Counterfactual host Kate McNeece interviews Beth Riley and Sultana Bennett of the Section’s Corporate Counsel & Compliance Committee for advice on how businesses can identify and mitigate competition risk.
In this episode of the Counterfactual Podcast, we hear from Beth Riley of McMillan LLP and Sultana Bennett of RBC for the second installment of our competition law compliance series. In this episode, we focus on risks: how to identify and assess the quantum of risk and how to mitigate risk while achieving business objectives. Our guests also review some hypothetical risk situations to provide additional practical advice.
The first installment of the Competition Law Compliance Series can be found at: https://counterfactual.simplecast.com/episodes/compliance-compass-guiding-your-business-through-canadas-competition-laws.
00:29
Hi everyone, and welcome to Counterfactual, the official podcast of the CBA Competition Law and Foreign Investment Review section. I'm Kate McNeece, a competition lawyer at Goodmans, and I'm very pleased to bring you a second installment of our Competition Law Compliance Series. On the first installment, Compliance Compass, Guiding Your Business Through Canada's Competition Laws, we reviewed the framework of the Competition Act and how recent amendments may affect business decision making.
If you missed it, you can find that episode from April 2025 on the Counterfactual website or wherever you get your podcasts. Today, we're doing a deeper dive into risk identification and management when it comes to competition compliance issues.
I'm very pleased to be joined by Beth Riley, a partner in the Competition and Foreign Investment Group at Mcmillan LLP, and Sultana Bennett, Managing Counsel at Royal Bank of Canada. And, speaking of risk management, before we jump in, a brief disclaimer that we are all participating in this discussion in our personal capacities and the views expressed herein are our own.
So Beth, Sultana, thank so much for joining us here today.
Beth Riley
Nice to be here. Nice to see you.
01:33
Kate McNeece
So to begin, let's ask, what is risk management?
Beth Riley
That's a good question. Risk management is essentially understanding, analyzing and addressing risk through a management system. And that includes a framework, process and practices, all with the goal of enabling a corporation to achieve those objectives. What I think is key is that that sounds like a lot of words. It sounds highly complex and quite conceptual. It doesn't need to be complex. It doesn't have to be a one hundred page compliance program, but what it does need to do is address the legal framework and the risks of the business.
Sultana Bennett
Yeah, I'd agree with that. i like the emphasis on understanding and analyzing because at the end of the day, all of us need to be able to respond to change and manage, not eliminate, risk. This means thinking strategically about how to manage increasing volatility, uncertainty, complexity, and ambiguity. So there are definitely legal issues here, often risk and fact issues as well.
Kate McNeece
So I think a really great thing about this episode of our podcast is we've got two different perspectives on the line. Beth is an outside counsel and Sultana, you're an in-house counsel. So I look forward to hearing the different perspectives on risk management that come from sort of both of your slightly different hats. and so Beth, maybe starting with you, what's the impact of failing to comply with a regulatory framework?
Beth Riley
So to begin, we all have to recognize and we're going to presume that businesses want to comply with the law. They don't want to breach the law. But what we have to recognize is failing to identify risks and manage them leads to potential noncompliance with the regulatory framework.
That sounds vague, but what it does mean is it's going to affect your reputation, whether it's with your suppliers, with your customers, with other stakeholders, with your government interaction entities. Some failures, for example, would prevent you from even being able to make bids on corporate contracts or government contracts going forward.
There also are the regulatory sanction and criminal penalties. The Competition Act amendments in the past two few years have increased the penalties significantly and including providing administrative monetary penalties for non-criminal matters up to $10 million dollars on a first ascents or in some cases up to 3% of global revenues.
There are elements of immunity. You will not be able to obtain immunity necessarily if you are not aware of the regulatory framework in which you're acting in. You should also assume that um that there will be private actions that are taking place. The amendments to the Competition Act in recent years have allowed private parties to take private action and seek damages against the Bureau or against the non-compliant companies.
When there are cases, especially criminal cases like conspiracy, You should assume also that there'll be broad class actions that will be triggered as a result of those conspiracy complaints. You've basically laid out a roadmap for a complaint for people who've been harmed by the conspiracy.
All of that leads to the fact that you're dedicating legal resources, you're dedicating time and your business people when in fact all the purposes that that, or the purposes that it's supposed to be operating the business. So noncompliance has significant impact and takes away from actually operating the business.
