Submission to the Competition Bureau on Merger Enforcement Guidelines Review

(Disponible uniquement en anglais)

Via email: matthew.boswell@canada.ca

Commissioner Matthew Boswell
Competition Bureau
50 Victoria Street
Gatineau, Quebec K1A 0C9

Dear Commissioner Boswell:

Re: Public Consultation on the Competition Bureau’s Review of the Merger Enforcement Guidelines

The Competition Law and Foreign Investment Review Section of the Canadian Bar Association (the “Section”) is pleased to provide the following submission as part of the Competition Bureau’s (“Bureau”) review of its Merger Enforcement Guidelines (“MEGs”).

The Canadian Bar Association is a national association representing over 40,000 jurists, including lawyers, notaries, law teachers, and students across Canada. We promote the rule of law, access to justice, and effective law reform and offer expertise on how the law touches the lives of Canadians every day. The Section comprises approximately 1,000 lawyers and promotes greater awareness and understanding of legal and policy issues relating to competition law and foreign investment.¹

The MEGs are one of the Bureau’s most important guidance documents and are consulted daily by members of the competition bar. Given that they have not been updated since 2011, there is a clear need to reflect significant developments in Canadian merger review law. These include the introduction of structural presumptions, new section 93 factors, the repeal of the efficiencies defence, and other changes resulting from recent legislative amendments to the Competition Act (“Act”).

While many of the key concepts in the MEGs remain applicable and should be retained with appropriate updates, the Section commends the Bureau for initiating a full review. This process presents an opportunity to enhance transparency and predictability for Canadian businesses. It will be important for the updated MEGs to explain the effects of the legislative amendments on the Bureau’s merger review process related to its enforcement approach and caselaw, while building on the Bureau’s experience over the last decade.

These comments focus on certain key principles that the Section believes should be incorporated into an updated draft of the MEGs. This submission does not seek to address all the questions set out in the Bureau’s background document. While the Bureau’s background document is a very useful starting point, the Section believes that further consultation process based on specific proposed additions will be important.

This submission covers the following topics:

• Overarching Principles
• The Role of Structural Presumptions as a Burden-Shifting Tool Rather than a Change to the Anti-Competitive Standard
• Efficiencies
• Market Definition as an Analytical Tool
• Non-Price Effects
• Vertical and Other Non-Horizontal Mergers
• Application of Principles to "New" Areas – Labour Markets, Multi-sided Platforms, and Other Contexts with Unique Characteristics
• Hypothetical Examples and Position Statements

1. Overarching Principles

a. Many Aspects of the MEGs Remain Relevant and Should be Brought Forward

Notwithstanding the significant updates to the Act and jurisprudence in recent years and the corresponding need for updated guidance, the Section notes that several core concepts in the Act's statutory framework remain unchanged, including (i) the Act's purpose clause in section 1.1; (ii) the substantial lessening or prevention of competition ("SLPC”) standard for evaluating mergers in section 92; and (iii) the requirement to consider a range of relevant factors in section 93 when making an SLPC assessment.

The Section believes the Bureau should bring forward existing MEGs guidance on these key elements, with appropriate updates based on learned experience, rather than starting from a blank page. In many respects, the current MEGs work well and remain grounded in sound economic principles. While changes will be required to account for the recent statutory amendments and other updates, large sections remain relevant and should be preserved to enhance continuity and predictability.

b. SLPC Standard Remains Foundational to Analytical Framework

The evaluation of mergers under section 92 continues to be based on the SLPC standard. The recent amendments have not changed this standard, which continues to apply irrespective of whether the new structural presumption is triggered.

The Supreme Court of Canada (“SCC”), in its Tervita decision, set out the meaning of the SLPC standard. In particular, the SCC noted that:²

“Generally, a merger will only be found to meet the ‘lessen or prevent substantially’ standard where it is ‘likely to create, maintain or enhance the ability of the merged entity to exercise market power, unilaterally or in coordination with other firms’ (…) Market power is the ability to ‘profitably influence price, quality, variety, service, advertising, innovation or other dimensions of competition’ (…) The merger’s likely effect on market power is what determines whether its effect on competition is likely to be ‘substantial’ (…) What constitutes ‘substantial’ will vary from case to case. The Tribunal has not found it useful to apply rigid numerical criteria.”

