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The efficiencies defence is often erroneously cited as an impediment to robust enforcement of competition laws in Canada.Handout

Michael Kilby is partner and head of the competition and foreign investment law group at Stikeman Elliott LLP. Lawson Hunter is senior counsel at Stikeman Elliott LLP and former head of the Competition Bureau.

In recent months, public discussion of Canada’s competition laws has reached an all-time high. That is a good thing, given the importance of the subject to the Canadian economy.

Much of the public discussion has, however, assumed facts not in evidence. And the more often and loudly certain things are said, the more obvious and indisputable they seem to become – often to the detriment of sound policy making.

This is particularly true in the case of Canada’s “efficiencies defence,” under which a merger with anti-competitive effects may be allowed to proceed if those anti-competitive effects would be outweighed by economic efficiency gains.

The efficiencies defence is often pointed to as an impediment to robust enforcement of competition laws in Canada. Our point is that, as a statement of historical fact, this view is mistaken. Put differently, setting aside whether the efficiencies defence is justifiable on policy grounds, its existence has not played nearly the role in Canadian competition law enforcement that has been recently suggested.

What are the facts? The most important fact is that only a very small number of deals, of limited consequence to the Canadian economy, have gone ahead because of the defence.

To back up a step, the Competition Act was last significantly amended in 2009, to considerable fanfare. A U.S.-style merger-review regime was ushered in, allowing the Competition Bureau to seek and obtain tremendous volumes of company data and documents in deciding whether to challenge a merger. As the commissioner of competition at the time rightly said: “The result is an updated Competition Act that facilitates more effective enforcement, aligns us with our international counterparts, and ensures that both businesses and consumers benefit from a competitive marketplace.”

Since these 2009 amendments, only two merger challenges have been fully decided by the courts. In a 2022 transaction, the tribunal rejected the efficiencies defence, just as it had in the first transaction in 2012 – the main difference being that, in that earlier case, its decision was overturned on final appeal to the Supreme Court in a split decision on the most technical of grounds.

There are also two merger challenge decisions pending, including the high-profile Rogers-Shaw transaction. It is entirely possible, but not widely understood, that the tribunal could rule in favour of Rogers Communications Inc. RCI-B-T, force the sale of Freedom Mobile to Quebecor Inc. QBR-B-T, and yet still reject the efficiencies defence.

There is of course the far greater body of transactions that do not make it all the way to the tribunal. Are these all being saved by the efficiencies defence? Clearly not. Since 2009, the bureau has obtained about 60 negotiated, public settlements with merging companies where they agreed to sell off businesses to fix competition problems. The efficiencies defence did not prevent these important fixes from happening. Just days ago, for example, the $600-million sale of a 50-per-cent stake in the Key Access Pipeline System as required by a bureau settlement was announced.

At the level of these far more numerous negotiated settlements – which tend to pass with little public notice – the Competition Act seems to be working well, without any undue role for the efficiencies defence. Indeed, since 2009, the bureau has, we believe, cited the defence only four times (including one transaction that did not proceed in any event) as the reason for its decision not to challenge a merger. In context, roughly 3,000 transactions were reviewed in that same period.

If more transactions are quietly being saved by the efficiencies defence, then they should be publicly disclosed, as that would inform and influence debate on this important topic. Our experience has instead been the very opposite: the Competition Bureau typically rejects the defence, as it has done in the Rogers-Shaw transaction.

Our point here is a basic one. It is that discussion around competition policy in Canada should be grounded in the actual transactions and cases that have (or have not) arisen and that the growing echo-chamber effect should be resisted. This data-driven approach suggests that tossing the efficiencies defence into the waste bin of history is an entirely disproportionate response. Surgical – but material – changes addressing issues arising from the Supreme Court’s split decision in 2012 would be a far better outcome.

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