Speaking Notes For Melanie Aitken, Senior Deputy Commissioner of Competition

Panel Remarks on Recent Merger Enforcement Developments

ABA Post-Annual Meeting
Whistler, BC
August 16, 2007

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While there are a number of topics that would be suitable for this morning’s panel, I anticipate that, if there is one Canadian merger development you have heard about in the last year, it was our unsuccessful attempt to prevent Labatt from closing its acquisition of a “deep discount” brewery in Ontario, pending a short period of time (30 days) for us to complete our assessment. As to the merits of the matter, suffice it to say that, in light of the significant market share enjoyed by Molson and Labatt in all segments of the beer industry in Ontario, we were, and indeed remain, concerned about the competitive effects of this acquisition.

Of course, the specific beer merger, while concerning an industry we all care deeply about, is not of particular cross-border significance. What may be of interest is some consideration of what that case illuminated as to how our merger review process is designed, and how that may have relevance to U.S. players and their counsel.

The statutory rule in Canada is that parties who are required to pre-notify the Bureau are generally entitled to close forty-two days thereafter; accordingly, there is no question that Labatt was fully entitled to close when it did. The only way the Commissioner can prohibit parties from closing is to bring a successful injunction application to the Competition Tribunal; at most, the Tribunal could provide the Bureau with an additional 60 days to complete the assessment as to whether the transaction is in fact one of the very few that ultimately poses a competition concern requiring a remedy. If the Commissioner ultimately determines that a challenge is necessary, to further delay closing pending that challenge, she must satisfy the Tribunal on the regular injunction standard as to a reasonable case, irreparable harm and that the balance of convenience is in her favour.

While the interim injunction power has been resorted to only rarely (once, in Superior Propane, in 1999), I believe it is fair to say that parties, and the Bureau alike, considered that the threshold for this very short interim injunction was low, and that such orders would readily be granted; this was considered consistent with what Parliamentarians had indicated was the intent when the provision was drafted, the practical reality as to how long a responsible investigation takes and, finally, what the Judge in Superior Propane (now on the Supreme Court of Canada) had said about how the provision was designed to protect the full panoply of remedies pending the short time period in question.

A different standard was articulated in the Tribunal’s decision in Labatt. The reading some are giving to the decision is that the Tribunal authorizes the eggs to be scrambled pending a review by the Bureau, unless the Commissioner can prove that no other remedy could possibly cure the anticipated anti-competitive harm. In other words, the Commissioner must demonstrate that the particular remedy of prohibiting closing will be necessary to cure any potential competitive harm, even though any competitive harm (at this point only questioned), has not been determined; to make that determination is the rationale for seeking the extra 30 days. As such, the Tribunal’s interpretation suggests a departure from the widely-held theoretical view that, in most cases, prohibiting closing is the remedy that must be preserved.

In light of what we consider to be the fundamental nature of the error of the Tribunal’s decision, as well as the potential long term significance, the Commissioner has appealed the Labatt decision to the Federal Court of Appeal, and a hearing is anticipated early next year.

While the Labatt decision is important in Canada owing to our particular legislative framework, it does strike me that there are two ways in which the decision might hold some interest for this audience.

The first arises in the context of your clients, who, in cross-border transactions, must comply with two regimes. As you know, our review mechanisms are substantively very similar; however, when it comes to the practical application of the process, the associated time lines and the measure of party control, it could be said that the Canadian process is somewhat “out of step” with that in the U.S., in at least two ways.

For all practical purposes, as I alluded to earlier and as this audience would readily appreciate, it is not often possible, in just 42 days, to complete the sort of sophisticated analysis of a complex transaction that is expected of a mature antitrust jurisdiction. Indeed, meeting this tight time frame is particularly challenging in Canada as the Commissioner must secure prior judicial authorization to collect information and/or testimony from the parties (beyond what is included in the formal filing) and other market participants. This disjunction may or may not matter to particular parties in a specific complex cross-border transaction, since in such complex cases, parties may already be subject to the longer U.S. time frame; however, in certain circumstances, the short time period could inhibit the Bureau’s ability to perform the necessary analysis, potentially undermining the credibility of the whole process, and risk conflicting positions. We certainly don’t want systemic incentives to retreat to crude indicators such as bald market shares. Moreover, in cases where the Canadian waiting period is the only one activated, it could allow a transaction to close that raises serious issues in both jurisdictions. From a market participant’s perspective, it is a merging party one day, a potential complainant customer or competitor the next; if the process does compromise sufficiently robust reviews, there is a risk that this will not be good for business, or the long term competitiveness and efficiency of Canadian companies or the Canadian economy.

