Abuse of Dominance: Some Reflections on Recent Cases And Emerging Issues

Remarks by Gilles Ménard
Deputy Director of Investigation and Research
(Civil Matters), Competition Bureau

Conference of The Canadian Institute on
Competition Law and Competitive Business Practices

May 10, 1996

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I would like to thank the Canadian Institute for giving me the opportunity to address such a distinguished audience.

Later today, there will be considerable discussion of amendments to the Competition Act. If there are sections of the Act that do not need any changes at the present time, it is the abuse of dominance sections. These provisions were enacted in 1986 and drew their origins from the old merger and monopoly provision of the Combines Investigation Act. Some of the wording of the former provision has been retained. This was done to ensure that the section applies not only to a single firm dominance but also to joint dominance.

The Director has brought six cases before the Competition Tribunal. Four decisions have been rendered by the Tribunal - 1 on consent, Yellow Pages/CANYPS and 3 in contested proceedings, NutraSweet, Laidlaw and A. C. Nielsen. Two cases are still before the Tribunal: Yellow Pages/Tele-Direct and Interac. So far the batting average of the Director is one thousand, something any player on the Blue Jays would envy.

My purpose today is to review the most recent cases. I would like to provide you with some reflections on how I perceive these cases and discuss some of the unique issues that have arisen. Finally, I will discuss some of the challenges are likely to arise under the abuse of dominance provisions from a competition law enforcement point of view.

Legislative Provisions

The provisions on abuse of dominance are contained in sections 78 and 79 of the Competition Act. The three basic elements under section 79 are contained in paragraphs 79(1)(a) to 79(1)(c). Paragraph 79(1)(a) contains three ingredients: class or species of business in an area of Canada; substantial or complete control; and application to situations of joint dominance. Paragraph 79(1)(b) contains two elements which must be satisfied: that the dominant firm engaged in a "practice"; and the practice related to "anti-competitive acts". Finally, paragraph 79(1)(c) requires that the Director establish that the practice of anti-competitive acts has had, is having or is likely to have "the effect of preventing or lessening competition substantially in a market."

Where the above elements have been satisfied, section 79 provides that the Competition Tribunal may issue an order requiring cessation of the practices in respect of which the Director has brought an application. If this is considered insufficient, provision is also made for additional or other orders "as are necessary to overcome the effects of the practice in that market." The most important element in the abuse provisions is the finding of a practice of anti-competitive acts. Sections 78 and 79 do not provide a categorical definition of what constitutes an "anti-competitive act". However as a guide, a non-exhaustive list of examples is provided in subsections 78(a) to 78(i), each of which contains a predatory, exclusionary or disciplinary purpose.

In sum, sections 78 and 79 of the Act provide a flexible and balanced tool for dealing with anti-competitive abuses by dominant firms. These sections are intended to apply only in cases of demonstrable anti-competitive impact. The abuse of dominance provisions focus on harm to competition instead of the elusive standard of public detriment as was the case under the previous Combines Investigation Act. I would now like to turn to a discussion of recent cases.

Recent Cases

1) The Nielsen Case

The Nielsen case involved allegations that Nielsen Marketing Research had engaged in a series of anti-competitive acts related to the supply of electronic scanner-based market tracking services in Canada. The Tribunal began its analysis by determining that the relevant product market in this application was scanner-based market tracking services, primarily on the evidence of functional characteristics of various data sources. It did so following an extensive discussion of a number of products and their uses and prices as described in the evidence of industry participants who appeared as witnesses for the Director. It then evaluated the Director's allegation that the following acts - exclusive retailer contracts; inducements to exclusivity; and manufacturer contracts - by Nielsen constituted a practice of anti-competitive acts in accordance with section 78 and in particular with subsections 78(e) and 78(h).

Regarding exclusive retailer contracts, the Tribunal indicated that Nielsen's contracts with grocery retailers included a standard exclusivity provision, together with a strategy of staggering contract renewals. The second anti-competitive act was inducements to exclusivity for scanner data, through higher payments, which reflected the benefits of excluding competition. The signing of manufacturer contracts, to prevent entry by trying to 'lock up' as much business as possible and to focus on IRI customers in the United States (i.e., the customers of Nielsen's competitor - IRI), was regarded as the third anti-competitive act. The Tribunal therefore concluded that ...Nielsen regarded IRI as a potential entrant and adopted a strategy of signing long-term customer contracts generally, and with IRI U.S. customers specifically, as a means of preventing IRI's entry. The distribution of contracts of various lengths also confirmed that Nielsen succeeded in its strategy. The Tribunal conclu ded that "Nielsen intended its long-term manufacturer contracts along with the exclusives and inducements to exclusivity, to exclude potential competitors generally and IRI specifically. All three actions constitute anti-competitive acts under section 78 of the Act."

