Competition Law Enforcement: What You Should Know Before You Do Business in Canada

Speaking notes for George N. Addy
Director of Investigation and Research
Competition Bureau

44th Annual Spring Meeting
Antitrust Law Section, American Bar Association
Omni Shoreham Hotel
Washington, D.C.

March 29, 1996

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Introduction

I am honoured to be invited to speak to the Antitrust Section of the American Bar Association. I want to thank John and his committee for allowing me to address you today as well as for their warm welcome.

In these times of increasing globalization, corporations, executives and their counsel need to understand, not only the antitrust laws of their own country, but also those of every country in which they do business.

For antitrust authorities as well, this increase in global commerce has required them to work more closely together on enforcement matters.

For enforcement authorities, the increase in globalization has led to exciting new challenges, some of which I will touch on in the next few minutes.

My remarks this morning will deal with four areas:

I - Comparison of Canadian and U.S. Law

The starting point is that our antitrust laws are quite similar. There are however some interesting differences to keep in mind.

In the United States there are five federal statutes, and many state laws. The roles of investigator, prosecutor and adjudicator are, for the most part, separate.

Grand juries investigate criminal cases, issue subpoenas, compel production of documents or appearance of witnesses.

The Antitrust Division of the Department of Justice prosecutes criminal matters, and shares with the Federal Trade Commission enforcement in several civil areas, notably mergers. Staff of the Commission investigates and prepares civil cases for prosecution before Commissioners.

In Canada, apart from the consumer protection area, there is one statute, a federal statute: the Competition Act. The Act is enforced by the federal Competition Bureau, which I head as the Director of Investigation and Research. We have a budget of U.S. $13 million, and a staff of 250.

The Director fulfills three main roles:

i) Investigator in criminal matters:

ii) Investigator and plaintiff in reviewable civil matters:

iii) Competition advocate --- formally and informally:

These agencies regulate such industries as transportation, telecommunications and agriculture. Industries which are of great interest to me given that they are currently in a state of transition --- from regulation to competition.

The Director is also the government's principal advisor regarding the competition aspects of the full spectrum of government policies. This is what I term the informal advocacy role.

In developing policy in various areas, many government departments frequently consult the Bureau to discuss the competition implications of various proposals.

In relation to the Director's powers, in Canada, on ex parte application to the courts, the Director has powers of subpoena, compulsory testimony and information returns, as well as search and seizure, in both criminal and civil cases.

And unlike United States practice, in Canada, only the Director may initiate proceedings before the Competition Tribunal, or refer matters to the Attorney General for prosecution.

Individuals may only sue for loss or damages resulting from conduct contrary to the criminal provisions of the Act, or from failure to comply with an order of the Tribunal.

Let me now discuss a few substantive provisions of the Act -- not in great detail as I don't want the Canadian lawyers here today complaining that I gave away their lunch!

Conspiracy

In Canada, only those conspiracies and other agreements which unduly prevent, limit or lessen competition are criminal offenses. In the U. S., a per se approach is available.

This requirement to prove undueness obviously increases the burden on the prosecution. The result has been fewer prosecutions for conspiracy in Canada than in the United States.

Enhancing efficiency is not a defence against a charge of conspiracy, but other defences are included in the Act as well as some that flow from the case law such as in regulated industries, conduct specifically sanctioned or required by a regulatory agency --somewhat like your state compulsion doctrine.

Other agreements may constitute offenses, regardless of likely anti-competitive effects --- for example, bid rigging and price maintenance.

Mergers

As for mergers, unlike in the United States, only the Director may bring matters to the tribunal --- the Competition Tribunal.

The Competition Act expressly provides for consideration of efficiencies flowing from a merger as a defence to a challenge by the Director. This provision is unique to Canadian law.

As in the United States, we have issued Merger Enforcement Guidelines, which set out in detail our approach to analysis of mergers.

On a practical note, I am becoming increasingly concerned about the quality and timeliness of merger notification, especially with respect to multi-national mergers. I suspect that to some lawyers, Canadian authorities are an afterthought. I suggest you think again.

The less time we have to review a transaction, or the less complete the information provided at the outset, the greater the risk that we will be unable to complete our examination in a timely fashion. When you file your notice here in Washington, you should also be giving us a head's up.

If you don't, you'll have some explaining to do when your client asks why the deal is being held up in Canada.