04:50
Kate McNeece
I think that's a great overview. So, you know, today we're looking at compliance with the Competition Act from a business perspective um and how to mitigate risk. So I think our first step of risk identification, if we kind of step through in an organized manner, would be to recognize or identify the risks that you're facing before we get to the actual behavior of the company. So, we've referred our listeners to our previous episode, which goes a bit more in depth into what the Competition Act says. But Beth, maybe you can start us off with kind of a one-liner for anyone who hasn't got the time to go back and listen to this episode before jumping in.
Beth Riley
Well, the purpose of the, when you're thinking of the Competition Act, think of the purpose of the Competition Act. It is designed to maintain and encourage competition in Canada. It's not designed to regulate markets. It's not designed to regulate competition. but it's trying to encourage that level playing field for competitive for businesses to be able to compete.
The Competition Act includes three basic categories, criminal matters such as conspiracy, civilly reviewable matters, which would include deceptive marketing and abuse of dominant position or anti-competitive agreements, and also merger review.
Kate McNeece
I mean, that all seems pretty straightforward to me. Sultana, is that right from a business perspective?
Sultana Bennett
I mean, certainly there are some clear cut categories, like, for example, relating to criminal conduct, such as price, rate, taxing, where all of us know that those things are wrong and we're not going to do them. That is not usually too hard to do.
But for the most part, the law does not set out a code of lawful behavior. And that can actually be very different from how companies are used to understanding and solving for legal risks.
So for example, in the context of mergers, um there can be lots of conduct that is not prohibited and in fact could be pro-competitive, but in certain circumstances, the conduct could be harmful to competition and then then you would have concerns and have to deal with those. And often the lawfulness of the conduct is going to be evaluated through the lens of an impact on competition.
That is not something that is typically known in advance. None of us have crystal balls. So there can be things that you have to manage for without knowing exactly how they will turn out. And then a point that I often have to make to my clients is that the Bureau is not a regulator. So they're quite used to regulation and dealing with multiple regulators. But the Bureau does not prescribe conduct. It doesn't tell you the types of agreements or the types of things you can do or what they need to look like or what provisions need to show up in every contract you sign. And so there really isn't often clear cut guidance on how the Bureau would interpret, for example, a certain defense or pro competitive justification. So a lot of times you're managing for things that involve a future state that none of us know about.
Kate McNeece
I think it's a really great flag that, you know, the Bureau is not a regulator, it's an enforcer, right? So to a certain extent, you're always looking at not a moving target per se, but trying to forecast what issues might cause problems down the line. So in that spirit, Beth, maybe you can talk a little bit about the enforcement trends we're seeing lately and what future looking problems corporate counsel should be especially aware of.
Beth Riley
I think many of the trends are going to emanate from the fact that there have been that the Competition Bureau in recent years had identified weaknesses in the ability of the Bureau to address particular harms to competition and the Bureau's ability to enforce those elements. So in the past four years, there have been significant amendments to the Competition Act have quite truthfully, substantively changed it.
What that means is that we, that two things, one of which is, Many of the compliance policies or businesses approach to complying with the Competition Act likely need to be revisited to recognize these changes in the Competition Act. But it also means that the focus of the Bureau is likely going to be on increased enforcement. They've articulated that enforcement of the Competition Act is a priority, especially in these changing times in this economic uncertainty.
What that leads is to, there's we expect there to be increased enforcement that is focused a lot on consumer protection. So misleading advertising, we've got greenwashing that's been put into place. There's drip pricing, which is all deceptive which is all allegedly you know deceptive marketing practices that will confuse consumers into making decisions they wouldn't normally make. And also there are key elements of cost of living you've all probably heard about the the review of grocery pricing and there's a lot of grocery stores so from an industry perspective look at think of it from a key industry sector that has an impact on the cost of living or has an interaction with consumers: telecom, financial services, health, infrastructure, retail, grocery, marketing… that would be it I think.
09:52
Kate McNeece
So I think that's a really helpful framework. And Sultana, as you're translating that from sort of the substantive, here are the changes to the Competition Act and what they look like going forward. How are you translating that into defining a practical impact for your business and your clients?
Sultana Bennett
Right. It is always about the practical impact. And so going back to what makes this area of law unique and different from what people are used to dealing with, my message is usually just that companies can't really entirely protect themselves by avoiding technical breaches of law.
So there's there's the law, the letter of the law, and then there's the spirit of the law and focusing on what is black and white, you know quote unquote legal is not going to really do the trick in these cases.
