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COVID-19

IMPACT ANALYSIS: Pandemic raises competition-law risks for Canadian firms

Helen Chan  Regulatory Intelligence Expert

Helen Chan  Regulatory Intelligence Expert

Among the multiple operational and regulatory pitfalls presented by the COVID-19 pandemic, in Canada, potentially anti-competitive actions may draw official scrutinty and create reputational risks.

Canadian law firm Blakes, Cassels & Graydon LLP has issued a client notice on several competition law considerations for Canadian companies. The law firm cautioned that the Competition Bureau, which oversees compliance with Canada’s Competition Act, remains active.

The challenges of market volatility and disruptions caused by government-mandated lockdowns may prompt businesses to communicate in new ways with competitors, or revise production and logistics processes. However, the stance of the Competition Bureau against behaviors that restrict market access or otherwise seem anti-competitive, is unlikely to soften.

Price-fixing, along with actions such as allocating customers and restricting production by setting quotas are considered “hard-core” cartel activities and are prohibited under the Competition Act. “Pro-competitive” coordination between competitors is legally permitted so long as it is directly related to legitimate competitive purposes. Examples include dealing with distribution problems, enhancing output or increasing efficiencies.

Competitor coordination

While operational challenges during the coronavirus pandemic may compel businesses to coordinate with competitors, Canadian companies need to recognize activities that could appear anti-competitive and expose them to enforcement action.

Initiatives to coordinate with competitors should be carefully reviewed for potential anti-competitive risks. Businesses should ensure that any efforts to coordinate meet legitimate purposes as outlined in the Competition Act, and that they obtain approval from legal counsel prior to engaging competitors. Related correspondence either internally or with competitors should be documented, along with supporting explanations of why it is necessary for the business to work with a competitor under the current circumstances.

Furthermore, businesses should keep a record of any refusals to supply or any adjustments that they may have to make to existing contracts, especially if they are dealing with a competitor. These actions, even if taken out of necessity due to a lack of resources, could still be seen as restricting market access and thus, anti-competitive. Blakes cautions that businesses should have a pro-competitive reason to alter the terms of contracts or to refuse to supply a competitor, otherwise they could be subject to a formal investigation by the Competition Bureau.

Beware reputation risk related to pricing

Reputation risk is also a factor, especially where pricing is concerned. Actions such as restricting supply or raising prices could quickly harm a firm’s reputation given the public focus on access to goods and pricing, particularly for household items and personal protective equipment. While disruptions to supply chains and employee absenteeism may increase the cost of production for some businesses, raising prices could be seen as price gouging and meet hostility from customers. Complaints from consumers could also attract further
regulatory scrutiny from the Competition Bureau.

Regulators, as well as individual businesses, are under pressure to act against unreasonable price increases. Amazon.com recently suspended almost 4,000 seller accounts over complaints of price gouging, including sellers based in Canada. Canadian regulators are also condemning alleged “price discrimination” and vowing to crack down on price gouging during the pandemic.

Under the Price Transparency Act, introduced in 2014, the Competition Bureau can investigate allegations of price discrimination and publicly disclose situations where Canadian consumers are at a disadvantage. The regulator can also use court orders to compel businesses to produce evidence of price discrimination, which can then be released to the public. Companies that sell products to Canadian consumers, regardless of where they are based, could be targeted. Businesses in the United States in particularly have tended to face scrutiny over differences in pricing between Canadian and American markets.

Differences between pricing of certain goods in the United States and Canada can be attributed to numerous factors that fluctuate with market volatility: distribution costs, shipping, tariffs and other taxes. The current coronavirus pandemic is likely to increase supply chain costs and businesses will have to decide how much of these costs to pass on to consumers. However, given current concerns over price gouging, even moderate price increases could attract public criticism and regulatory scrutiny.

Businesses are advised to be cautious with pricing. Any decision to raise prices of goods should consider potential reputation and regulatory risks. While reputation risk is harder to predict given the current uncertainty and general public unease, companies can mitigate some degree of regulatory risk by demonstrating that price changes are justified and decision-making was independent from competitors.

To keep up-dated on the latest news and information regarding the COVID-19 pandemic, the economic impact, and the government’s response, at Thomson Reuters’ COVID-19 Resource Center, and you can follow Reuters.com or the Reuters App.

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