The Tribunal considered the intent or purpose of the acts: "In determining whether the various exclusive agreements have the necessary anti-competitive purpose, we considered that Nielsen might have had a valid "business justification" for its actions. However, the arguments advanced by Nielsen ... did not persuade us that there was any credible efficiency or pro-competitive business justification for the exclusives. ... We note that Nielsen's experts also failed to provide any efficiency rationale for the exclusives." (pp. 70-1) It went on to reject Nielsen's contention that it had adopted exclusives only after IRI had unsuccessfully attempted to secure exclusive contracts with retailers in 1985.

The Tribunal also concluded that "...the only prospects for competition in the market for scanner-based tracking services is where there are no exclusives....Nielsen's exclusive contracts and the inducement that led to them have resulted in the prevention or lessening of competition substantially in the Canadian market for scanner-based market tracking services."

This case raised a number of interesting issues from the Director's point of view. It was clear that a potential entrant, IRI, needed access to scanner data in order to compete with A. C. Nielsen and that the practices of Nielsen prevented IRI from getting this access.

What is peculiar to this case is that Nielsen repeatedly claimed that its use of exclusives could not be anti-competitive because this practice was initiated by its competitor, IRI, and that it was forced to also use it to protect itself. The decision of the Tribunal makes it clear that the use of anti-competitive acts to retain or obtain a dominant position in defence is not justifiable.

Another interesting aspect of this case was whether IRI should be bound by the Order. The question arose because it was apparent that the use of exclusive contracts for data by any firm in this business would result in a monopoly. The evidence of the Director's economics expert, Prof. Ralph Winter, supported this view. However, IRI was not a Respondent, it was not a dominant player and s. 79 wording did not allow the making of an order to "any other person" as is the case in s. 92, the merger provision. The order has to be directed against a person engaged in the practice. However, the Chairman of IRI, during his testimony before the Tribunal, gave a commitment not to enter into exclusive contracts for data if Nielsen were prohibited from doing so. The Tribunal recorded that undertaking in the preamble to the Order, which of course Nielsen was required to deliver to all the retailers from which it obtained data.

Another issue particular to this case was whether the Tribunal should order the contracts between A. C. Nielsen and the data owners be voided or should it only declare the exclusivity clause unenforceable. From Nielsen's perspective, the latter option meant that they would continue to pay the high price for the data while not getting the benefit of the exclusivity for the duration of its contracts. The Tribunal said "The ... problem is that Nielsen might have to continue its current level of payments without receiving the benefits of exclusivity the payments were intended to secure, while its competitor makes payments at a lower level. We make no comment on whether or not this is a valid concern for the Tribunal to address as we received no submissions on the point." The Order prohibits Nielsen from enforcing the exclusivity provisions in its existing contracts.

Finally, the entry of IRI in the market required that IRI get access to historical data, so it could produce time series. The Order issued by the Tribunal provided on that score that if it were necessary for IRI to obtain historical data from Nielsen, if would pay 50 percent of the cost Nielsen had incurred to "clean up" the data originally, and 100 percent of any additional cost to supply the data. We are not aware if this has proved necessary.

2) Yellow Pages/ CANYPS

The Director made an application in September 1994 before the Competition Tribunal for a Consent Order under the abuse of dominance provisions of the Competition Act regarding telephone company Publishers. The relevant product in this application was the publication of Telephone Directories. These directories are published by telephone companies (Telcos), or companies authorized by Telcos or other suppliers and are generally regional monopolies. The Telephone Directory industry can be viewed as having a 'publishing side' and a 'selling side'. The 'publishing side' relates to production of a Telephone Directory, and the 'selling side' to the provision of services relating to the sale of advertising in a Telephone Directory. As the product in this application was produced by the Respondents, the Director submitted that since the Respondents substantially or completely control the business of publishing Telephone Directories, in each of their respective territories, they jointl y control this class or species of business for the purposes of subsection 79(1)(a) of the Act. The Telcos did not question the Director's claim of joint dominance in the presence of an agreement among themselves (the CANYPS Agreement).