So really we need to be quite clear about Where are we operating? How are we operating? What is our own specific risk profile in the markets where we operate? And where could there be heightened risks of not only violations, but scrutiny, right? Because you're always interacting with other market participants. And that is something that's just a reality we all have to deal with. So compliance then just becomes a matter of ongoing and evolving risk assessment.
It's less of a one and done scenario where, your clients will just consult you, get an answer and kind of go on their merry way as much as we would love things to be so simple. For the most part, it's really an evolving and ongoing conversation as things evolve and you know markets change and all the rest.
Kate McNeece
So I think what I'm hearing here is really a definition of the role of the corporate counsel is really being kind of integrated in the business, and making sure you know what resources you can get to to really understand that so you can translate some of these more abstract concepts into practical advice as you we don't carry out your business, which is as much as we like to think that the lawyers are the most important people in the room, like the business people may have a different a different perspective.
So, you know, Beth, as you in your role as an advisor to corporate counsel, what sort of processes or best practices would you recommend to corporate counsel as they um like to help them translate from this to the practical?
12:06
Beth Riley
I think you've got a good point. The world's becoming increasingly complex. Legal counsel have fewer resources. And they're expected to be able to be advising clients on their risks. And to Sultana's point, it's incredibly complicated.
When you look at, I think the first thing you have to have recognize is that the lawyers are not responsible for the business decisions. Instead, what they are responsible for is they're charged with advising clients on the legal framework in which you're operating and in which the business operates in. That sounds quite simple, but then when you think about it, it's actually fairly fact driven.
And what that means is that corporate counsel, you're absolutely not required to be knowledgeable all elements of the Competition Act. You probably do though, want to be able to gather enough information to be able to consult potentially with external counsel to get some advice on areas that are risk-based. The question then becomes, what are those areas?
Outside counsel are not particularly, we think we're incredibly brilliant. But what we do need is we need the operations people and we need in-house legal counsel to help us to be able to frame the arguments. The first question then would be, we need local, we need the in-house counsel to understand the corporation ownership structure, business operations and business objectives. Without that, we're all going to be at a bit of a loss. That will help us identify potential interfaces between the Competition Act and the business practices. If a company is a retail sales company that interacts with customers and has interesting new marketing programs that they want to implement, that's where the legal counsel should be able to identify potential issues associated with marketing.
The next is you have to be able to understand again, that legal and business context, how they interface with one another. And then you also have to understand who those, refer to them as internal stakeholders, But who are the people that the in-house counsel should be speaking with in the corporation to understand what the business objectives are, what the businesses are actually doing?
What I think one of the key elements is that to the extent legal counsel can be involved in the decisions of the businesses at the earliest stages, rather than have businesses come to you to bless something after once they have a proposed plan, but rather let legal counsel be part of that early on decision-making, you can help, again, because you now know the business objectives, you can help structure the proposed action in a manner that ideally meets the objectives of the business, but at the same time complies with the act.
So I think the one practical element is you don't want to say, no, you can't do that, even if they come to you with something that you think is clearly offside, but rather you want to take a very simple approach, which is what are you trying to do with this? Why are you trying to do it? What are the benefits? How did you come up with this decision? Are there alternative mechanisms? Let's look on those alternative mechanisms because I believe there could be problems under section blah, blah, blah the competition act, whether it be conspiracy or misleading marketing, but I think we can still get you there, but we need more information.
Kate McNeece
So ah a lot of what we do under the Competition Act, you know, it's it's translating, as I think this is a theme we we're returning to again and again, but it's really translating substantive concepts that are of general application to the specific activities of the business.
So as we're kind of mapping those things, what are the important questions to ask to sort of frame the substantive issues that that may arise and I think kind of identify the key pressure points or identify the overall risk perspective that that may apply to yourself?
Beth Riley
We generally have to ask questions and the first question usually is, What is the business? what What are the products that you're operating in? What are the services you're offering? Who are you impacting? Who are you selling your products to? And what you have to recognize or what you want to recognize is that business might think of a product in a particular manner that is very different than how the Competition Bureau may interpret this behavior.
So I think the first question is you want to find out what is the business doing? What products are they offering? What geographic markets are they competing in? Recognizing that an economic antitrust market may be different than the one that the businesses think about. You may, and you, what you might also think that is that the competition Bureau usually goes after big markets and the big market with the big players are important, but that's not true. The competition at Bureau is very good at focusing on very odd markets that have no de minimis threshold. So for example, they have taken cases about tugboat services to berthing ships in the port of Vancouver. They've looked at waste management services in small little local communities. They look at the provision of retail gas in a rural community, or they'll look at a call for a tender by a government agency for a specific project. So recognize that the markets are quite narrowly defined, recognize that the Bureau will be interested in all markets that may have harmed competition.