In the Section’s view, it would be appropriate for the Bureau to make clear in the updated MEGs that (1) the test for analyzing whether a merger is anti-competitive remains the SLPC standard and (2) that the SLPC standard as interpreted in SCC’s Tervita decision remains unchanged following the recent statutory and jurisprudential developments. Articulation of this standard is essential in light of the new amendments and the removal of the section 96 efficiencies defence. A clear articulation would be consistent with the approach taken in paragraphs 2.1–2.8 of the current MEGs.

The Section also suggests that the Bureau emphasize that a holistic, effects-based assessment of whether a merger meets the SLPC standard remains central to the merger review process, even where the new structural presumption shifts the burden of proof. In this respect, the merger review framework in the current MEGs continues to be applicable, which should be reflected in the updated MEGs. This framework entails, among other things: (i) market definition as an analytical tool; (ii) market shares and concentration, which can be updated to include a discussion of structural presumptions; and (iii) an analysis of anti-competitive effects, including a discussion of the types of effects that are properly considered. The Section notes that very similar market definition issues also arise in relation to other reviewable practices in Part VIII of the Act and encourages the Bureau to provide guidance in relation to such issues.

c. Reliance on Foreign Guidance (including US HMGs) Should Be Approached with Caution

The Section believes that the Bureau’s MEGs should focus on the Canadian statutory framework, including the purpose clause in section 1.1 while continuing to reflect sound economic principles common applied in merger reviews globally. At the same time, reliance on the guidance published in other jurisdictions should be approached with caution and tailored to the Canadian context.

Notably, although the new structural presumptions were adapted largely based on the administrative 2023 US Horizontal Merger Guidelines (“US HMGs”), issued by the US Federal Trade Commission and the US Department of Justice’s Antitrust Division, the Section urges the Bureau to carefully consider the extent of any proposed reliance on the US HMGs when updating the MEGs. It is important that Canada’s approach to merger review be sufficiently flexible to reflect the unique aspects of Canada's economy, including the smaller population spread over large and diverse geographic regions, unique regulatory regimes, the prevalence of import competition, and the impacts of international trade developments and geopolitical factors, all of which can be relevant in merger reviews. Furthermore, the regional diversity of Canada's economy necessitates a nuanced approach that accounts for variations in market structures and competitive dynamics across different provinces and territories.

d. Other General Comments on Guidance

In terms of additional general comments that are responsive to the questions set out in section 1 of the Bureau’s consultation document, the Section believes that:

• Guidance on what types of transactions are unlikely to raise concerns can be particularly useful and assist in resource allocation, similar to paragraph 5.9 of the current MEGs and guidance in the Bureau’s Competitor Collaboration Guidelines.
• Case law and citations are helpful and should be included in the MEGs where relevant, including any US or international case law to the extent that the Bureau considers relevant to the interpretation and enforcement of the merger provisions in the Act.

2. The Role of Structural Presumptions as a Burden-Shifting Tool Rather than a Change to the Anti-Competitive Standard

Notwithstanding the new rebuttable structural presumptions for merger review, the Bureau and the Tribunal continue to assess whether a transaction is likely to result in an SLPC. In other words, the new structural presumptions contained in section 92(3) are, in effect, a litigation burden-shifting mechanism, rather than a revision to the substantive standard for evaluating mergers, and this should be reflected in the updated MEGs.

As discussed in prior Section submissions,³ the new structural presumptions are neither determinative nor a substitute for competitive effects analysis. While the impact of burden shifting may assist the Bureau in assessing the strength of a case it may bring to the Competition Tribunal, structural presumptions do not replace the SLPC assessment.

