Speaking notes for Sheridan Scott Commissioner of Competition

Competition Bureau

Competition Law Compliance

to the Insight Conference
Toronto, Ontario
May 26, 2004

Check against delivery

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Thank you for your kind introduction.

I'd like to start by congratulating the organizers for putting together such a dynamic programme. I'm delighted to be participating in this conference on competition law compliance – thank you for inviting me to be part of it.

However, I am not going to focus solely on compliance issues today. I'd like to share a few observations about the changes that I see in our environment and tell you about the work we are doing to respond.

Some of these observations reflect my own work experiences; some reflect, in part at least, the consultations I undertook with stakeholders during my first three months as Commissioner of Competition. During that time I travelled through all ten provinces meeting with representatives from the business community -- small, medium and large businesses -- as well as lawyers, consumer groups, law enforcement agencies, and members of the academic community. I can tell you that it was an eye-opening experience.

You'd think that such a disparate group of interests would be at odds on most issues, but I actually discovered much consensus. First of all, I found general agreement about the fundamental forces at work in our economy. We all agreed that these influences are unique and untested by history - we still don't have the benefit of hindsight - yet they drive the economy and, as such, determine many of the issues before the Bureau - and elsewhere.

I'm talking about the continuing development of the global economy, the accelerating pace of technological change, and the continued trend toward deregulation. We've seen these trends at work for some time, but I think you'll agree that they've never been as bold, as rapid, as exciting or even as unsettling as they are now.

These dynamics are, to some extent, inter-related and, in some cases, inter-dependent. As we all know, technological change can accelerate the growth of a global economy, and national governments are having to rely increasingly on market forces rather than regulation. I think it is important to consider these three major forces separately and see what effect they have on the work of the Competition Bureau.

First, let's look at the global economy. To be sure, not all sectors face competition beyond national boundaries, but increasingly Canadian businesses are competing on a North American stage and beyond. Many members of the business community that I spoke to saw huge opportunities in extending their reach outside of Canada. However, the opening up of national borders has also created a number of unique challenges for them and the Bureau.

Some of these challenges involve fair business practices. More and more, we are confronted with new examples of cross-border fraudulent telemarketing and with complex and sophisticated scams that target victims around the world. As a result, the Bureau has established significant partnerships with law enforcement agencies at home and abroad; relationships that are critical in combating the worst of these offences.

For example, we are a founding member of the Toronto Strategic Partnership against cross-border fraud, along with Toronto Police Services, the OPP, the US Federal Trade Commission, and the US Postal Inspection Service. Since its inception in 2000, the group has been a great success in laying charges under both the Criminal Code and the Competition Act in Canada. The partnership has been so successful that it is attracting new partners from Canada, the US and the UK, and other regional partnerships are forming in its wake. Just a couple of weeks ago, we reached an agreement in British Columbia with the RCMP, the Vancouver police, the provincial department of Consumer Services, and the US Federal Trade Commission.

The global economy has also fostered the growth of international cartels – those who engage in price fixing on a global basis. Here, too, the ability to exchange information across national borders is increasingly important as companies carry out their activities around the world. As with the telemarketing scamming, this has put additional pressure on the Bureau's resources to build cross-border relationships, share information and harmonize enforcement practices.

International enforcement challenges notwithstanding, the Bureau faces similar pressures because of the issue of an ever-expanding economic space, one that reaches beyond our national borders. This is not such a new phenomenon, since we regularly define companies' products and geographic markets in our analyses. What's unusual is that the very nature of the international competitive landscape is changing, in part due to the second major factor that is having an impact on the economy; namely, technological change.

Again, advances in technology have been transforming the economy for some time. At the moment, however, I believe we are dealing with accelerated technological change. The basic driver in this transformation is the ubiquitous presence of computers and the development of a lingua franca - Internet Protocol - allowing computers to communicate worldwide.