So for each of those products and markets that your client is engaged in, you want to ask questions. You want to find out what's the role of your client in the market. Are they incredibly large? What are the market shares? are Is your client dominant?
Is there new entry in the market? Are you a new entrant in the market? How are market prices determined? Is there a market leader? Is your client the market leader as the largest player or is your client just a maverick? how what is And also in particular, what is the impact of a particular type of conduct on the market?
So you ask typically, what is the harm for the proposed conduct that you believe may impact and who may be impacted by it? Is it suppliers? Is it customers? Will they be aggrieved? What is that harm? And are there potential complaints that would need that are legitimate that might be addressed under the Competition Act?
19:12
Kate McNeece
I expect we can all probably identify the egregious conduct that I think Sultana referenced, the sort of obvious no's under the Competition Act. But I think it might be helpful maybe to expand this discussion to identify some interesting examples of conduct that could raise concerns that are a bit more subtle or or a bit more nuanced. Why don't we jump into some examples here. Let's start with abusive dominance. What's an example of how this area of the Competition may come up and impact business?
Sultana Bennett
Okay, why don't we think about this example. Beth, I'm interested in your views. So let's say you have a client who is developing an AI platform applied in the robotics context and is the current market leader for this new product.
So you are approached by your contract specialist to review an agreement which appears to seek to lock in customers by way of ten year terms on the contracts. And there will also be automatic renewals and penalties for early termination. What are some considerations when you're evaluating this contract?
Beth Riley
So the first thing that I'd think about when that was happening would be that this could be viewed under the abuse of dominant position provisions. You've indicated that the client is a market leader. They have a unique product and they're clearly trying to engage in conduct to lock in those customers for a long period of time. What that usually might, or that could be meant to mean is that they are trying to prevent new competitors and new entrants or existing competitors from being able to have a competitively dynamic market and being able to contest that the market and engage in pro-competitive competition and rivalry.
That being said, that may not be the case. And I say that because we really don't know how big this the client is in the market right now. So you'd have to do a bit more of a deeper dive. Even though we say it's a market leader, maybe your client only accounts for 5% of the market at this point in time. Is that it's arguable in that case that abuse of dominance wouldn't apply.
So then the question would be, what is again, what is you're going to have to try and assess what's the impact on the market today in two years and in 10 years and whether or not that 10 year period is engaged is conduct that will impact the rivalry within the market because of the role of your client.
Kate McNeece
Can I ask a follow up question for that? How would this analysis change or how would it be impacted if, you know, the business was ah a bit different? Like if the customers weren't sort of retail, but they were like larger sophisticated companies?
Beth Riley
So my thought, and Sultana, I think you should jump in also, but my thought would be if your customers are large um manufacturers or business industry people that have a lot of market power on their own. And for example, in our case, maybe our client, this new entrant that's developing an AI platform, maybe they, there'll be a mutually beneficial agreement in place with their marketers. So that that will commit or provide, I mean, the argument would be maybe the purpose is an anti-competitive. Maybe the purpose is to lock up the marketers or the market, the customers for a 10 year period so that the AI company will have a stream of income so they can do further development to increase the, to increase and improve the quality of the product to develop that product.
That would not have an anti-competitive purpose that might have an anti-competitive impact depending on the facts. But it might be more akin to some kind of joint development project with your customers to help develop a new product in the market that might take 10 years to fully develop.
So again, this example is trying to explain that there are a lot of questions, in a lot of market dynamics that we have to dig into before we make a determination and before we say, no, this is abusive dominance or no, this is an anti-competitive agreement that we should not pursue.
Sultana Bennett
Yeah, that's absolutely right in terms of asking a lot of questions. I make heavy use of templates and sort of I try to explain to my internal clients that I will always have additional questions when they come to me with a scenario because everything is so fact-driven and so often it's helpful to just kind of set out, explain to me in you know the most basic terms, what are the benefits for all the parties involved? in this discussion, because you're right, you have to think about both intent and effects under these new provisions. And also, what are the potential downstream effects, right? Like, what is there a benefit here to the end consumer? And what is it? Explain it to me and explain how specifically are we going to get to those benefits by the way we're setting up this arrangement?