The Section, therefore, suggests that the Bureau adopt the following key principles in the updated MEGs:

• Section 93 indicates that numerous factors should be considered together to assess whether a transaction will substantially lessen or prevent competition. The need for a holistic assessment of competitive effects is clear and remains unaffected by the amendments.
• The MEGs should clearly state that the Bureau will not approach merger review by calculating HHI and market shares for all plausible markets for every transaction. Such a formalistic approach would result in a highly inefficient and burdensome review process and contradict the amendments' objectives for a more efficient process.
• The Section suggests that the MEGs retain safe harbours and believes that the structural presumptions can also be used for this purpose. The prior 35% and 65%/10% safe harbours played an important role in allowing the Bureau and merging parties to identify transactions unlikely to result in an SLPC. The Section expects that when market shares and concentration fall below the rebuttable presumptions, a transaction will unlikely lead to an SLPC. Thus, the thresholds used for the presumptions can also serve as safe harbours that will reduce the burden on merging parties as well as Bureau resources, and determination that a transaction that does not meet the presumption thresholds should allow the Bureau to get comfort that there cannot be SLPC concerns quickly.
• The MEGs should not suggest that the Bureau automatically conduct a more detailed review as soon as the market share or HHI thresholds are exceeded. In many cases, other factors may be readily identifiable (e.g., effective remaining competition, low barriers to entry/expansion, etc.) such that it will be clear that an SLPC is not likely to occur.
• Per section 92(5), the Bureau should actively monitor and assess the appropriateness of the thresholds established under section 92(3) and periodically communicate its findings publicly. The updated MEGs should acknowledge that these thresholds are subject to amendment by regulation. Furthermore, the Bureau should outline within the MEGs its intended process for addressing any future threshold changes, including a summary of the factors that would contribute to a decision to adjust them.

The Section submits that safeguards in the Bureau’s merger review process will be important considering the new structural presumption to ensure a fair process and enable the Bureau to most efficiently identify transactions that do not result in an SLPC. The following considerations should be reflected, either in the updated MEGs or in the updated Merger Review Process Guidelines:

• Where the Bureau considers that a structural presumption is triggered, the merging parties should be provided as early in the review process as possible with transparency regarding (i) the proposed definition of the relevant product market, (ii) the estimated concentration levels, (iii) the identity of all firms included in the market concentration calculations, and (iv) sources of information used. Such an approach is needed to allow a productive dialogue between the merging parties and the Bureau to resolve early factual discrepancies or gaps in information underlying the calculation of the rebuttable structural presumptions.
• It is important to discuss the types of evidence that merging parties should put forward to assist the Bureau in reaching a conclusion when one or more presumption thresholds may be exceeded. The Bureau should be open to receiving and reviewing such evidence, including during the initial 30-day waiting period.
• The Section recommends that the Bureau provides examples of the sorts of evidence that would demonstrate a market will remain sufficiently competitive, including proof of the closeness of competition, effective remaining competitors, low barriers to entry/evidence of new entry, rapid innovation, etc. The Section recommends providing a non-exhaustive list of these types of evidence and cautions against making this list prescriptive, as this will be a case-by-case assessment and will likely evolve.
• A transaction exceeding the structural presumptions should not automatically lead the Bureau to issue a Supplementary Information Request without considering the factors under section 93. As noted above, introducing the structural presumption should not deprioritize SLPC assessment factors for purposes of section 92 analysis.

3. Efficiencies

At the time of this submission, various voices across key jurisdictions, including the UK CMA, are stressing the importance of continuing to consider merging parties' efficiency submissions.⁴ Even without section 96, the Section submits that efficiency gains from a merger remain relevant to analyzing whether a merger is likely to substantially prevent or lessen competition. Efficiency can play a greater role in the Canadian economy and the current commercial trade context than in other countries.

With reference to section 93, efficiencies should be considered at least under the following parts: (g.3) any effect of the merger or proposed merger on price or non-price competition, including quality, choice, or consumer privacy; or (h) any other factor that is relevant to competition in a market that is or would be affected by the merger or proposed merger.⁵

Therefore, the updated MEGs should include clear guidance on the evidence that should be provided as part of efficiency claims. The Section suggests that the Bureau explain how it proposes to consider evidence on efficiencies. Specific questions the Bureau should consider include the weight that evidence on efficiencies will receive relative to other evidence and the standard that will be applied to the assessment of efficiencies.

4. Market Definition as an Analytical Tool

The Section views market definition as a tool for analysis, not as an end in itself.⁶ This remains true even in the context of the structural presumptions. The current MEGs correctly point out that market definition is merely an analytical tool to assist in evaluating competitive effects and that the ultimate inquiry is whether a merger is likely to substantially prevent or lessen competition. To ensure the Bureau’s guidance remains focused on actual competitive harm, this principle should be maintained in the updated MEGs.