Abuse of Dominant Position

With respect to abuse of dominant position, unlike S. 2 of the Sherman Act, Canadian law does not apply to mere attempts to monopolize. A prosecutor must show that the company or companies substantially, or completely, control a class or species of business in Canada.

Canadian law invokes a substantial lessening of competition test. In both Canada and the United States, some analysis is required to establish what conduct the company has engaged in to maintain that monopoly position.

Thus, we must show

Misleading Advertising

As for misleading advertising, the broad sweep of S. 5 of the Federal Trade Commission Act --- the prohibition against "unfair means of competition"--- has no equivalent in Canada. Our provisions are more detailed.

And our misleading advertising provisions are criminal law, not civil. That means MLAT is available to us.

The Competition Act, S. 52 prohibits representations that:

• are false and misleading; or
• include warranties that are misleading or have no prospect of being carried out; or
• contain a misleading price; or
• contain unsubstantiated claims of performance.

II -- Priorities

Let me now turn to the current priorities of the Bureau.

The Competition Act covers such a broad range of businesses and their activities that the Bureau has always had to establish priorities.

Recently, decreasing resources and increasing responsibilities, primarily as a result of deregulation, have intensified the need to focus on the most compelling areas. We simply can't take all meritorious cases.

To make the most effective use of our resources, we screen cases, to identify those which meet our criteria for the highest priorities.

Over the past few years, we have developed and refined these criteria to focus on those instances of anti-competitive behaviour which are the most costly to the Canadian public and the Canadian economy.

For all four main areas of our jurisdiction ---criminal matters, civil matters, mergers and marketing practices--- we have three principal criteria:

As a result, in the area of criminal enforcement, more of our resources are directed at conspiracy and bid-rigging, the criminal activities that strike at the heart of an otherwise dynamic and efficient market. We have targeted those who try to suppress rivalry among firms and those who seek to function as illegal monopolies or cartels.

I have also been pushing for higher fines and this current year will be a record year for criminal antitrust fines in Canada --- I am expecting total fine levels to total about $6.5-7 million CDN in fiscal 95/96.

In civil matters, we have targeted enforcement action against abuse of dominant position and regulatory interventions --- more about those in a moment.

In marketing practices, we have dealt with fraud and deception in telemarketing and direct mail.

Interventions before regulators

A most important development in Canada has been the deregulation of major parts of the economy --- including such industries as transportation, telecommunications, broadcasting, financial institutions and electricity.

These sectors are emerging from the constraints of regulation to the dynamism of market discipline. Entirely new markets are opening up. These markets --- old and new --- are increasingly fully subject to competition law.

As the Government's competition advocate, I am focusing a lot of resources on making interventions early in the deregulation process. This is principally a responsibility of our Civil Matters Branch. In 1994-95, the Bureau made representations before 11 regulatory bodies.

A significant number of these interventions have been to our FCC equivalent, the CRTC. They have been developed by our cross-Bureau Telecom Task Force which is managed by the head of the Civil Matters Branch.

We are having the same type of debate in Canada that you are having here --- what should be the ongoing role of the telecom and broadcast regulator as opposed to the antitrust enforcement agency? I found Mr. Hunt's remarks of yesterday very interesting. What I also found interesting, and would not expect to see north of the border, is, to use his terms, "an obscure antitrust lawyer" heading the telecom and broadcast regulator.

Let me turn to a few examples to illustrate our efforts in the area of "industries in transition."

(N.B.Tel)

In the fall of 1994, an examination of practices by New Brunswick Telephone Company prompted me to voice concerns to the company about restrictions they were imposing on members of the New Brunswick Cable Television Association.

N.B.Tel was restricting the use of fibre optic and coaxial cable owned by the cable operators, preventing them from entering telecommunications, data transmission and multimedia markets. It was essentially a telephone pole access issue. The company responded promptly to my concerns, immediately removing all covenants restricting use of the cable.

(DTH)

Also in 1994, I participated in the Government's review of policies concerning Direct To Home Satellite transmission. I considered that a decision by the Canadian Radio-television and Telecommunications Commission substantially limited the prospects for competition among the service providers.

I testified on the issue before two Committees of the Senate as well as a Committee of the House of Commons. I also submitted detailed comments to a specially-commissioned, independent policy review panel which the government struck to provide it with outside advice. The panel subsequently adopted many of my recommendations directed at promoting competition.

(Electricity)

Two years ago, the Ontario Energy Board conducted hearings regarding reform of regulation and promotion of competition in the electricity industry in the Province. The findings of the Board were generally pro-competitive and consistent with the directions suggested in the arguments we provided.