Beth Riley
That's a good comment, Sultana, because I think that's the key. And this is the way that the competition or the sorry in-house counsel can help frame and help develop the client's objectives. We don't know enough information as when we're given a raw question like this, you have to dig into it and you are the problem solver who has some knowledge of the legal framework in which they're operating, but you want to help your client frame this conduct in a manner that actually recognizes perhaps what their true intent is. The true intent is to develop this product. They're not necessarily trying to lock out competition. What they want to do is develop their own product.
The catch, and this is something that applies to everything, is that your clients, the business people are going to be writing the things down. They're going to be creating documents. They're going to be creating documents that could be used against them at one point in time. The documents might be an excellent reference and record to support your business rationale that's pro-competitive, but they might be sloppy and they might say things that are problematic.
And so it's important that corporate counsel understand that dynamic. You want your documents to be privileged to the extent that you can assert privilege, but if you can't, you want to make sure that your people are speaking and writing in manners that are pro-competitive, not inadvertently implying that you're breaching the law.
Kate McNeece
I don't want to put anyone on the spot here, but I have a follow-up question, which is, you know, a lot of our discussion has, I think, quite rightly focused on, you know, the fact that the Competition Act is very fact-specific, the fact that we really need to do our diligence to try to identify, you know, the quantum of the risk. Are we potentially dominant? Are we not? Because that obviously has a significant perspective. But we all know it's not a perfect world, and we all operate in industries that may not have perfect data or we might not have access to data to answer all of the questions that we would in a perfect world have to determine these questions.
So I think maybe back from your perspective, advising a client or even Sultana as an in-house counsel trying to manage risk, you know, how would you approach an issue where you can identify, you can issue spot, you can identify that there's more information that you need, you probably won't get it at all, or you may not get it by the time the business is banging down your door for an answer on a commercial issue that they need to move forward. And at that point, what is the practical sort of risk management approach that you can take to, you know, the least worst option?
Beth Riley
I'll go first and then we can, then I can be corrected by Sultana who has a lot more practical advice. I mean, we keep going back to basics always. You want to be able to make sure that your client understand that they're informed about the legal risks and you do have to provide a bit of a, to the extent you're on the line on that that thin line where your conduct may become problematic at a future time, or in fact, it may be problematic, we just don't have enough information.
There is going to have to be judgment that's going to be made. I'm going to refer, I'm going to defer a little bit to you on the judgment side, because I know you have to do that and part of your practice. But ultimately, what you want to be able to do is you want to create a narrative. And I mean this in terms of your documentary evidence and also the purpose and how you're looking at this, at the proposed conduct that actually could be characterized and properly characterized as something that would not be offensive on the face, but is more pro competitive. And you want,
I know you've indicated that we're not going to have enough information in our hypothetical, but you do want to still ask the questions so that your operations and your business people do understand what the risks are because they are better positioned to understand the market dynamics than you are at this point in time, and that they can make an informed decision about how to proceed and that you can help them structure that conduct in a manner that will hopefully minimize the risk. So you're going to help reframe the process. You're going to help create a narrative. You're going to help them with the documentation and you're going to test them a little bit, not test them to say no necessarily, but test them so that they are making a fully informed decision about the conduct. And again, framing it in a manner that is pro-competitive. And I don't mean artificially framing it when in fact there's no ability to justify conduct, but rather to frame it in a manner that is supportive.
If legal counsel has concerns, that the proposed action actually will violate a criminal matter, for example, in that case, legal counsel does have a duty to take further action. You don't want, and you're all well versed with the ah but the obligations of legal counsel in-house counsel to their client, but your first duty is obviously towards the compliance and ensuring that decisions are made by operations people that are consistent with whatever policy exists for that company.
Sultana Bennett
Yes, all very, all very true, correct. I think when we are talking about those sort of zones of like not blatant illegality, but sort of where we don't have perfect information and we don't have that crystal ball knowing exactly how all of our conduct will end up, the good thing is when you ask a lot of questions, you incrementally learn more. And in most cases, there's something that can be done to de-risk the initiative. Because often you know people, once they think and realize like what the risks could possibly be, there are solutions, right? So a clause can be drafted more carefully. a commercial arrangement be will be as effective as everybody wants it to be, but without perhaps the same terms and conditions that they were initially thinking of.
Often people are just working off of templates, right? They've done ah something a certain way and haven't really put a lot of thought into it.And now that they realize that you know the risk is different, and we're dealing with the different considerations, they're generally very happy to work with you to find solutions. So happily, there's usually a way forward.