While market definition is important, the Section caution it may take on disproportionate significance under the new structural presumptions. Given that the parameters of the product and geographic markets will, by definition, significantly impact market shares and concentration thresholds (and thus whether the structural presumption is triggered), the market definition can have an outsized effect on the outcome of a case under the new statutory regime. The Section urges the Bureau to exercise caution and not attempt to analyze all plausible definitions of a relevant market in conducting its analysis.

The updated MEGs should clearly state that, in appropriate cases, a conclusion that a transaction will not substantially lessen or prevent competition can be reached without performing a formal market definition analysis. For instance, this may be where any reasonable delineation of product and geographic markets would lead to the same result of clearing a merger or where market feedback regarding a proposed merger is positive or neutral, and there are no other substantive concerns.

The Section also notes that the Hypothetical Monopolist Test (the “HMT”) is merely one method for analyzing market definition, and there are circumstances in which it is likely to be impractical or unhelpful.⁷ The MEGs should offer perspectives on when the HMT may not be appropriate, and Bureau case teams should be transparent about whether or not the HMT is being used in particular cases.

The Section’s experience is that the Bureau can typically establish market definitions based on other kinds of evidence, such as the parties' internal documents, third-party reports, and the qualitative factors historically referenced in Bureau market definition guidelines.⁸ The Section understands that the HMT is often unnecessary and has only been thoroughly applied in a limited number of transactions. The updated MEGs should identify the other types of relevant evidence and describe how they can define the relevant market. Ensuring the HMT is applied only when necessary, rather than as a default tool, will generally streamline market definition and merger reviews.

5. Non-Price Effects

The Section believes that the updated MEGs need to include additional guidance on how the Bureau will consider non-price effects to facilitate the efficient review of mergers. The current MEGs address non-price factors only in passing and do not provide market participants with sufficient information to understand how the Bureau will identify or assess these factors as part of the merger review process.

It would be beneficial for the Bureau to provide a first-principles framework for (i) identifying the non-price effects of a transaction and (ii) analyzing the effects to determine whether they constitute or contribute to an SLPC. Non-price effects are often difficult to quantify.⁹ The Section encourages the Bureau to minimize ambiguity and subjectivity in its assessment and application of non-price effects and provides details regarding how it will do so.

In further support of enhancing transparency, the Section suggests that updated MEGs should identify (i) markets and industries where non-price effects are likely to be more prevalent, such as those where products are provided for free to consumers or those with pricing regulation; (ii) which non-price effects are likely to be relevant to the Bureau’s reviews and at what stage of review the Bureau will consider them; (iii) how the Bureau will approach merger reviews where quantitative evidence is not readily available and qualitative evidence may have limitations; and (iv) the types of evidence the Bureau will use to assess non-price effects (e.g., consumer surveys, transaction data, or internal firm documents).

The Section also encourages the Bureau to explain how its approach has been applied in its past reviews. The updated MEGs could identify any economic research, merger reviews from other jurisdictions, or case law (Canadian or otherwise) that informs the Bureau’s planned approach or that it intends to rely on. As an example, the Bureau's consultation document notes that "[i]n some cases, researchers have refined predictive tools to include non-price effects more effectively." It will be important for market participants to understand which of these "refined predictive tools" may be applied and how the Bureau will account for any limitations in such tools.

6. Vertical and Other Non-Horizontal Mergers

The Section believes that it is not appropriate to apply the structural presumptions to non-horizontal mergers:

• First, the presumption in section 92(3) can only be interpreted to require an increment in market share or concentration level to apply. This does not occur in the case of non-horizontal mergers.
• Second, using the 30% or 1800 HHI threshold would inevitably capture a very large number of competitively benign vertical transactions since the existence of such concentration levels in either an upstream or downstream vertically related market rarely creates circumstances in which the merged entity has both an ability and an incentive to foreclose rivals or that such foreclosure would lessen or prevent competition substantially.
• Finally, the updated MEGs would be inappropriate for applying presumption thresholds to a broad or vaguely defined notion of "conglomerate" merger.

