Speaking Notes for Sheridan Scott Commissioner of Competition

Competition Bureau

The Canadian Competition Bureau's Approach to Merger Remedies

Trade Practices Workshop
Law Council of Australia, Business Law Section

Paper for Workshop Session 1 on Mergers
Queensland, Australia
August 10 th - 12 th , 2007

(Check against delivery)

I. Introduction

In Canada, the current merger provisions of the Competition Act (“Act”) have been in effect for approximately twenty years. In September 2004, the Competition Bureau (“Bureau”) issued its revised Merger Enforcement Guidelines (MEGs) ¹, which provide general guidance on its analytical approach to merger review. The MEGs serve to enhance the transparency and predictability of Bureau work as they describe, to the extent possible, how the Bureau will conduct its analysis of merger transactions. The MEGs do not constitute a rigid statement of how the analysis will be carried out in a particular situation, as the specifics of the case, as well as the nature of the information and data available, will determine how the Bureau assesses any proposed transaction.

The Bureau has sought merger remedies in over fifty cases. While most of the merger remedies negotiated by the Bureau have been successful, a number have experienced difficulties. In several cases, such difficulties have resulted in the divestiture failing to materialize and the assets ultimately being returned to the merging parties ². As a result of these experiences, the Bureau has progressively fine-tuned both the design and implementation of merger remedies. This paper will outline and discuss some of the areas in which the Bureau has refined its approach to merger remedies, as well as the policies and principles employed when working with competition authorities in other jurisdictions.

Finally, the paper will address a remedies issue of particularly timely concern to the Bureau, relating to the Bureau's ability to complete the appropriate sophisticated antitrust analysis without risk that the parties will close, and thereby the most (and arguably only) effective remedy be compromised. Closely related to the injunctive relief available to the Bureau is the issue of the Bureau's preparedness to enter into hold separate arrangements before an investigation is complete and a remedy irrevocably committed to by the parties.

II. Implementing Merger Remedies: From Consent Orders to Consent Agreements

In 1986, when the current merger provisions of the Act came into force, merger remedies were governed by a formal consent order process whereby, on consent of the Bureau and the merging parties, the Competition Tribunal (“Tribunal”) had the jurisdiction to order any action to eliminate an alleged substantial lessening or prevention of competition ³. As a result of certain difficulties experienced with the Tribunal process on early consent order applications ⁴, the Bureau and the business community quickly developed a preference for post-closing undertakings and, where appropriate, pre-closing restructuring ( i.e., “fix-it-first” solutions) ⁵ to remedy competition issues arising from a merger ⁶. However, this undertakings process was neither transparent nor recognized in the Act, making enforceability a concern. Accordingly, the Bureau reverted to a formal Tribunal consent order process and negotiated post-closing undertakings on an occasional basis ⁷.

In 2002, the law changed to allow for a consent agreement registration process.

Specifically, the Bureau and the merging parties can negotiate a consent agreement on their own ( i.e., absent Tribunal oversight), which they can register with the Tribunal ⁸. Once registered, a consent agreement has the same force and effect, and proceedings may be taken as if the order was an order of the Tribunal. Importantly, consent agreements are considerably more transparent than undertakings. While an undertaking is no more than a private agreement, a registered consent agreement is accompanied by a public version made available on the Tribunal website. In a number of recent cases, the Bureau has also published a technical backgrounder outlining the analysis that gave rise to the remedy.

While the consent agreement registration process has many advantages with respect to implementation, the success of this approach depends on the consent agreement containing terms and conditions that are both effective and enforceable. To this end, the Bureau recently published a Merger Remedies Bulletin ⁹(“Remedies Bulletin”) to provide guidance on the general principles, terms, and conditions that the Bureau applies to the design of merger remedies.

III. Designing Merger Remedies: Principles, Terms, and Conditions ¹⁰

One of the most fundamental principles acknowledged in the Bureau's Remedies Bulletin is that the terms and conditions of merger remedies will be tailored to the particular facts of the case at hand and reflect the Bureau's ongoing experience regarding the efficacy of previous remedies ¹¹. Reflecting the Bureau's past experience, the Remedies Bulletin highlights several important areas where the design, and thus effectiveness, of merger remedies have been fine-tuned. Most notable among these are the provisions dealing with structural versus behavioural remedies; the viability of the assets chosen for divestiture; timely divestiture periods; no minimum price and crown jewel provisions; and the role of the divestiture trustee.