Beth Riley
Yeah. There's an alignment between your objectives and the business person's objectives on a project in most cases, because you're trying to help them get to a place that's de-risked if you will.
28:55
Kate McNeece
That's really amazing insight. Let's move to another area of the Competition Act right now, our restrictive trade practices. How about the example of, say, exclusivity provision in a distribution network?
Beth Riley
So that is one of the ones I think that Sultana has mentioned is complex. On its own, exclusivity agreements do not contravene the Competition Act. Usually in most cases, distributors, manufacturers are free to distribute the product as they see fit. And then there's that asterisk, which is in some cases, if that conduct, if that exclusivity agreement is entered into by a participant in a market who's a market leader, who's a dominant player,
Or conversely, when all parties in the all manufacturers, for example, or many of them or a majority of them are entering into exclusivity arrangements, that in of itself then could be an agreement that will cause harm to competition. And in that case, you want to be able to ask the questions of your, if you're acting for the manufacturer, you want to ask the questions to understand what the market dynamics are in respect of the of the sale of that particular product. How big are they in the market? Are exclusivity contracts necessary?
Why are you imposing the exclusivity contract? And what is the purpose in particular? and it's not just so that you can have a guaranteed supply. You have to ask that question. There are an ability and there is, for example, elements of exclusivity agreements that are quite pro-competitive because they allow for an efficient distribution. That is a good thing. But you also have to look in these. The question that you have to ask is who's going to be harmed by this exclusivity agreement? And you could phrase it in a manner of who's going to complain, but ultimately there's going to be someone who's disadvantaged.
Who will that be? Or what type of party will that be? And what can, what do we believe? What does your operations person believe the impact will be on those markets and those particularly harmed individuals?
30:55
Kate McNeece
All right, I'm going move along. I've got a hypothetical here. You know, we've talked about how there are some you know real red flag criminal zones that should sort of look and feel criminal or or really pop out at us. But I've got a hypothetical for you here. I'm wondering if you could tell me how you guys would approach this.
Your client is engaged in the annual compensation analysis and your HR lead asks you to sign off on an agreement or initiative whereby your company and peer companies and also other companies, some of whom are competitors, but some of whom are not, will share information with a third party advisor regarding wages paid to welders for the purpose of making the compensation process more efficient and possibly aligning wages. That is, your company does not want to overpay and create a price where war or underpay and lose their best welders. Would you, Sultana think that this conduct raises any concerns?
Sultana Bennett
As you can imagine, there could be pro-competitive benchmarking exercises. They are very common in the HR world and there are many ways in which to go about them in a way that, again, we're talking about de-risking.
There's not going to be a risk-free scenario, or not many of them anyway, um in the information sharing context, and especially when it comes to terms and conditions of employment, as we all know, really sensitive area now.
And luckily, many of our organizations will have gone through some very recent training and awareness. So um I certainly hope we are not getting a lot of questions about the possibility of aligning wages. So certainly if I got a question of this nature, I would have a discussion about you know what are what kinds of information sharing practices would this vendor, for example, have done in the past? like Do they have a strong compliance program? Are they very experienced? Do they know the risks of the initiative? And what are the plans of what kind of information is going to be shared?
And really going back to that purpose, like what exactly are we trying to do here? Because if we are trying to be competitive, that is a good thing. We should all want to do that. All of us are out there trying to get the best talent and wages are a big part of that. And so it's completely appropriate for us to do some measured things in trying to advance that goal. But certainly, like the the goal is not to be you know making agreements, aligning, or even being excessively transparent with other employers, because that can certainly have effects that I'm pretty sure the Bureau and private parties would be very concerned about.
Kate McNeece
Okay, I'm going add a fact to my hypothetical. I'm going turn this over to Beth to think about what if the advisor has developed an algorithmic pricing software, which will just set compensation for the company's welders? How would that change the analysis?
Beth Riley
Well, that is a very hot topic that's very new and is being studied a lot right now by a lot of antitrust parties. So I think corporate counsel should understand that this is certainly an area of high risk right now and that it has a lot of antitrust entity regulators, including the Competition Bureau's, interest at the moment.
There is an argument to be said that if every everyone, all these competitors or other business employers provide a lot of confidential information on their pricing information. So competitively sensitive information that you wouldn't normally share with your competitors. And you're not sharing it because in our hypothetical, it's anonymized and your competitors aren't going to get the exact pricing that you are currently agreeing on. But then the nice thing about this model, you think in a very efficiency element, an efficient element of the model, it's going to pop out a price that's a recommended price for each of the competitors. It may not necessarily be the same price. We're not going to have say that in this example, although it could be, but they're going to make a recommendation to each of the providers on the pricing.