The anti-competitive acts alleged by the Director in this application which flowed from an agreement among the Respondents were: directed sales (i.e., only the Respondents could sell National Advertising directly into Telephone Directories); allocation of markets and an agreement not to compete; and controlled purchases (i.e., the National Advertiser was precluded from the placement of advertisements directly with all the Respondents which actually published the advertisements or from using independent Selling Companies to place the advertisements directly in each Respondent's Telephone Directories). Since these anti-competitive acts enabled the Respondents to preserve or add to their market power, a test laid down in NutraSweet, the element of substantially lessening or preventing competition in the market was satisfied. As stated by the Tribunal, "The operation of the CANYPS Agreement necessarily meant that no entity other than the Respondents could compete in Canada for National Advertising accounts as a Selling Company. Thus, barriers to entry were total."

In light of the above, the Consent Order directed the Respondents to cease engaging in certain alleged anti-competitive acts associated with the sale of National Advertising in Telephone Directories. Some of the important prohibitions in the Consent Order were: a head office rule for allocating advertisers; exclusive selling arrangements; refusal to deal with any Selling Company; discriminating between Selling Companies; refusal to license Yellow Pages trademarks to Selling Companies, agreement among the Respondents regarding the rate of commission payable, commission criteria, etc. The Respondents agreed to the Consent Order.

One of the most interesting issues that emanates from the Yellow Pages application is the applicability of the abuse provisions to situations involving joint dominance. Given the jurisprudence on the words "one or more persons", there was no difficulty in establishing joint dominance in the presence of an agreement in the Yellow Pages application. The more interesting interpretation of the words "one or more persons" would be to situations where an informal arrangement or even just a parallel behavior exists. There is a wide spectrum of behaviour ranging from explicit written agreements to situations of pure recognition of each other's mutual interest which the abuse of dominance provisions address. The frontiers of this section have not been tested yet. This is certainly a challenge that we would not hesitate to take on if the appropriate circumstances should arise.

The issue of access was also a feature in the CANYPS case. Not only did the agreement prevent competition among the Telcos, it also excluded the independent Selling Companies from the market. The order opened access to the placing of National Advertising by independent Selling Companies. The Respondents insisted that the order specify as a condition of entry that independent Selling Companies were required to place orders through the VAN (Value Added Network) system, a system of electronic order placements which had been adopted by the Canadian industry. To further facilitate the entry of independent Selling Companies, a transition period was established during which a minimum commission rate of 25% was paid on certain accounts.

Solving the competitive problems raised by CANYPS was only one of the dimensions that the order sought to address in attempting to solve the industry's competitive problems. In this regard, the order specifically stated that nothing in the order should be taken as preventing the Director "from making a further application to the Tribunal at a future date in respect of anti-competitive practices or acts engaged in by the individual respondents in the conduct of their business".

3) Yellow Pages/Tele-Direct

It must have come as no surprise that a further Application was made on December 22, 1994. The Director filed this Application pursuant to section 75 (refusal to deal), section 77 (tied selling) and section 79 (abuse of dominance) regarding two Yellow Pages Publishers - Tele-Direct (Publications) Inc. and Tele-Direct (Services) Inc. The refusal to deal allegation was subsequently withdrawn as a result of a CRTC decision. The relevant products in the Tele-Direct Application were telephone directory advertising space and telephone directory advertising services. The Director alleged that in the absence of adequate substitutes and in view of their dominant position, the two publishers are dominant providers of telephone directory advertising space and advertising services in their respective areas. The geographic market for the provision of advertising services was defined as Ontario, Québec, New Brunswick, Newfoundland and Labrador, Northwest Territories and Yukon Territory. T hese markets are largely regional in nature and conform to the areas covered by a single directory.

The Director alleged a number of anti-competitive acts pertaining to both telephone directory advertising services and advertising space; however, none of them exactly satisfy paragraphs 78(a) to 78(i) of the abuse provisions. Regarding advertising services, the anti-competitive acts include: 1) tying of advertising services to advertising space; 2) refusal to deal directly with consultants; 3) providing advertising space on less favourable terms to independent advertising agencies; 4) squeezing the return available to competitive advertising agencies; 5) refusing to supply specifications for the placing of ads in Yellow Pages; and, 6) refusing to license trade marks. Regarding advertising space, the anti-competitive acts include: 1) targeting price reductions and discounts to competing publishers; and, 2) causing advertising agencies to discriminate against the respondents' competing publishers through refusing to place advertisements or otherwise. The result of the above anti-com petitive acts had the effect of preventing or lessening competition substantially in telephone directory advertising services and advertising space, according to the Director.