i) Structural vs. Behavioural Remedies¹²

Consistent with international practice, the Bureau has a strong preference for structural merger remedies ¹³( i.e., divestitures) and will seldom accept standalone behavioural remedies. As the anti-competitive effects arising from a merger result from a structural change to the market, structural remedies are the most direct and effective approach by which to remedy such effects. It is difficult to design a standalone behavioural remedy that will adequately replicate the outcomes of a competitive market and, even if such a remedy can be designed in clear and workable terms, it is likely to be less effective and more difficult to enforce than a structural remedy. Rather than providing a permanent solution to a competition problem, standalone behavioural remedies usually impose an ongoing burden on both the Bureau and market participants. Behavioural remedies impose a burden on the Bureau as the costs associated with monitoring the activities of the merged entity are often high and such monitoring requires a range of expertise that the Bureau might not be able to commit. With respect to market participants, standalone behavioural remedies may prevent the merged entity itself, as well as other market participants, from efficiently responding to changing market conditions and may inhibit pro-competitive behaviour. Since it is often difficult to gauge how long it will take for new entry or expansion to be established in the relevant market, it is also difficult to determine the appropriate duration of a standalone behavioural remedy.

Structural remedies are typically more effective than behavioural remedies as their terms are clearer, more certain, less costly to administer, and readily enforceable. Nonetheless, standalone behavioural remedies may be acceptable when they are sufficient to eliminate the substantial lessening or prevention of competition arising from a merger; there is no appropriate structural remedy; they require either no or minimal future monitoring by the Bureau; and they are enforceable by either the Bureau or the Tribunal. The Bureau has seldom applied standalone behavioural remedies in the past, as the circumstances in which such remedies are appropriate arise infrequently.

Note that quasi-structural remedies are a sub-category of structural remedies in that they effect structural change. Quasi-structural remedies are meant to reduce barriers to entry, provide access to necessary infrastructure or key technology, and otherwise facilitate entry or expansion into the relevant market. Examples of quasi-structural remedies, under certain circumstances, include: licensing intellectual property; removing anti-competitive contract terms, such as non-competition clauses and restrictive covenants; granting non-discriminatory access rights to networks, especially when horizontal overlap is coupled with both vertical integration and a risk of foreclosure of inputs; or supporting the removal or reduction of quotas, tariffs, or other impediments imposed by regulatory bodies or industry groups, which may be achieved with the help of the merged entity.

Not inconsistent with the Bureau's preference for structural remedies, the Bureau will sometimes employ a combination of behavioural and structural remedies. Certain behavioural terms, when they supplement or complement a core structural remedy, may be effective, particularly if used during a transition or bridging period until a competitive market structure develops. Behavioural terms, which allow for access to necessary inputs, or otherwise allow a purchaser and/or other industry participant to commence operations effectively and as quickly as possible, are often a desirable addition to a structural remedy.

ii) Viability of the Assets Chosen for Divestiture

With respect to the viability of the assets chosen for divestiture, the Remedies Bulletin makes it clear that, instead of choosing assets from a mixture of those from both merging parties, the Bureau prefers a divestiture of a standalone operating business ¹⁴from one merging party (normally the target company being acquired in the merger) to one buyer ¹⁵. The former is known as a “mix and match” approach, while the latter is called a “clean sweep” approach. A clean sweep approach reduces the uncertainty associated with both asset integration and the viability of the divestiture package and limits the detrimental effects that could arise from the acquiring party obtaining confidential information about the assets to be divested. Owing to the increased likelihood of a successful remedy associated with a clean sweep, this approach is likewise preferred in most other jurisdictions ¹⁶. Where any doubts about the viability of the assets chosen for divestiture remain, the Bureau will often consult directly with the market (“market testing”) and, in certain circumstances, retain an industry expert.

iii) Timely Divestiture Periods

The Bureau typically agrees to provide the vendor with an initial fixed period of time (“initial sale period”) to sell the remedy package at the best price and terms that the vendor can negotiate with potential buyers. While a departure from previous practice, based on both the Bureau's past experience in Canada and the experience of competition authorities in other jurisdictions ¹⁷, the Bureau has determined that three to six months is an appropriate initial sale period in which to complete the divestiture.

Imposing and enforcing timely deadlines to the divestiture process improves the effectiveness of a remedy. For instance, the shorter the divestiture period, the less likely such factors as the deterioration of assets, the loss of customers and/or key personnel, or changing market conditions, will undermine the effectiveness of the divestiture. Furthermore, there is no evidence that a longer initial sale period will attract more buyers. The Bureau may grant a short extension of the initial sale period in exceptional circumstances, which will be determined on a case-by-case basis. The Bureau typically agrees to keep the actual

time allotted for the initial sale period confidential ¹⁸.