First, let's take a look at the use of computers in Canada. Not so long ago, the purchase of a computer was a significant financial decision with basic desktop computers costing between $4,000 and $5,000. Now, according to the morning paper, you can get one – monitor included! - for less than $600! And, more often than not, that $600 computer includes a processing capacity we wouldn't have dreamed of at one time. That's what's relevant today: processing capability.

To put this in perspective: in 1965 Gordon Moore, Intel's CEO, observed an exponential growth in the number of transistors per integrated circuit. He predicted that it would double every 12 to 18 months and that this trend would continue. It's been known as Moore's Law ever since that day almost forty years ago. Today, we have access to the 4th generation of Pentium technology.

Keep in mind that Moore's Law is not limited to processing. The same phenomenon – a doubling of capacity for the same dollar - exists with respect to transmission and storage. Every year we can do twice as much for the same price.

To get an even better idea of what is happening; let's think for a moment about the recording industry. When many of us were teenagers, we had to save our allowance for five weeks to buy an LP! When we finally got that treasured Beatles or Stones album home, we had to listen to the songs in the order that the recording studio had determined. Think what happens now. Teenagers access stored music from anywhere in the world, often for free. They can burn their own CDs with only the songs they want to hear. Fights about copyright will continue but this is a whole new business model! One that uses high speed Internet connections to transcend boundaries, national and otherwise; one that can do it precisely because of processing and storage capabilities that easily cope with large bandwidth music files.

In this way, I believe that the Internet is a transformative technology. While we may have overestimated its impact over the short term, I think that we may also be underestimating its long-term impact. Peter Drucker compares the effect of the Internet to that of the railways. Basically, he says that e-business is now at the stage that railways were back when they linked up a few commercial centres: you heard it, a FEW commercial centres. If we think about what the Internet has enabled so far, just think what could happen to e-business in the future. In this way, the Internet is truly transformative and if railways made transcontinental nations like Canada possible, what will the Internet make possible?

The third factor I want to discuss is the trend towards deregulation. For the past few decades, there has been a shift from "command and control" economic systems to systems based on market forces. One measure of this change is the increase in Canadian GDP that is subject to the Competition Act. In 1986, when the current framework was put in place, $431B or 68% of the $634B GDP was deregulated. In 2003, $797B or 79% of the $1,013B GDP was deregulated, representing an 85% increase since 1986 in the value of commercial transactions subject to market forces.

The move towards deregulation and the increased reliance on market forces is happening around the world, an observation echoed at the International Competition Network (ICN), the forum that brings together competition authorities from close to 60 countries. I believe that in this current climate we will see more deregulation in the years to come.

So what does this mean for the Competition Bureau and the work that we do? There is a growing need for the Bureau to understand how the marketplace is changing if we want to avoid creating unnecessary imbalances.

Because we want our decisions to be fair, transparent and timely -- three of our key principles -- it is very important that we stay on top of developments in the world of businesses and consumers. We absolutely need to broaden our dialogue with Canadian companies and individuals so that we remain informed about marketplace developments. In order to address this we are launching an internal program with designated sector champions. These champions will develop one-day workshops designed to focus on the impact of globalization, technological change, and deregulation for a specific sector. In so doing, we're hoping not only to encourage, but also to develop ongoing communications between the Bureau and its various stakeholders.

The second area we're focusing on is standards. With the ever-accelerating pace of change, timeliness is more important to businesses. In this regard, the Bureau already has service standards for mergers. We are, however, exploring whether or not to broaden our use of appropriate service standards in order to establish appropriate and relevant measurements that may affect how we do our work.

The third aspect of our work that I think is very important is transparency. As you can imagine, there are many diverging opinions about the Bureau's accessibility and how we do business. Many would like us to be more transparent. For example, the legal and business communities want more information because many of our cases provide guidance. Similarly, practitioners also want to know more about what principles we apply because this helps increase predictability.

While at the ICN meeting in Seoul several weeks ago, I was fortunate to have heard an impassioned speech by Bill Kovacic, General Counsel of the Federal Trade Commission. He is calling on competition authorities to engage in critical self-assessment and transparency. I think his words really hit the mark for us all and it is in this spirit that I intend to work to increase the transparency of the Bureau. However, providing a higher level of transparency is easier said than done because it is so resource intensive and the Bureau has a limited budget.

