Among all the goodies that clutter the new federal budget bill, there’s a dark surprise that’s easily missed — and it could turn thousands of small-business owners into criminals overnight.
The culprit is an amendment to the Competition Act that’s intended to give the Competition Bureau more clout in combatting anti-competitive behaviour in the marketplace. Under the current act, an agreement between competitors is illegal only if it results in “undue lessening of competition.” But the amended act, which comes into force on March 12, will prohibit most instances of collusion between competitors, regardless of whether the agreement gives any of the colluding parties the ability to influence the market to their benefit — and even if the pact is informal and no one takes steps to implement it.
“It will make it easier for [the Competition Bureau] to gain convictions,” says Michael Osborne, a specialist in competition law at Toronto law firm Affleck Greene McMurtry LLP. Offending executives will face up to 14 years in prison; their companies, up to $25 million in fines. The revised act will also enable civil suits against the parties to an agreement.
That’s bad news for businesses that engage in the generally benign practices to be rendered illegal by the revised law, such as residential builders that informally allocate subdivisions between them or manufacturers that divvy up product lines in order to lengthen their production runs. “The broad scope of the new offence¦ risks criminalizing even some forms of cooperation between small businesses that clearly cannot have any impact on the market,” says Andrew Roman, the Toronto-based chair of the competition law group at Miller Thomson LLP.
But Dan Kelly, senior vice-president of legislative affairs for the Canadian Federation of Independent Business, believes that the revisions will, on the whole, benefit small businesses, which “often suffer from large companies engaging in anti-competitive behaviour. These changes will be positive if they protect competition.” He also expects the limited resources of the Competition Bureau to restrict it to pursuing large offenders.
And there are important exceptions to the new law. Price-fixing or market allocation that is part of a larger pro-competitive agreement will be legal. Osborne cites the example of two companies that contribute patents to a joint venture and then fix the price at which to sell the resulting product; by introducing a new product to the marketplace, such an agreement would increase competition. “You’re unlikely to be caught out by the new provisions if you do a strategic alliance or a joint venture right,” says Osborne.
He advises companies that have or are contemplating such arrangements to “run, not walk” to a competition lawyer for advice. On a budget? The Competition Bureau itself is prepared to offer a free legal opinion to companies that want to clarify where they stand. Of course, if they’re on the wrong side of the law, they’ll be alerting the federal watchdogs to that very fact.