If the vendor cannot sell the assets within the initial sale period, a trustee appointed by the Bureau is then given a pre-determined period of time (“trustee period”) in which to complete the divestiture. An appropriate trustee period, which is made public from the outset, is between three and six months ¹⁹. The duration of the trustee period may be extended in exceptional circumstances, as determined by the Bureau on a case-by-case basis.

iv) No Minimum Price and Crown Jewel Provisions

To increase the likelihood that the divestiture will be effected during the trustee period, the Remedies Bulletin clarifies that the trustee's primary obligation is to divest the remedy package to a qualified buyer at no minimum price ²⁰. While the use of no minimum price provisions has been the Bureau's practice for some time, such provisions are now a matter of policy. This is consistent with the approach taken by the Bureau's foreign counterparts, where no minimum price provisions are standard practice ²¹. The existence of a no minimum price provision is normally confidential during the initial sale period but made public at the commencement of the trustee sale period.

Also activated by the trustee period, and providing the Bureau with some confidence that a viable remedy will still be effected, an additional asset package (commonly referred to as a “crown jewel”) may be required upfront as part of the remedy. While crown jewel provisions are meant to provide the vendor with an incentive for timely completion of the initial divestiture package, such provisions are not intended to be punitive. To this end, the assets that comprise the crown jewel will, to the extent possible, relate to the competitive harm ²². While the Bureau determines whether to use crown jewel provisions on a case-by-case basis, their use is becoming more frequent ²³. The existence of a crown jewel provision is normally kept confidential during the initial sale period but made public at the commencement of the trustee sale period.

v) Trustee Provisions

Another important element of a successful merger remedy is the role and function of the divestiture trustee. When the sale of the assets to be divested is not completed in the initial sale period, and in the manner contemplated by the consent agreement, the Bureau will appoint a trustee to divest the assets. The inclusion of trustee provisions provides some assurance that the assets will be divested in a timely and effective manner.

During the trustee period, the trustee has the authority to control the divestiture process, subject to oversight and approval by the Bureau. To this end, the vendor will not normally be included in the trustee divestiture process, including negotiations. Furthermore, the vendor is precluded from contacting prospective purchasers unless otherwise approved by the Bureau. To facilitate the divestiture, the trustee has full and complete access to the personnel, books, records, facilities related to the assets in question and any other information deemed relevant by the trustee to effect the divestiture.

To effect the divestiture, the trustee is required to use commercially reasonable efforts to negotiate the most favourable terms and conditions ²⁴available at that time, with references to all the terms of the consent agreement including the timelines for divestiture, and, if necessary, may sell the assets at no minimum price. The trustee's opinion of what constitutes “most favourable” terms and conditions is subject to approval by the Bureau only and the vendor's right to challenge such terms and conditions of the divestiture is limited to situations of trustee malfeasance, gross negligence, or acts by the trustee in bad faith.

If, at the end of the trustee period, the trustee has submitted a divestiture plan or believes that the divestiture can be accomplished within a short period of time, the trustee period may be extended at the Bureau's discretion. In the event that the assets to be divested have not been divested within the trustee period (including any extensions to this period), the Bureau may apply to the Tribunal to effect the divestiture ²⁵. Depending on the particular circumstances of the case, the Bureau may recommend to the Tribunal that other assets be added, or steps be taken in addition to those required in the divestiture package, to effect the divestiture.

IV. Working With Competition Authorities in Other Jurisdictions

The increasing number of global mergers has enhanced the need for communication, cooperation, and coordination among competition authorities in different jurisdictions ²⁶. To this end, the Bureau routinely communicates informally with its foreign counterparts to assist in generating comprehensive and informed analyses and decisions. The Bureau also relies upon and follows a number of formal state-to-state and agency-to-agency cooperation agreements ²⁷, which facilitate the exchange of information and the progress of investigations ²⁸.

The Bureau generally coordinates with other competition authorities on remedies when a worldwide or multi-jurisdictional merger is likely to have anti-competitive effects in Canada that are similar or related to those that are likely to result in other jurisdictions. Coordination can involve communicating as developments occur within jurisdictions; participating in joint discussions with the merging parties; and fashioning remedies in Canada that are parallel, or complementary, to those of other jurisdictions. The coordination of remedies is of particular importance since it increases the likelihood that remedies will be consistently applied across jurisdictions. The greater the extent to which competition issues identified in Canada are similar to those in other jurisdictions, the greater the likelihood that coordinated remedies will be pursued, and effective.