We have also intervened in a similar review now underway by the British Columbia Utilities Commission, as well as a second follow-up review currently underway in the Province of Ontario.

Of particular interest to international law practitioners are the deliberations of the Canadian International Trade Tribunal in anti-dumping matters.

I intervene before this Tribunal on a regular basis to advance pro-competitive considerations --- for example, in cases where foreign companies encounter restrictions in seeking to enter Canadian markets. Our success at convincing trade officials to adopt market based competition principles is not very good --- again I suspect a good parallel exists to the situation in Washington.

Despite limited resources, I am proud of our enforcement efforts directed at a broad range of violations of the Canadian Competition Act.

Communications to the public & business

We have found, however, that, in many instances, a violation occurs because of a lack of understanding of the law and how it applies.

We have therefore stepped up our efforts to inform the general public and the business community of the provisions of the law and continue to devote significant resources to public education and communications.

Last July, we established a Complaints and Public Enquiries Centre at our office in Ottawa following the closure of our regional offices. We installed a 1-800 number and we answer about one thousand calls a week in both official languages. The number is 1-800-348-5358.

The calls include complaints, questions on the application of the Act, enquiries about the status of various matters before courts or tribunals, and requests for publications, Annual Reports, videos, speakers or simply asking to get on our mailing list.

We will shortly be launching a new quarterly publication. It will expand on our Annual Report --- our most recent one was tabled in Parliament last week and is now available to the public --- and provide more timely information on such matters as recent decisions, interventions by the Bureau and future plans and proposals.

Our compliance initiatives also include alternative case resolutions, such as information visits. When we feel that a clearer understanding of the Act can prevent further violations, we explain the relevant provisions and steps to take to remedy the situation rather than initiating litigation.

III -- U.S./Canada cooperation & recent cases

Now, I would like to take a few minutes to highlight two cases which we pursued in the last year, in which international cooperation played a major role.

As I mentioned at the outset, the globalization of commerce has had implications, not only for how businesses operate, but also for how antitrust authorities operate.

Those who follow world antitrust developments know that the need for better cooperation among competition agencies is receiving increasing attention.

Many will recall the formal Canada-US Agreement signed last August. This agreement is the latest development in a relationship of cooperation of many years' standing. If you are interested in learning more about the Canada-US Agreement, I can refer you to the proceedings of last year's ABA annual meeting where Gary Spratling and I spoke to this arrangement.

It greatly improves the notification and consultation process and will minimize disputes between antitrust authorities in the United States and Canada. It also commits the two governments to more extensive cooperation in the enforcement of laws governing competition and deceptive marketing practices.

We are truly in a new era of international antitrust enforcement and as any of the counsel involved in some of our recent cases will tell you, you had better catch up! And if you want to try to play one agency off against the other --- good luck but don't put any money on it!

We are currently negotiating a similar agreement with the European Union.

Canada Pipe case

The first case example of the growing cooperation that I would like to refer to is a case involving Canada Pipe Company Limited and U.S. Pipe and Foundry Company. Canada Pipe pleaded guilty to conspiring with U.S Pipe to prevent or lessen, unduly, competition in the sale and supply of ductile iron pipe in Canada --- our conspiracy offence.

They conspired to have U.S. Pipe exit the Canadian market. We received extensive cooperation from the U.S. Department of Justice and the open discussion and exchange of information was vital to the successful resolution of the case.

In his decision rendered on September 27, 1995, Mr. Justice William McKeown of the Federal Court of Canada reasoned that the level of the fine --- over U.S. $1.8 million dollars (Cdn $2.5 million) --- should be high enough to deter persons outside Canada from engaging in activities which violate the Act.

He stated that the fine levied in Canada should be significant enough to be meaningful to foreign conspirators. In effect, he was saying that targeting the Canadian market should not be cheaper than targeting the U.S. market.

He also factored into the fine an amount of more than U.S. $350k (Cdn $500k), in recognition of the costs incurred by government in investigating and prosecuting the matter.

Facsimile paper case

The second case example of Canada-U.S. cooperation is provided by the thermal facsimile paper case.

On July 12th, 1994, Kanzaki Specialty Papers, Inc., of Ware, Massachusetts, pleaded guilty in the Federal Court of Canada to price-fixing, and was fined CDN $950k.

On July 14th, 1994 Kanzaki and Mitsubishi reached a settlement with the U.S. Department of Justice, resulting in fines totalling U.S. $6 million.