In the relief sought, the Director requested the Competition Tribunal prohibit the respondents from tying the sale of advertising services to the sale of advertising space in the Yellow Pages directories and from engaging in other anti-competitive acts.

While I do not think it would be proper for me to comment on this case as it is before the Tribunal at this present time, let me mention that this case raises, as the previous case, the issue of access. In particular, to what extent can Tele-Direct, which owns the Yellow Pages directories, refuse independent parties access to its directories for selling advertising, or to what extent can it impose conditions on such access?

I mentioned initially that the refusal allegation by the Tele-Direct companies to provide subscriber listing information to independent publishers was subsequently withdrawn from the Application. In January, 1994, the CRTC issued a public notice with respect to the Provision of Directory Database Information initiating a proceeding with regard to whether these activities of the telephone companies were under the jurisdiction of the CRTC, and should they be required to make non confidential residential and non residential listing information available on an unbundled basis. The Director became an intervenor in the proceeding and made a submission on this matter. However, the Director decided that this refusal also applied under section 75 of the Act and he asserted his jurisdiction by making an allegation to that effect as part of his application to the Competition Tribunal in December 1994. It was only after the CRTC reached its decision in March, 1995 requiring the telephon e companies to make this information available that the Director amended his application withdrawing the refusal allegation. While the Director's position is that the regulated conduct defence does not apply to the civil provisions of the Act, in practice this aspect of the case was resolved to a large extent when the CRTC rendered its decision and there was no point in pursuing this matter before the Competition Tribunal.

There are a number of issues which arose during the hearing that the Tribunal is likely to examine. For example, under tied selling, an important issue will be the determination of whether advertising services and advertising space are separate products or whether they are simply two components of one single product. As well, there is the issue of whether an efficiency defense could be read into the tied selling section. Regarding the abuse allegations, there is the question of market definition and whether other local media are sufficiently close substitutes for Yellow Pages advertising to be considered in the same product market. Does a dominant firm have a "duty to deal"? A question also arose, as in the NutraSweet matter, as to whether a practice such as tied selling which has specific provisions in the Act can also be considered as an anti-competitive act under the abuse section. In relation to the trade mark issue, does the Tribunal have the jurisdiction to make an ord er relating to trademarks? These are some of the issues before the Tribunal.

4) Interac

Another case that raises access issues, but this time, to a network is the Interac case. On December 14, 1995, the Director of Investigation and Research made an application to the Tribunal for a Consent Order under sections 79 and 105 of the Competition Act, regarding the supply of shared electronic network services for consumer-initiated shared electronic financial services. The Order which is presently being considered by the Tribunal, would direct the respondents (six banks, one trust company, the federation of Caisses Populaires Desjardins of Québec and the Credit Union Central of Canada, - all referred to as founding charter members of the Interac Association - and Interac Inc.) to cease engaging in certain anti-competitive acts. It also contemplates additional measures that are necessary to restore competition.

In this case, Interac was alleged to be the dominant supplier of Shared Electronic Network Services in Canada for several reasons. More than ninety percent of shared cash dispensing transactions in Canada take place through Interac; further, Interac links nearly all the ABMs in Canada and there are no viable substitutes for shared electronic network services. The respondents also jointly have substantial or complete control of the relevant product throughout Canada, since the respondents have combined to offer shared electronic network services through a single association (Interac) which is controlled by them.

The anti-competitive acts alleged by the Director of Investigation and Research can be classified into three broad categories: 1) restricting access to the Interac network; 2) the creation of barriers to product innovation; and, 3) access and service pricing, all of which had an exclusionary purpose. On the question of restricting access, the founding charter members adopted narrow eligibility requirements through their control over the governance of Interac. For example, the right to directly connect to the Interac network; restriction to Direct Clearers of the Canadian Payments Association; restriction to those entities which deploy ABMs, etc. Regarding product innovation, only those new services that received the overwhelming support of the Board were introduced. And if you didn't agree with the Board, you would have to surrender your equity share in the corporation. Therefore, very few new services were introduced. Further, the Interac software was not made available for any ne w bilateral or multilateral services.