Such an integrative and cooperative approach has several advantages over an entirely independent review. Sharing perspectives, investigative techniques, and enforcement approaches creates a wider and more diverse pool of information from which to draw, increases the likelihood that the analysis will be consistently applied across jurisdictions, streamlines the review and remedy process to the benefit of the parties and affected agencies, reduces somewhat duplicative workloads, avoids frictions among reviewing jurisdictions, reduces uncertainty for businesses, and can lead to more effective resolutions.

To resolve competition concerns in Canada, the Bureau may take either independent action, or determine that action beyond what is taken by foreign jurisdictions is not required. While enforcement decisions are made on a case-by-case basis, the Bureau is more likely to formalize negotiated remedies within Canada when the matter raises Canada-specific issues; when the Canadian impact is particularly significant; when the assets to be divested reside in Canada; or when it is critical to the enforcement of the terms of the settlement ²⁹. In contrast, the Bureau is more likely to rely on the remedies initiated through formal proceedings by foreign jurisdictions when the assets that are subject to divestiture, and/or the conduct that must be carried out as part of a behavioural remedy are primarily located outside Canada ³⁰. When there are competition issues in Canada and the Bureau relies on foreign remedies, the actions taken by foreign authorities must resolve Bureau concerns.

When coordinating cross-border remedies, one of the Bureau's objectives is to prevent conflicts that may arise when remedies are intended to address competition concerns in different jurisdictions. To this end, the Bureau will listen to the views of foreign agencies regarding particular remedies and, provided the competition concerns in Canada are adequately addressed, will make efforts to align itself with its counterparts. For example, a cross-border remedy may require the Bureau to coordinate with foreign counterparts to ensure that a single trustee or monitor is appointed to oversee the divestiture of worldwide assets. Having a common trustee or monitor who understands the objectives of the remedies for each jurisdiction can reduce the potential for conflict when determining acceptable buyers for the divested assets.

Overall, the Bureau's approach to the coordination of remedies is pragmatic. That is, the approach is integrative and cooperative, not properly characterized as “deferential.” This approach achieves a balance between streamlining the resource-intensive enforcement process and ensuring appropriate resolutions of multi-jurisdictional cases.

V. Going Forward on Remedy Design and Implementation

As stated in the recently published Remedies Bulletin, “the Bureau is committed to applying a principled yet flexible and evolving approach to designing and implementing merger remedies” ³¹. Accordingly, the Bureau will continue to fine-tune both the design and implementation of merger remedies when necessary. To this end, a Merger Remedies Study is currently underway, with the objective of critically analyzing the effectiveness of past remedies. From this study, the Bureau expects to gain valuable insight into the processes, principles, terms, and conditions that can be improved upon.

The Bureau's commitment to improving the effectiveness of merger remedies necessarily extends to the relationships with competition authorities in other jurisdictions. The Bureau is committed to maintaining and improving the level of communication, cooperation, and coordination with foreign counterparts. In so doing, the Bureau can maintain and build upon the inter-agency trust and confidence that is necessary to facilitate information exchanges, investigations and the coordination of effective multi-jurisdictional remedies. The Bureau will continue to do so bilaterally, as well as through the International Competition Network (ICN).

In addition to critically assessing and improving upon the application of merger

remedies, the Bureau is committed to its goal of transparency. By being as transparent as

possible, the Bureau aims to improve the predictability and accountability of its decision-making. To this end, the Bureau will continue to publish public versions of registered consent agreements. Where possible, the Bureau will also issue technical backgrounders, which discuss the analysis that gave rise to a merger remedy ³². As a new practice, the Bureau will, where possible, make full disclosure of the terms and conditions of those consent agreements associated with completed divestitures ³³.

VI. Interim Injunctions and Hold-Separate Provisions

A final issue squarely relevant to the effectiveness of our remedies relates to the Bureau's powers to secure interim injunctive relief pending a final determination on the competitive impact of a merger and whether a remedy is necessary.

i) Interim Injunctions

There are two interim injunction provisions in the Act, sections 100 and 104. Section 100 interim orders are of very brief duration (maximum of 30 days, plus one possible 30 day extension). Such an order is only available where the Commissioner of Competition (“Commissioner”) has not yet filed an application challenging the transaction; the purpose of a section 100 order is to allow the Commissioner time to complete her assessment as to whether a challenge is warranted. In contrast, interim orders under section 104 are only available after the Commissioner has filed an application challenging the merger. The availability of an order under section 104 depends on the Commissioner satisfying the regular preliminary injunction test; in a typical case, if granted, the injunction lasts until the Tribunal proceedings are completed.

ii) Section 100 Interim Orders

If the Commissioner is of the opinion that more time is needed to complete an inquiry into a proposed merger, she may apply to the Tribunal under section 100 of the Act for an interim order forbidding any person named in the application from doing any act or thing directed toward the completion or implementation of the proposed merger; in particular, among other relief, the Tribunal may forbid the closing of the merger for a limited period of time (30 days).

