been replaced with a single 30-day review period. During this period, the bureau may issue a “supplementary information request” to the merging companies.

The parties may not close until 30 days after these second requests have been satisfied. The effect is that such a request freezes the situation while the parties respond to the request, thus creating an incentive for a rapid response from the parties while taking some of the heat off of the bureau.

This change also makes the process smoother for cross-border deals because the new Canadian regime is now similar to the U.S. system. This was one of the biggest incentives for the changes.

“A lot of major transactions are cross-border or global,” Katz notes. “This way, things kind of line up. Parties know that the review process in Canada and the U.S. will look very similar, as opposed to these different quirks.”

So far, the effect on the speed of the deal process appears to be neutral, Katz adds, noting that the bureau has challenged only about 5% of transactions.

Furthermore, 80% of deals during the past 18 months or so have been reviewed and cleared by the bureau within two weeks, according to the bureau’s statistics.

In fact, only about nine or 10 deals in that period have been subjected to a second request. This should likely be reassuring for those concerned that a more aggressive competition regime and a more activist commissioner could slow deals down.

“If the merits of the deal are there, but it’s the kind of deal that would have raised issues even under the old regime,” says Katz, “you are probably not looking at an appreciably longer period of time for review — if it is longer at all. Don’t be afraid of it.” IE