With respect to vertical mergers generally, the Section recommends that the updated MEGs should:

• Acknowledge that market shares are often an imprecise blunt instrument in the assessment of a merged firm’s ability and/or incentive to engage in a foreclosure strategy. For example, even a firm with a very significant upstream market share may not have the ability to foreclose the rivals of its newly acquired downstream customer because of long-term customer contracts that protect against both partial and total foreclosure or may lack the incentive to do so for a variety of reasons, including in industries where customer self-supply is readily possible or where there are multiple relationships amongst market participants such that countervailing power is a relevant consideration.
• Define the types of harm theories that can be assessed under the rubric of non-horizontal mergers. The current MEGs summarize these theories briefly; in the Section's experience, foreclosure, and conglomerate theories of harm sometimes require intensive, fact-specific analysis, and merging parties and their counsel would benefit from details on the types of partial foreclosure and conglomerate theories of harm pursued by the Bureau. While vertical foreclosure issues are well-recognized, what constitutes an anticompetitive effect from a conglomerate merger can be subjective.
• Clearly distinguish between unilateral conduct (e.g., restrictive trade practices) and non-horizontal merger incentives (e.g., mergers’ effect on ability and incentive to foreclose on up- or down-stream firms).
• Specify the kinds of evidence and information that can be used to address concerns arising from non-horizontal mergers (to the extent this differs from factors relevant for horizontal mergers), including the types of evidence parties can adduce to show that a foreclosure or conglomerate theory of harm is unsustainable where the overlap is premised on a minority interest (e.g., corporate governance documents and veto rights, internal communications, and other evidence of financial and managerial independence).¹⁰

7. Application of Principles to "New" Areas – Labour Markets, Multi-sided Platforms, and Other Contexts with Unique Characteristics

The Act is a law of general application, and a consistent approach to enforcement provides valuable predictability and certainty for market participants. The Section submits that efforts to create industry-specific rules should be avoided, as fragmentation of the Act's general applicability is not desirable. Rather, the MEGs should apply a principled approach flexible enough to be adaptable to the different types of industries in Canada.

The recent amendments to the Act introduce contexts with unique characteristics, including labour markets and multi-sided platforms. To the extent the Bureau plans to pursue additional or different enforcement principles in these newer areas, the Section believes that the updated MEGs should explain those aspects. In particular:

• It would be useful for the Bureau to include a discussion of unique features of labour markets, what factors it is paying attention to, and any existing framework of analysis that it will consider during a merger review that may evaluate labour markets. Moreover, it would be helpful to know its historic approach to and experience with assessing issues to the extent that they inform the Bureau's approach going forward.
• Similarly, to the extent the Bureau has specific enforcement approaches for mergers involving digital platforms or firms in multi-sided markets, the Section recommends that the updated MEGs clarify how an SLPC will be assessed.
• The Bureau has rightly identified promoting Canadian innovation as a key priority.¹¹ The updated MEGs should present the extent to which the Bureau has developed approaches to merger review in highly dynamic and technologically innovative industries, including what evidence can be used to assess the competitive effect of a merger on future innovation.
• Likewise, the updated MEGs should provide additional guidance on the Bureau’s approach to assessing mergers between competitors in regulated industries.

8. Hypothetical Examples and Position Statements

The Section recommends that the updated MEGs strike an appropriate balance between providing specific examples and laying out the general principles to ensure relevance. Examples are helpful but should supplement a principles-based approach that is broadly applicable to the wide range of transactions that will be considered in the years to come. The MEGs should focus on providing examples that illustrate important or substantial changes in the Bureau’s methodology following the recent amendments.

Finally, the Section believes it would greatly benefit the Bureau to resume publishing position statements more frequently. Regular plain language position statements give stakeholders greater transparency into the Bureau's thinking, reduce uncertainty and help businesses anticipate potential competition concerns. The Bureau should use position statements to explain the Bureau’s approach to significant merger reviews in detail, including a discussion of relevant theories of harm, the definition of relevant markets, the way presumptions have been invoked or rebutted, any new analytical tools that were used, and the treatment of non-price effects and efficiencies. Position statements allow for the rapid release of information regarding new analytical tools, new theories of harm, or new enforcement approaches rather than the much slower process of updating the MEGs.

Thank you for giving us the opportunity to comment on this important matter.

Yours truly,

(original letter signed by Noel Corriveau for Neil Campbell)

Neil Campbell
Chair, Competition Law and Foreign Investment Review Section