Before 1999, section 100 included, as a condition for an interim order, a finding by the Tribunal that the merger was "reasonably likely to prevent or lessen competition substantially". The Bureau had suggested, as early as 1995, a change in the wording in order to give it more time to complete its investigation before deciding to bring an application challenging the merger, or to allow the merger. A Consultative Panel appointed by then Minister of Industry, the Honourable John Manley, noted in its concluding report that “there is no effective mechanism under the Act to prevent the closing of a transaction unless the Bureau has decided to challenge it before the Competition Tribunal”, and recommended changing the wording of section 100 to remove the condition of a reasonable likelihood of substantial lessening or prevention or competition ³⁴.

Subsequently, the timeline for the extension was extended from 21 to 30 days, with another possible 30 day extension “because of circumstances beyond the control of the Commissioner” ³⁵.

Despite the change in wording, and the apparent will of Parliament to endorse the

recommendation of the Consultative Panel and to facilitate obtaining an extension of time to complete an inquiry, the provision retained the requirement for the Tribunal to find that its ability to remedy the effect of the merger on competition would be “substantially” impaired absent the interim order (the “impairment issue”). Specifically, under the amended section 100 provisions, to issue an order forbidding any act directed to the completion of a merger, the Tribunal needs to consider two criteria: 1) whether an inquiry is ongoing and the Commissioner needs more time to complete it, and 2) whether, in the absence of an interim order, the Tribunal's ability to remedy the effect of the merger on competition would be substantially impaired because an action by a party to the merger would be difficult to reverse.

iii) The Labatt-Lakeport case ³⁶

The Labatt Brewing Company Limited (“Labatt”) - Lakeport Brewing Income Fund (“Lakeport Fund”) case was the first section 100 application under the amended section 100 provision. On February 1, 2007, Labatt made an offer to buy all the outstanding units of Lakeport. On February 15, 2007, the Commissioner authorized an inquiry into the proposed acquisition of Lakeport by Labatt. The Commissioner filed an application for an order under section 100 of the Act, on March 22, 2007, to forbid the parties from closing the merger for 30 days while the Bureau continued its review. On March 28, the Tribunal denied the Bureau's request for an interim order, rejecting the argument that the Bureau's ability to remedy potential competition issues will be substantially impaired because it would be difficult to reverse the merger ³⁷. On April 11, 2007, the Bureau announced its decision to appeal the Tribunal's refusal to grant a 30 day interim order, and filed its factum on June 29, 2007. The outcome of the appeal will not impact on the Labatt-Lakeport merger. However, the Bureau continues its review of the Labatt-Lakeport merger. If the Commissioner ultimately determines that there is a likely substantial lessening or prevention of competition, she can challenge the merger before the Tribunal.

In the Bureau's appeal of the Tribunal's decision, the Bureau has argued that the very purpose of the section 100 interim injunction is to permit the Commissioner to complete the competitive impact assessment of the merger. Absent the Bureau acting in a patently unreasonable manner or in bad faith, the Bureau's view is that the interim injunction should be issued where any of the remedies available to the Tribunal under section 92 of the Act (e.g., in respect of a proposed merger, that all or part of the merger not proceed; and in respect of a completed merger, that the merger be dissolved or that assets or shares be disposed of in such manner as the Tribunal directs) is substantially impaired. In the Labatt-Lakeport case, not issuing the injunction eliminated the remedy of ordering all or part of the merger not to proceed, and eliminated an aggressive competitor from the marketplace.

iv) Section 104 Interim Orders

Unlike section 100 interim orders, section 104 interim orders ³⁸ may only be sought once the Commissioner has challenged the merger under section 92 of the Act; in the case of a proposed merger, that all or part of the proposed merger not proceed; and, in respect of a completed merger, that the merger be dissolved or that assets or shares be disposed of in such manner as the Tribunal directs.

Section 104 interim orders are issued by the Tribunal having regard to ordinary principles of injunctive relief (e.g., serious issue to be tried; irreparable harm; and balance of convenience favours granting the order). This is clearly a higher threshold test than the test Parliament prescribed for a section 100 interim order.