At that point in time, you obviously have a risk of concern of conspiracy in that this algorithm pricing is entering into this agreement for the algorithm pricing that all the competitors or all these employers have entered into. They've now entered into an agreement to ultimately agree on a price output. So they have shared information using the algorithm price mechanism as a mechanism to share this competitively sensitive information. And now they're going to get an output price. And so they're all signaling to each other what the output price is going to be at that point in time. And the argument could be without enough protections if they're not built in, that you now are agreeing on fixing a price with other employers of welders in a market.
And that would be obviously a criminal activity at that point in time. So high risk. And so your advice to your in-house counsel is going to be understand what you can do that is one set less of that relatively high risk option of having an algorithm price recommend or setting a price.
They may recommend a band. They may say instead that the record that the average price extends in a range between an A and B, and they might have it lumped in for a large variety of different types of wages and service levels so that it's a bit more fuzzy, but it potentially would allow for your client to have their objective, which is they want to price maybe competitively. Maybe they want to be at the high end of that range because they want to lure in more welders, for example, in our case, or maybe they just want to be a middle of the road type pricer. We can't dictate what people offer and whether people, businesses, employers, want to offer high prices, but we know that that is the choice that they get to make, but that that choice has to be made individually without an agreement with other um other employers.
36:20
Kate McNeece
Thanks, Beth. Okay, moving on to our next example, you know, merger review is an area of the Competition Act that I think a lot of outside and obviously outside counsel, but also in-house counsel may be familiar with from the sort of standard merger review process. But I'll give you hypothetical and we can talk a bit about how that might have knock-on effects within the business.
So the merger of your client and a competitor is subject to a notification under the merger provisions of the Act. As part of the review, the Bureau required production of certain company information, the SIR process.
Based on language in certain emails between operations personnel, the Bureau commenced a review under the criminal conspiracy provisions for price fixing. The language used in these documents was careless and refers to being “left with no choice. We must act.” and “to show counterparty how to play ball.”
So I think... There's a number of issues to unpack in this situation that happens. So Tiana, maybe you can talk a bit about the advice of how you might mitigate this situation from happening before it happens. And then maybe we can then move on to say if this were your situation, you're in an in-house counsel in this unfortunate position, how would you then react?
Sultana Bennett
Yeah, so it definitely illustrates and the importance of a really robust competition compliance program that would focus on, among other things, appropriate language to be used in internal communications. I mean, certainly sanitizing the language is not going to cure a situation where untoward things are happening in the first place. So it's that's definitely not going to be the thing that you know ensures compliance, but it's it would it's a balance, right? You have to you know express the message to people internally that competition is good. Even aggressive competition is good. We should be out there you know doing the best that we can in a market. It's fine to want to increase your market share and perform well. Those are good things. But when we get into things like you know agreements or talking about like language that suggests that there are things happening in this market that are you know maybe overflowed or maybe inappropriate or overstated, like we talk about things like unhelpful language, right? Where it's like they may be describing things that are true in a sense, but in context read by a third party who doesn't understand the market or who is like coming new to the to this particular context, like they can be read a certain way.
And you must always operate in a manner that a regulator or an enforcement agency could be looking at your internal communications, right? It could be a merger, or could even be something like a market study where you're not even part of an investigation to begin with, but your emails and your IMs and your documents are going to be available now for review. So certainly a good illustration of the need for just some good practices and compliance and hygiene across an enterprise.
Beth, definitely interested in your views. If you've ever come across something like this before where yeah production is a certain a certain thing.
Kate McNeece
Could I pop in for one second and just call out something you said, Sultana, that I think is really important for listeners, which is you refer to the Bureau getting not just emails, but your IMs, text messages, things like that.
I think that's a really important consideration in this day and age when we have a lot of different means of communication that are growing and changing. We've even seen the Bureau, I think, using SIRs to gather information about AI prompts where there's sort of an in-house like co-pilot or AI things. So I just, I know I'm the host, so I'm not supposed to be giving the readout here, but that was a really important thing that I just wanted to call out. Beth, over to you.