On the final issue, Interac's access pricing was set on the basis of the number of cards the new member was introducing to the system. In the case of AMEX, the entry fee alone was $ll.0 million. At the other end of the spectrum, the very small institution with no more than few hundred cards was faced with a minimum $100,000 entry fee. These significant and otherwise discriminatory fees had an exclusionary effect in this market.

These anti-competitive acts had the effect of preventing or lessening competition substantially in the intermediate market of shared electronic network services by impeding the entry of competitors. In addition, the substantial lessening of competition also occurred in the retail markets. In light of the above, the Director of Investigation and Research sought a Consent Order to achieve four objectives: 1) access to the Shared Electronic Network Services on a nondiscriminatory basis by new participants; 2) creation of an environment conducive to innovation within Interac by revising its governance structure; 3) strengthening the incentives for product and service innovation among individual Members; and, 4) restoring competitive pricing by removing prohibitive fees and other constraints. These objectives were to be achieved through the amendments to Interac Association; and Interac Inc. The case is presently before the Tribunal.

The Interac case posed some new and interesting considerations from a Canadian competition law perspective. First, Interac is a network of numerous participants and not all participants have similar interests. The membership is comprised of financial institutions which are both extremely large like the Royal Bank, and those which are quite small, like the rural credit unions. Similarly, some members are more active than others in the placing of ABM and EFT/POS terminals to support and promote the utility of the network.

Generally speaking, the fact that sharing these types of facilities is a fairly recent phenomenon and the fact that the interests of the members in these sharing arrangements are quite different has lead to the emergence of a new and rapidly growing area of economics.

The deliberations over the appropriate remedy in the Interac matter is a testimony to that. Before settling upon the remedy which was detailed in the Director's application, there was considerable discussion on whether the appropriate remedy should be to divest or split Interac into at least two competing national networks. A major consideration was whether the welfare gains achieved through inter-network competition would outweigh the losses of efficiency that could result from the divestiture. In the final analysis, the Director's view was that the intra-member competition that would result following the implementation of the draft consent order and the new possibilities that were created through the use of the Interac network software, to promote bilateral and multilateral new shared services, was the minimum required to restore competition in these markets.

The issue of pricing was also quite complex. In providing a shared service to a consumer, there are effectively three separate levels of pricing (i) those prices collectively determined by the Board of Interac (i.e., entry and interchange fees); (ii) those charged by some members to sponsor new members onto the system; and (iii) proprietary charges of the financial institution upon its customers, whether they are consumers or retailers.

The Draft consent order effectively eliminates most of the collective fee setting and removes the restraints on members from pricing their terminal services in the market (i.e., the elimination of the surcharge prohibition). The single largest change to the Interac fee structure was the removal of the service access fee or the initiation fee and replacing that with a user fee. This user fee may only permit Interac to recover its actual direct costs associated with operating Interac. Interac has been relegated to a not for profit corporation. In addition, this user fee or the switch fee, will include a small amount to compensate the owners of Interac for their actual investment in the development of the software, and no more. Interac is however, free to market this software in other markets on a for profit basis.

Four parties were granted rights to intervene with respect to the draft consent order. These were the Retail Council of Canada, the Canadian Life and Health Insurance Association, a group of independent investment dealers and TelPay, (a company engaged in providing bill payment services). The intervenors have asserted that the draft consent order is not sufficient to restore competition in the relevant markets and, unless revised, it should not be approved by the Competition Tribunal. The Intervenors wanted the draft consent order revised so that parties other than deposit taking Financial Institutions would be able to connect directly to the network as card issuers. If not, competition in the supply of Interac branded cards which access funds held for consumers would not be effective. The Competition Tribunal has reserved judgment on this matter.

Some Emerging Issues

This review of recent cases brings us to consider the challenges that the Director faces in the enforcement of the abuse of dominant provisions of the Competition Act.

1) Industries in Transition

A most important development in recent years has been the deregulation of major sectors of the economy, such as transportation, telecommunications, financial institutions, and energy. They are emerging from the constraints of regulation to the dynamism of market discipline. As such, they are becoming fully subject to the application of the Competition Act. This raises a number of issues that are worthy of consideration.

The first question relates to the application of the regulated conduct defence to situations of abuses of dominance. It is clear that when an industry regulation has been removed entirely, the industrial activity is subject to the Competition Act. In the transition period, the jury is still out on whether this defence applies to the civil provisions of the Act. The Director's position is very clear on this. We believe that the defence does not apply and there is concurrent jurisdiction. The Director made it clear that he is maintaining that view because of his obligations to enforce the Act which he cannot abdicate in the absence of clear Court decisions on the matter.