On August 5th, Mitsubishi Corporation of Tokyo and Mitsubishi Canada Limited of Toronto pleaded guilty in the Federal Court of Canada to price-fixing, and were also fined CDN $950k.

The case is not over yet.

Such are the consequences of the new, more intensive level of cooperation between the competition authorities of Canada and the United States.

I look forward to an increasingly productive relationship with our colleagues here in Washington.

IV - Amendments to the Competition Act

Lastly, let me say a few words about the proposed amendments to the Act. As with much legislation, developments over the last ten years have prompted a need to bring the Act up to date.

At the request of the Minister of Industry, the Honourable John Manley, last year I initiated a consultation process on amendments to the Act.

The Minister asked us to engage in broad and open public consultations to ensure that the Act continues to be an effective instrument in shaping a more innovative economy in Canada.

Our consultation plan featured wide circulation of a discussion paper, requesting written comments and, following that, a more detailed discussion of issues and options with a panel of stakeholders.

We anticipated that this process would lead to consensus on many points and avoid the controversy which has attended past efforts to change the law. Our goal in the current exercise is to update the law in certain areas, and to build a framework for periodic review of the Competition Act. It is not to radically change the model.

Our first step was publishing a discussion paper last June. The paper proposed amendments in eight specific areas, which, overall, can:

• promote more expeditious and effective resolution of competition issues;
• better equip Canada to deal with anti-competitive and deceptive practices which originate outside the country; and
• address deceptive telemarketing.

The eight areas proposed for legislative amendment are:

• Notifiable transactions
• Protection of confidential information and mutual assistance with foreign competition law agencies
• Misleading advertising and deceptive marketing practices
• Claims of "regular price"
• Price discrimination and promotional allowances
• Access to the Competition Tribunal
• Prohibition orders, and
• Deceptive telemarketing solicitations.

The discussion paper prompted more than 80 responses, from a wide variety of interested parties, including large and small businesses, law firms, organizations and associations, provincial governments and individuals. We also received a submission from the ABA antitrust law section.

Many of the responses were thorough and well-reasoned: they have been an invaluable tool in identifying potential solutions to the defined problems.

To continue the dialogue with stakeholders in more detail, last September I established a Consultative Panel.

The ultimate goal of the Panel was to make recommendations to me as Director, on each of the areas to be amended; and, to the greatest extent possible, to reach a consensus on the suitability and feasibility of the proposals or alternatives put forward.

Between October and February, the Panel met several times to review policy proposals for amendment prepared by the Bureau. In its deliberations, the Panel took into account the comments received from the general public, as well as information and analysis provided by the Bureau.

The Panel has reached consensus on a broad set of reforms. Some differ from proposals in the discussion paper but are offered as equally effective but more responsive to the concerns of stakeholders.

Deliberations by the Panel were carried out in private, but many members maintained a continuing dialogue with other interested parties.

We at the Bureau also continued discussions with stakeholders interested in various aspects of the proposed amendments.

We also convened focus groups to discuss such topics as prenotification, confidentiality and telemarketing.

I am presently reviewing the report submitted by the Panel, and will shortly be making recommendations to the Minister.

Should the Minister decide to proceed with the recommended amendments to the Competition Act, Cabinet approval will be sought and legislative drafting will begin. I anticipate that draft legislation will be prepared this Spring.

Conclusion

I believe that those thoughtful Canadians who are interested and concerned with the prosperity of our country welcome the increased competition which global commerce is bringing to virtually every continent.

Those of you with clients doing business abroad can anticipate markets in Canada which are profitable, and competitive.

And if I am doing my job well, vigorously competitive!

For those of you whose clients have not yet entered our markets, I have sought to provide you with key points of what you should know before you do business in Canada.

If there is one point I would like to leave with you, it is the importance of prompt notification of mergers. This is vital for the timely completion of our merger review process and of your clients' transactions.

From the Competition Bureau, you can expect cooperation and advice in harmony with the intent of the Competition Act .

At the Bureau, we take pride in our cooperative approach to resolving issues before they become problems. However, if you play games and are not cooperative --- well, we enjoy a game of hardball too.

With the transition of many markets in Canada --- from regulation to competition --- there will be increasing opportunities for businesses, no matter where they are based, to profit by providing goods and services that are in demand by businesses and individuals.

In Canada, the coming century will be a time of great challenge --- and great opportunity.

You are welcome to participate --- and compete.