As 2021 proceeds and the COVID-19 landscape continues to evolve, governments worldwide appear to have set their sights on competition law and policy to a degree not seen in years. In Europe, the United States, China and beyond, recent months have seen a patchwork of enforcement and legislative activity targeting the perceived market power of large tech firms—firms whose growth has only accelerated in the pandemic economy. In Canada, observers will be awaiting any sign of the Competition Bureau (Bureau) or the federal government joining this trend in 2021.

The Bureau is likely to continue shifting away from COVID-19-specific activities (such as targeting misleading virus treatment claims) in 2021 as vaccinations roll out and recovery continues. However, a recent proliferation of distressed M&A deals suggests that one issue to watch is whether “failing firm” analysis assumes more importance in Bureau merger reviews. Following a 2020 decision in which the Bureau relied upon this rarely used doctrine to clear a merger that might otherwise have been considered anti-competitive, the Bureau’s approach will remain in focus as pandemic conditions continue to challenge many sectors of the Canadian economy.

Digital economy issues at the forefront?

In recent months, lawmakers and competition authorities worldwide have become more assertive with respect to digital economy enforcement. On December 15, 2020, the European Commission released proposed legislation applicable to firms operating platforms reaching more than 45 million users that would create, among other things, new obligations around data use and the treatment of other firms using such platforms. The following day, Texas and nine other U.S. states launched a lawsuit against a major Internet technology company for alleged manipulation of online advertising markets. That lawsuit’s announcement followed separate Department of Justice and Federal Trade Commission cases against that company and Facebook, respectively, that had been announced that same quarter.

Later in December 2020, China’s State Administration for Market Regulation (SAMR) announced a probe into exclusivity arrangements between Chinese tech firm Alibaba and its e-commerce merchants. On February 7, 2021, SAMR also finalized guidelines under the country’s Anti-Monopoly Law designed, in part, “to prevent and stop monopolistic behaviors in the platform economy.” In February 2021, Australia’s Parliament passed a Competition and Consumer Commission code contemplating payments by platforms to media organizations for linked content following a months-long public dispute with platform operators over the law. The Government of Canada is considering similar legislation.

By comparison—and notwithstanding the Bureau’s stated goal of being “at the forefront of the digital economy”¹—the Bureau has disclosed only a few recent activities in the digital space, including a misleading advertising settlement with a social media platform (May 2020), ongoing work on a tech-related abuse of dominance investigation (August 2020) and an online “Digital Enforcement Summit” hosted with other regulators (October and November 2020). It is also unclear whether the Bureau’s late 2019 “call-out” to market participants for information on potential anti-competitive conduct in key digital markets (including online search, social media, display advertising and online marketplaces) has led to any change in the Bureau’s caseload or focus relating to those markets.

Given various statements from the Bureau highlighting the importance of enforcement in the digital space, we expect the Bureau to sharpen its focus in that area this year. Among other things, the Bureau’s most recent annual plan points to its intent to ramp up in-house digital enforcement capabilities, including exploring the use of AI and hiring specialists such as data scientists and data engineers.² As discussed below, there may also be some prospect of the Bureau obtaining increased federal resources to maintain pace with its global counterparts in this area.

Will legislators unveil a “made in Canada” approach to competition and the digital economy in 2021?

As we have noted, several jurisdictions have drafted laws, general or specific, addressing the interplay between competition law and fast-moving digital markets as of early 2021. In Canada, however, the federal government has not yet followed through on a commitment in its 2019 mandate letter to the Minister of Innovation, Science and Industry (Minister) to introduce new measures “encouraging greater competition in the digital marketplace.” Similarly, the government has not released the details of any proposed competition-related reforms within its “Digital Charter”³ policy platform.