When issuing a section 104 interim order, the Tribunal also has the advantage of knowing the competition issues at play (based on the Commissioner's Application as well as any response from the merging parties). Consistent with that, the available terms of a section 104 order are broader, and the Tribunal has more discretion in fashioning the specifics of a section 104 interim order than it does under section 100; namely, under section 104 the Tribunal may issue such order as it considers appropriate on such terms, and for such period of time, as the Tribunal considers necessary to meet the circumstances of the case. By way of example, an order under section 104 could include a hold separate order should the Tribunal determine that is appropriate in the circumstances; it is clear that the Tribunal has no such jurisdiction in the context of a section 100 application.

v) Hold Separate Provisions

Hold separate provisions can, in appropriate circumstances, go some distance in preserving the Bureau's ability to obtain an effective remedy pending implementation of the remedy. As a general matter, while the Bureau routinely agrees to hold separate arrangements in the context of consent agreements, where the parties have committed to the divestitures deemed necessary by the Bureau, the Bureau will not normally agree to hold separate undertakings pending completion of a merger investigation. In particular, if the Bureau has identified competition issues that require remedial action, but has not reached agreement with the merging parties regarding appropriate remedies, the Bureau will not normally agree to hold separate provisions pending completion of negotiations.

As a general matter and particularly aggravated in the context of an ongoing investigation where the parties have not irrevocably committed to the necessary divestiture(s), hold separate provisions can be fraught with difficulties. Among other factors, a motivated owner and operator of the business that is trying to ensure the marketability of the enterprise is generally no longer in the picture, meaning that the relative competitive position of the entity may suffer in the interim period, and great uncertainty for key personnel arises. Key personnel may leave the business to work elsewhere because of this uncertainty, further compromising the competitive viability of the business. Remaining key personnel may anticipate in their decisions what actions are most beneficial for the merged entity and may seek to curry favour with their new masters and thereby not maintain an aggressive competitive presence in the marketplace.

At a minimum, hold separate provisions must include requirements that protect the independent operating viability of the held separate business. These include not interfering with operational management decisions including production, purchasing and selling decisions, relationships with customers and suppliers, not changing terms and conditions of employment relationships and retaining key personnel, and providing sufficient financial resources (bank guarantees, loans, etc.) for the held separate business to operate on the same terms and conditions it operated prior to the merger. Further, it is critical that proprietary and confidential business information is protected and not shared between the merging parties.

The Bureau also requires that the merged entity grant Bureau officials the right to enter onto the premises and inspect any corporate records in the held separate business on reasonable notice as part of any hold separate arrangement. Further, the Bureau will likely require that the merging parties pay for a hold separate manager of the business, and the monitor of the hold separate agreement, who is responsible for reporting back to the Bureau regularly to verify that the businesses are being operated according to the hold separate commitments.

With experience, the Bureau continues to refine its approach to the specifics of effective hold separate arrangements. Accordingly, while the guiding principles outlined in the Remedies Bulletin remain unchanged, the specifics as to what is required in effective implementation (in the context of all remedies, including interim hold separate arrangements pending implementation) continue to evolve.

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¹ Merger Enforcement Guidelines , http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/01245.html.

² For example, in Abitibi/Donahue (2001), the divestiture of a newsprint mill was not completed. In Air

Canada/Canadian Airlines (1999), the divestiture of the regional airline of Canadian was not completed. In Chapters/Indigo (2001), the divestiture of various bookstores was not completed.

³ The standard for achieving an acceptable remedy in either a contested or consent proceeding is set out by the Supreme Court of Canada in Canada (Director of Investigation and Research) v. Southam Inc . In this case, the Court concluded that “the appropriate remedy for a substantial lessening of competition is to restore competition to the point at which it can no longer be said to be substantially less than it was before the merger.” See: Canada (Director of Investigation & Research, Competition Act) v. Southam Inc., [1997] 1 S.C.R. 748 at 85.

⁴ For example, the Tribunal rejected the first consent order application submitted by the Director and the merging parties in Canada (Director of Investigation and Research) v. Palm Dairies Ltd. (1986), 12 C.P.R. (3d) 540 (Comp. Trib.). The case of Canada (Director of Investigation and Research) v. Imperial Oil Ltd. (1990), 31 C.P.R. (3d) 277 (Comp. Trib.) required an extensive hearing and several attempts to design a draft order that the Tribunal found acceptable.

⁵ A “fix-it-first” solution occurs when: the vendor is able to divest the relevant assets to an approved buyer prior to, or simultaneously with, the closing of the merger; or there is a purchase and sale agreement in place, which identifies an approved buyer for a specific set of assets, and the divestiture is executed simultaneously with the merger. The Bureau strongly prefers fix-it-first solutions, as such solutions: alleviate concerns about whether the remedy package will be marketable; ensure that the assets in question do not deteriorate; and restore competition in the relevant markets as expeditiously as possible.

⁶ This shift to preferring undertakings came about in 1991.