It's true that recently our resources have been supplemented, but this is only a temporary agreement with a possible extension to a few more years. In other words, if we divert people to help provide transparency, it may mean we have fewer people for enforcement activities. We are committed to working this through, but it will be a matter of discussing and establishing priorities.

Another way to increase transparency is to litigate more cases. This requires that our triage principles be focused on the right issues. We are under constant pressure to pick the right cases because we spend millions of dollars litigating some of these matters. So, in keeping with other enforcement agencies that have triage principles in place, we're working to delineate our own set of basic principles.

For example: does a case raise a legal principle that has never been taken to the Tribunal before? Does it deal with a matter that has a significant impact on the economy? Will it have an impact on a large number of Canadians? As you can see, there are different ways we can look at this. I can assure you that the Bureau is debating them all in order to establish principles that will bring significant and meaningful cases to the Tribunal, increasing our chances of success and our overall impact.

In my cross-country travels I also heard about the need to know more about what we do at the Bureau. I was a little surprised because I know there's been a lot of work done in this area through the media, in the creation of a Communications Branch, in setting up our Web site, and through more outreach in general. Nevertheless, this was the single most repeated comment I heard in my consultations: everybody wants to know more about what the Bureau does.

But people's needs are different. On one hand, consumers want a general overview and better understanding of the Bureau's mandate. On the other, small and medium-sized businesses requested plain language explanations of their obligations under the Competition Act - they were familiar with several key provisions but not entirely clear on how they operate.

I also heard from professors of law, economics and business who suggested we talk to students about our work with a view to encouraging them to come and work for us and get them interested in competition law.

Because of competing demands and different requirements, we're setting up a targeted outreach program in an effort to improve communications with various constituencies. One of the key initiatives we've implemented is to identify a champion to focus on recruitment. We'll be working with university professors to persuade the best and brightest to come and work for us. Since we can't win them over with big salaries, we're trying to convey the importance of working on precedent-setting issues with national and international implications. Don't laugh, we might find that the thought of national or global influence could yet trump the allure of cash. In other words, beware of the competition!

Up until now, I've been referring to the consensus I witnessed in consultations, but I'd like to talk briefly about some of the disagreements I heard, many of which were about current proposed legislative amendments. A wide range of opinions was expressed during my travels, is captured in numerous submissions to the Bureau and can be read in the Public Policy Forum report. The breadth and depth of these thoughts and insights is great enough that we've decided to supplement the consultation process with a few targeted roundtable discussions. This will assist me in preparing recommendations to the Minister. Inevitably, there were dissenting opinions about other subjects, however, legislative amendments being what they are, we have chosen to address these first. If you have any thoughts on this initiative, please feel free to share them with me.

In closing, I want to say that during the course of my consultations, I've come to a better understanding of how we can build on our past success as a competition agency. What this means, of course, is a lot more work for us, but we don't operate in a vacuum and we need your input if we're to keep pace in the kind of changing environment we've been talking about.

First, when you come to us with applications we need you to come to us with the most precise detail you can muster to help us understand your industry, how it is changing and what the implications of those changes are for our policies.

Second, help us increase our knowledge base so that we can better understand your challenges. Our program to bring speakers in to discuss specific sectors is one way you help us, and if any of you here think you might have an idea for such a program, let me know.

Executive interchanges are another; only one or two are working at the moment, but I think it's important to enrich ourselves through new experiences. Let's actively work together to get involved, move around, mix it up and take advantage of the interchange programme.

Naturally, I'm also open to any suggestion on ways to attract the best and the brightest to the Bureau.

Third, and perhaps most importantly, we're looking for the resource requirements we'll need for the next two years. We have had lots of support in the past for secure and stable funding for the Bureau and in the long-term this will benefit us all.

And finally, I invite you to contribute to the dialogue we are having with practitioners. I'll look forward to your comments and suggestions.

Thank you.