Beth Riley
I was going to jump on that also because it is true. What we have to recognize is that the Competition Bureau has the ability to access information from a variety of different sources. And they have an ability to require you, the business, to provide the information under affidavit through a court order process, either or under the Competition Act. That means that companies are going to be required to provide all relevant information and they're required to provide it through a variety of mediums that you have control over. So if your client, if your business people communicate on cell phone and text messaging or IMs or other mechanisms, voice messages, even all of that's going to be recorded and it's going to be on your phones and you should presume the Bureau's going to get that information.
So from a compliance perspective, this goes back to the fact that you've got to recognize that the Bureau is a law enforcement agency. They're not a regulator of conduct, but they are going to be looking at documents from the lens of a law enforcement agency. They're not looking at documents to support pro-competitive behavior. They're looking for harm. And that puts a huge onus on the legal counsel, which is to try and train business people to speak in a manner that does not inadvertently raise concerns. In these examples that you've provided, we've all seen many of these types of of this type of language. And mostly, virtually always, it is completely benign and is basically trying to, it can be read to be seen as aggressive competition in certain areas.
So to the question at hand, it really is like an identification. This is a very simple, but very complex transact or complex type of behavior to manage because people are careless and they make mistakes all the time.
You need more training and you need more support. And this is a nice, simple example, and it will increase. um If you think about this example, there's a merger review. that may now be turning into a criminal investigation and you have a counterparty that you're negotiating a merger transaction with, this is going to cause deal risk on the larger merger. It will potentially lead to an adjustment of the purchase price. It may lead to an increased indemnities all because of this a bit, as you noted, careless language.
42:15
Kate McNeece
All right, running a bit low on time, but I'm gonna give one more example of something that's been a hot topic these days, and that is, well, I'm not gonna preview it. We'll see if you can figure out what it is. ah Your client has reached out to you. They plan on launching a marketing campaign with regard to becoming net zero by 2050 with a new technology that will reduce emissions by 50%. This is consistent with its peers' public statements, and it's great news. Are there any issues?
Beth Riley
Yeah, there are a lot of issues. It's been in the press quite a bit lately. um The Competition Act was amended in recent years. So there are provisions where, let's tackle the first one first. The Competition Act includes a prohibition on making representations that are false in a material respect. So what that means is you have to be able to understand whether or not this statement, this proposal is actually true and false in all material respects, or if it’s misleading.
A lot of the problems with, and the example of greenwashing is a nice example because it's a proxy for a lot of other types of communications that are out there by businesses. When you say that you are net zero by a certain date, that provides knowledge to some people about what you mean, but it's also a very loose concept. Is this net zero on level one emissions, scope two emissions, scope three emissions?
What does that mean for the business? Are you allowed to buy credits? So even though you um in and of yourself maybe producing emissions, you've bought offsetting credits to reduce your emissions. um What you do need from a second perspective is under the current provisions of the Competition Act, you have to be able to substantiate these claims.
What's interesting is you have to make the substantiation before you actually make the claim. So this is not a question of whether there's something that's materially misleading. It's a procedural element from a procedural perspective. You have to be able to have made a substantiation that is an appropriate method of testing whether or not this technology does have the ability, or i think it's ah I think you had mentioned a new technology. So does this new technology actually do what you think it's going to do?
How have you tested that technology? Is it a group of three people that are in the operations business with the marketing business coming up with something punchy? Or does this technology, has it been tested through a fairly scientific method, to be able to prove that it actually would have this impact of reducing emissions. If it does, what are the qualifications to this statement? What are the material assumptions? All of these are important. And unfortunately, what these new greenwashing provisions of the Competition Act have done, and in in a good way though, have made that you can't make simple, flippant, aspirational statements.
Not flippant, that's probably a bad word. You can't make aspirational statements without providing context and additional detail. and without having provided the backup on, and without having prepared the backup before you make that statement.
Kate McNeece
All right. Thanks very much. Look, we've got in our outline, I think, five or six more examples that I would love to get to. But unfortunately, we can't have a four hour podcast episode because I fear we would lose people from our recording. So and if I can just summarize some of the key takeaways.
Number one, the Competition Act is fact specific. So if you're identifying risks, best to understand the facts first, understand your business. understand the market, understand the context, and that'll serve you well. And then second, as we heard from Sultana, have a good compliance program, you know, and an ounce of prevention is worth ah a pound of cure.
So Beth Sultana, thank you so much for joining us on Counterfactual today. We hope you enjoyed the episode. Thanks for listening.
Sultana Bennett
Thank you both.
Beth Riley
Thank you very much.
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