⁷ While there were no consent orders between 1991 and 1996 (due to the use of undertakings), the Bureau went back to the consent order process in 1997.

⁸ See section 105 of the Competition Act : “105. (1) The Commissioner and a person in respect of whom the Commissioner has applied or may apply for an order under this Part, other than an interim order under section 103.3 or a temporary order under section 104.1, may sign a consent agreement; (2) The consent agreement shall be based on terms that could be the subject of an order of the Tribunal against that person; (3) The consent agreement may be filed with the Tribunal for immediate registration; (4) Upon registration of the consent agreement, the proceedings, if any, are terminated, and the consent agreement has the same force and effect, and proceedings may be taken, as if it were an order of the Tribunal.” Note that, once a consent agreement is registered, there is a limited right of intervention. Section 106(2) of the Act states: “A person directly affected by a consent agreement, other than a party to that agreement, may apply to the Tribunal within 60 days after the registration of the agreement to have one or more of its terms rescinded or varied. The Tribunal may grant the application if it finds that the person has established that the terms could not be the subject of an order of the Tribunal.”

⁹ Competition Bureau, Information Bulletin on Merger Remedies in Canada (Government of Canada: Ottawa, 2006) Online: <http://www.competitionbureau.gc.ca/PDFs/Mergers_Remedies_PDF_EN1.pdf> [Hereinafter “ Remedies Bulletin ”].

¹⁰ Note that the principles, terms, and conditions outlined in this section are identical to those found in the recently published Remedies Bulletin.

¹¹ Remedies Bulletin , at Preface.

¹² In general, a structural remedy addresses the anti-competitive effects arising from a merger by directly intervening in the competitive structure of the market. Divestitures are the most common form of structural remedy. In some cases, a divestiture (or licensing) of intellectual property, so long as no ongoing monitoring and enforcement is required, may also be considered a structural remedy. A behavioural remedy, on the other hand, addresses the anticompetitive harms stemming from a merger by modifying or constraining the behaviour of the merging firms. Behavioural remedies are normally ongoing and frequently require a substantial amount of monitoring and enforcement.

¹³ Competition authorities ( e.g., in particular, the U.S. DOJ, the UK, and the EC) and courts generally prefer structural remedies ( i.e., divestitures) to standalone behavioural remedies. In Canada (Commissioner of Competition) v. Canadian Waste Services Holdings Inc. (October 3, 2001), CT- 2000/002, the Tribunal stated at 110, “once there has been a finding that a merger is likely to substantially prevent or lessen competition, a remedy that permanently constrains that market power should be preferred over behavioural remedies that last over a limited period of time and require continuous monitoring of performance. This is not to say that, in cases where both the respondents and the Commissioner consent, behavioural remedies cannot be effective. However, the Tribunal notes that enforcing the remedy proposed by the respondents would have the potential of being cumbersome and time-consuming and that monitoring such order would involve the Commissioner in commercial conduct more than would the administration of the divestiture order.” Also see paragraph 111 where the Tribunal notes that divestitures are described by the U.S. Supreme Court as “simple, relatively easy to administer, and sure.”

¹⁴ Ideally, such a standalone operating business would be one that has proven to be a competitive force in the marketplace.

¹⁵ While the latter approach ( i.e., “clean sweep”) is ideal, the Bureau has routinely utilized the former approach ( i.e., “mix and match”) in the past.

¹⁶ For example, the U.S. DOJ, U.S. FTC, UK, and EC all prefer the divestiture of an existing business entity with a demonstrated ability to compete in the relevant market.

¹⁷ The U.S. FTC gives the vendor six months after the consent agreement is signed, while the U.S. DOJ gives two to three months for the vendor to locate a purchaser on its own. The UK and EC also prefer relatively short initial sale periods.

¹⁸ The actual time period allotted for the initial sale period will normally be confidential so as to avoid giving buyers inappropriate leverage in negotiations.

¹⁹ Three to six months for the trustee period has been the Bureau's practice for some time now.

²⁰ Note that the term “no minimum price” also includes those uncommon situations whereby the vendor will have to compensate ( i.e., make payment to) the buyer. For example, in cases where the asset(s) to be divested cannot be separated from certain liabilities, the vendor will have to compensate the buyer for any costs associated with such liabilities. Similarly, in cases where the costs associated with such liabilities are uncertain, the vendor may need to indemnify the buyer.

²¹ In particular, the U.S. DOJ, UK, and EC regularly use no minimum price provisions.