Another aspect to the procedural disjunction is perhaps more immediately confounding to U.S. parties and counsel. In Canada, while the Commissioner is sensitive to parties’ imperative to get an answer as quickly as possible, and, of course, discharges her mandate as expeditiously as possible, there is actually no entitlement for parties to insist on an “answer”. Contrast that to the near certainty of the U.S. model. While, admittedly, second requests can be burdensome, there is an important measure of control in the hands of the parties. Specifically, the timing of second request compliance and the resources required to effect it, are in the parties’ control, as the Agencies have only one shot at a second request. Once the second request is complied with, the parties can, of course, for all practical purposes, close with genuine comfort that, if no injunction is sought within thirty days, they are in the clear. Since, by definition, the Agency has collected the information required, if it then allows the clock to run, one can reasonably infer that there is no present intention to consider a challenge; I understand that they never have challenged in such circumstances. That is not the case in Canada. The 42-day clock runs from mere filing, not compliance with informational requests or demands. While parties in Canada are then immediately entitled to close, it is significant that running out that 42-day clock does not carry any comfort that the Commissioner won’t subsequently challenge, potentially extending parties’ uncertainty for some unspecified period of time.

The second way in which I suggest this decision might have some resonance in the U.S. is as follows.

The Canadian Tribunal’s interpretation of our interim injunctive power may not be inconsistent with a trend some have remarked upon. By that, I refer to suggestions of a philosophical shift from an environment in which, while not governed by presumptions, one found some broad acceptance of the important role of antitrust to a vibrant, competitive and productive economy. That is contrasted with the perspective shared by some that antitrust enforcement may simply interfere with merger activity, with such merger activity being considered as unambiguously positive. In that context, some may point to the fact that the Bureau may not complete its review of a highly complex matter in 42 days (some portion of which would have been lost to litigation distraction), and draw the conclusion that we don’t understand how important it is to “close” a transaction in today’s globalized and rapidly changing marketplace, rather than recognize the informational needs to conducting a responsible analysis. While one can readily understand why a merging party might press that position in the heat of trying to close, there may be some legitimate concern about a raising of the bar against antitrust enforcement to new levels, by elevating the thresholds and dispensing with long-accepted views as to what remedies have the best prospect of protecting and promoting competition--at the same time that merger review is becoming ever more technically and economically challenging. Competitive markets drive efficient players and a productive and efficient economy; effective merger review is critical to maintaining and promoting such markets.

To return briefly to the Canadian landscape, as mentioned, the Labatt decision is on appeal and we hope for a decision next spring. In the meantime, while I remain concerned, our experience suggests that we won’t necessarily see a radical shift in how parties and their counsel generally deal with the Bureau. The reality remains that most parties prefer regulatory certainty, certainty flowing from properly considered and final reviews; that, in cross-border deals, there will be no advantage to pushing an unrealistic closing just in Canada; and, that parties who consider the medium to long term interest in having mechanisms to protect against material and/or enduring harm to competitive markets don’t want to marginalize Canadian merger review by compromising its credibility. That said, there is an ability for parties to manage the process, looking to the Tribunal decision in Labatt, to effectively deny what can be the only effective remedy in those few cases raising real anti-competitive issues. And, further aggravating the concern, they can do so in cases that could be particularly harmful to Canadians, owing to their purely domestic nature (in the sense that they don’t raise U.S. interests, where longer time lines would effect some timing discipline on aggressive closings) and, depending on the facts, may allow a purchaser (foreign or not) to close a purchase of Canadian assets, while a foreign jurisdiction’s approval of a rival Canadian bidder’s deal remains pending.

Time will tell, but it is interesting to note that some have expressed an interest in exploring greater convergence on these process issues. Left unaddressed, there may be a risk of the domestic harm alluded to above, a skewing of the competitive market for Canadian assets, and an impact on our convergence efforts (in the sense of coherence and coordination, in particular), notwithstanding our otherwise very complementary regimes.