In a December 2020 press interview weeks after the Trudeau government tabled a long-awaited bill that would implement the private-sector privacy reforms promised by the Digital Charter, then-Minister Navdeep Bains indicated “more to come” in relation to the Competition Act. Bains signaled that the Bureau was “definitely part” of the government’s strategy and that “additional resources” for the Bureau could be in play.⁴ Weeks before, Commissioner of Competition Matthew Boswell had pointed to a limited Bureau budget and gaps in in the Bureau’s legislative powers as obstacles to its effective regulation of large tech firms.⁵

With a new Minister (the Honourable Francois-Philippe Champagne) in 2021 and with a possible election looming on the horizon, it is not clear whether 2021 will see significant progress on a Digital Charter–themed competition policy platform.

The Bureau transitions away from its COVID-19 mandate

As with other regulatory agencies, the Bureau made public efforts early in the pandemic to adjust its mandate to address the dramatic new realities of COVID-19. This started with the Bureau (like many businesses) moving to a remote-work model in 2020. This arrangement is now in its second year. The Bureau also continues to monitor the market for false and misleading claims relating to virus protection or protection after reporting in December 2020 that businesses had largely been responsive to its compliance actions earlier in the year.⁶ On the other hand, a Bureau process announced in April 2020 to provide guidance to competitors collaborating to address COVID-19 challenges (see our prior bulletin) appears to have received less of an industry reaction: in the fall of 2020, the Bureau made public that, in fact, no business had sought its advice under the process.

More recently, Commissioner Boswell has emphasized competition law’s role in promoting economic recovery “by stimulating entry, productivity, and innovation.”⁷ As vaccinations enable more of Canada’s economy to re-open over the course of 2021, the Bureau is likely to reiterate this theme while restoring its pre-pandemic focus on identified “key sectors” such as digital services, online marketing, financial services and infrastructure.⁸

Will “failing firm” merger analyses become more common in industries hard-hit by COVID-19?

In April 2020, the Bureau released a position statement outlining its rationale for not challenging a transaction that would consolidate Total Metal Recovery Inc. (TMR) and American Iron & Metal Company (AIM), Québec’s two largest processors of scrap metal obtained from car bodies, household appliances and other sources. Central to the Bureau’s decision was a seldom-invoked “failing firm” analysis. We anticipate that failing firm analyses may become increasingly important for parties to distressed M&A transactions driven by pandemic conditions.

More specifically, under section 93(b) of the Competition Act, a merger assessment requires considering “whether the business, or a part of the business, of a party to the merger or proposed merger has failed or is likely to fail”. Where evidence indicates that a merging party’s failure is imminent absent the transaction, the Bureau may not attribute any lessening or prevention of competition resulting from the transaction to the transaction itself. The Bureau’s Merger Enforcement Guidelines (MEGs) elaborate on the Bureau’s view of the analysis required to assess a firm’s likelihood of failure, including a consideration of the alternatives available to the firm (e.g., acquisition by a competitively preferable purchaser, restructuring/retrenchment or liquidation).

In the TMR case, the Bureau offered guidance on the application of the MEGs’ failing firm criteria to a real-world transaction, concluding that:

• TMR was at high risk of making a bankruptcy filing in the near future, based on the assessment of the Bureau’s financial expert;
• Further attempts at retrenchment or restructuring of TMR would not have prevented its failure;
• A thorough search for potential alternative purchasers had taken place, but no “competitively preferable” purchaser to AIM existed (i.e., a firm whose acquisition of TMR would have better preserved competition in the market); and
• Liquidation of TMR’s assets would not have better preserved competition by facilitating the entry of a competing scrap metal processing operation in Québec.

The facts at issue in the TMR case precede the economic fallout from COVID-19-related shutdowns in North America—including highly publicized bankruptcies in the retail, travel and energy sectors and, in Canada, the largest annual number of filings under the Companies’ Creditors Arrangement Act in a decade. We expect that TMR-like failing firm arguments may become increasingly important features of Canadian merger review amidst heightened levels of distressed M&A activity in the wake of the pandemic, even if overall the recovery accelerates in 2021.