²² In other words, a crown jewel is essentially a mechanism for correcting an unsuccessful remedy by making the remedy more viable. When determining the contents of a crown jewel, the Southam standard will apply: “the appropriate remedy for a substantial lessening of competition is to restore competition to the point at which it can no longer be said to be substantially less than it was before the merger… [however,] If the choice is between a remedy that goes farther than is strictly necessary to restore competition to an acceptable level and a remedy that does not go far enough even to reach the acceptable level, then surely the former option must be preferred. At the very least, a remedy must be effective. If the least intrusive of the possible effective remedies overshoots the mark, that is perhaps unfortunate, but from a legal point of view, such a remedy is not defective.” See: Canada (Director of Investigation & Research, Competition Act) v. Southam Inc., [1997] 1 S.C.R. 748 at 85 and 89.

²³ Note that, while foreign jurisdictions are mixed on the issue of crown jewel provisions, most seem to be open to the idea, depending on the circumstances ( e.g., the U.S. FTC, UK and the EC).

²⁴ “Terms and conditions” includes, among other things, the sale price of the assets to be divested.

In certain circumstances, it may be necessary for the vendor to provide, or to add to, transitional means of support to the purchaser ( e.g., supply arrangements and other forms of technical assistance) so that the assets to be divested remain viable. Such transitional means of support, when deemed reasonable and necessary, will be in the discretion of the trustee to negotiate and conclude once the trustee period begins. Such discretion by the trustee is subject to the oversight and approval of the Bureau only.

²⁵ “The divestiture” implies both the initial divestiture package, as well as any subsequent crown jewel assets.

²⁶ For a more in depth discussion regarding the Bureau's approach to working with competition authorities in other jurisdictions, see: Sheridan Scott, Canadian Perspectives on the Role of Comity in Competition Law Enforcement in a Globalized World To Defer or Not To Defer? Is that the question? Presented to the American Bar Association's Section of Antitrust Law, Washington, DC, 2006 Spring Meeting, Ottawa, Competition Bureau, 2006: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02049.html.

See also: Sheridan Scott, ‘C' is for Competition: How We Get Things Done in a Globalized Business World , Presented to the Insight Conference, Montreal, Quebec, June 17, 2005, Ottawa, Competition Bureau, 2005: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/01867.html.

²⁷ The Bureau's current cooperation agreements can be found at:
http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/h_00128.html.

²⁸ When the Bureau requires confidential information from its foreign counterparts, such cooperation is facilitated by the provision of waivers by the merging and/or affected third parties to the antitrust authorities in foreign jurisdictions. Such waivers allow for the exchange of confidential information from foreign competition agencies to the Bureau, which would otherwise be prohibited by law in the respective foreign jurisdictions. It should be noted that, when foreign competition agencies require confidential information from the Bureau, such cooperation is subject to the confidentiality provisions of the Act. The confidentiality provisions are found in section 29 of the Act, which permits the Bureau to disclose information, where deemed appropriate, for the purposes of the administration or enforcement of the Act.

²⁹ This could arise in circumstances where issues with a multi-jurisdictional merger are the same in Canada as a foreign jurisdiction. In one case, the foreign jurisdiction may conclude that, owing to costs or the size of markets, it should order the sale of a business, including intellectual property rights, on a worldwide basis. In a different case, the foreign authority might conclude that, owing to costs or scale of business, it would be sufficient to simply order the sale of the business, including intellectual property rights, within its own jurisdiction. In the latter case, Canada would need its own Canada-specific remedy.

³⁰ Notably, the Act provides for a three-year period during which the Bureau can challenge the transaction. In the event that parties do not carry through with remedies that apply to Canada, but are enforceable only in foreign jurisdictions within that time frame, the Bureau may challenge the transaction at the Tribunal.

³¹ Information Bulletin on Merger Remedies in Canada , at Preface.

³² Technical Backgrounder Policy Statement for the Publication of Technical Backgrounders http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/01301.html

³³ Information Bulletin on Merger Remedies in Canada , at para 70.

³⁴ Report of the Consultative Panel presented to the Director of Research and Investigation on March 6, 1996.

³⁵ An application under section 100 must now always be on notice to the merging parties, whereas before the Tribunal could grant leave for an ex parte application.

³⁶ Press Release, Competition Bureau Appeals Decision in Labatt-Lakeport Merger, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02297.html.

³⁷ Competition Tribunal, The Commissioner of Competition v. Labatt Brewing Co. Ltd. et al., 2007 Comp.

Trib. 9, File No.: CT-2007-003,Registry Document No.: 0032

http://www.ct-tc.gc.ca/CMFiles/CT-2007-003_0032_38LHW-5232007-1494.pdf?windowSize=popup .

³⁸ Competition Act , s.104