In this regard, the federal government’s press release regarding its recent conditional approval of the Air Canada/Air Transat merger on February 11, 2021 mentions among other things, “current uncertainty casts doubt on [Air Transat’s] ability to continue”.⁹ While this merger was approved under a distinct, Minister of Transport–led review process premised on a broader assessment of “the public interest as it relates to national transportation”—albeit with the Commissioner’s input relating to competition—Transport Canada’s explanatory note released alongside the approval noted that Air Transat’s significant COVID-19-related financial challenges meant that rejecting the merger would not necessarily mitigate a loss of competition for service “because much of this service could be lost anyway.”¹⁰

Significantly, however, the Commissioner concluded in December 2020 that undertakings offered by the parties “do not conform to the principles of merger remedy design and are unlikely to result in effective entry for new competitors.”¹¹ Together with the detailed evidence the Commissioner required in the TMR case, this may suggest the maintenance of a “high bar” for parties relying on failing firm arguments to the Bureau. Indeed, in December 2020 comments before a House of Commons committee, Commissioner Boswell expressly noted that despite the potential for a rise in mergers involving failing businesses, “[r]elaxing our standards in a crisis period could cause irreversible enhancement of market concentration, leading to deeper and longer-term harm to consumers and the economy.”¹² The Bureau’s approach to weighing these concerns in merger cases—including against the risk that over-enforcement could further limit distressed companies’ options for preserving their operations’ value—will be closely watched in 2021 and beyond. 

This article was co-authored by Simon Kupi, Sandy Walker and Adam S. Goodman.

Dentons Canada LLP acted as counsel to Transport Canada regarding the public interest assessment process concerning Air Canada’s proposed acquisition of Air Transat.

Stay up-to-date with all insights and guidance from our Regulatory team by visiting our Canada Regulatory Review blog here and signing up for future alerts here.

1. See Competition Bureau, “Competition in the Digital Age: The Competition Bureau’s Strategic Vision for 2020-2024” (11 February 2020), online: <https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04513.html>.
2. Competition Bureau, “2020-2021 Annual Plan: Protecting competition in uncertain times” (6 July 2020), online: <https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04533.html>.
3. See generally Government of Canada, “Canada’s Digital Charter: Trust in a digital world,” online: <https://www.ic.gc.ca/eic/site/062.nsf/eng/h_00108.html>.
4. Sean Silcoff, “Navdeep Bains on navigating through the COVID-19 pandemic and what’s ahead for 2021” The Globe and Mail (29 December 2020), online: <https://www.theglobeandmail.com/business/article-navdeep-bains-on-navigating-through-the-covid-19-pandemic-and-whats/>.
5. Christine Dobby, “Federal competition commissioner says international regulators have stronger tools to take on Big Tech” The Globe and Mail (1 December 2020), online: <https://www.theglobeandmail.com/business/article-federal-competition-commissioner-says-international-regulators-have/>.
6. See Competition Bureau, “Protecting Canadians during the pandemic and driving economic recovery” (opening statement of Matthew Boswell, meeting of the House of Commons Standing Committee on Industry, Science and Technology, 3 December 2020), online: <https://www.canada.ca/en/competition-bureau/news/2020/12/protecting-canadians-during-the-pandemic-and-driving-economic-recovery.html>.
7. Ibid.
8. Competition Bureau, “2020-2021 Annual Plan: Protecting competition in uncertain times” (6 July 2020), <online: https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04533.html>.
9. Transport Canada, News Release, Government of Canada approves proposed purchase of Transat A.T. Inc. by Air Canada (11 February 2021), online: https://www.canada.ca/en/transport-canada/news/2021/02/government-of-canada-approves-proposed-purchase-of-transat-at-inc-by-air-canada.html.
10. See Transport Canada, “Explanatory Note” (11 February 2021), online: <https://tc.canada.ca/en/aviation/commercial-air-services/explanatory-note>.
11. Ibid.
12. See Competition Bureau, “Protecting Canadians during the pandemic and driving economic recovery” (opening statement of Matthew Boswell, meeting of the House of Commons Standing Committee on Industry, Science and Technology, 3 December 2020), online: <https://www.canada.ca/en/competition-bureau/news/2020/12/protecting-canadians-during-the-pandemic-and-driving-economic-recovery.html>.