A second issue relates to the applicability in Canada of the essential facility doctrine developed in the United States. In many industries that are subject to deregulation, an incumbent firm was given some monopoly power to compensate for some public duty it was responsible for carrying out. Often these firms are in control of facilities that new entrants need access to in order to become competitive. This raises the issue as to whether the current Act is capable of dealing with these new problems.

The essential facility doctrine has its origins in the United States v. Terminal Railroad Association of St. Louis case in the early nineteen-hundreds. There has been a number of cases where this doctrine was evoked. The best articulated and the leading case on this doctrine is MCI Communications v. American Telephone & Telegraph Co. The Court cited the essential facilities doctrine as the basis for its decision and stated: The case law sets fourth four elements necessary to establish liability under the essential facilities doctrine: (1) control of the essential facility by a monopolist; (2) a competitor's inability practically or reasonably to duplicate the essential facility; (3) the denial of the use of the facility to a competitor; and, (4) the feasibility of providing a facility. While this doctrine has some relevance to the abuse of dominance and refusal to deal provisions of the Competition Act, it is not directly relevant to the Canadian courts. It is worth noti ng in this regard that in none of the cases brought before the Tribunal did the Director refer to the doctrine. Unlike the U.S. law which is general and whose specificity has been developed in the jurisprudence, in Canada our legislation is much more precise. The Canadian approach as described earlier, centres on three elements: substantial control, a practice of anti-competitive acts and a substantial lessening of competition.

A third issue is that many of the industries emerging from the yoke of regulation employ networks to supply some of their goods or services. A characteristic of a network is that their usefulness to users increases as the network expands and there may be strong efficiency considerations in the operation of a network. These efficiency considerations can often mean that when crafting a remedy in an abuse of dominance case, the optimal remedy may not involve divestiture of assets or the breaking up of the network. Rather the remedy will concentrate on issues of governance and access pricing. This does not rule out that in some case, the Director may want to consider whether the market might be best served by establishing competing networks.

The pricing of access to monopoly facilities, particularly when they are networks, is one of the thorniest issues in competition law. The economic literature on the issue of pricing access to essential facilities provides basically two approaches. The first one is called the Ramsey Rule and the second one the ECPR (Efficient Component Pricing Rule).

The Ramsey Rule in its simplest form states that the more the demand is inelastic, the higher the price should be. The economic rationale is that it is in such circumstances, the lower the social welfare losses are to society, or in economic jargon, the more inelastic the demand, the less important is the dead weight loss. The Ramsey Rule has its drawbacks. In some situations, requiring that the person who needs the service the most to pay the highest price may be tantamount to allowing profiteering by the monopoly provider.

The other theory, ECPR, states that the new entrant should compensate the monopoly facility provider for the direct cost of connecting plus the loss that the monopoly provider would incur in the downstream market due to the increased competition from the new entrant. This formula provides for the entry of firms that are more efficient than the incumbent. However, if the new entrant has to compensate the monopolist for his loss of his monopoly rent in the downstream market, a question is raised as to what is the benefit to society of such pricing.

The Director through the years took various positions on pricing issues that were required mainly by the circumstances at hand. In the Gemini case, one of the issues was to enable competing reservation systems, more particularly Sabre, to access the seating inventory of Air Canada and Canadian Airlines on the same basis as the Gemini system. In order to allow that, an electronic link had to be developed that would enable the two systems to talk to each other. The party requesting the link would pay the incremental unmarked up costs of providing the link. Disputes with respect to the incremental costs would be subject to arbitration. There was no compensation for the loss of monopoly rent.

In the Imperial Oil/Texaco case, independents were concerned that the new merged entity could have sufficient market power to squeeze them out of the market. The Consent Order resolved that issue by requiring Imperial Oil to supply annually a given volume of gasoline to independents. No price was specified; it is the market that determined the price component. Imperial Oil would contravene the order if it failed to sell the required volume. While this approach worked for the supply of a commodity, it is doubtful that it would work in a service industry or in the presence of a monopoly seller.

The more recent pronouncement of the Director was in response to interrogatories in the CRTC proceeding on Local Interconnect and Unbundling. The Director recommended that the access price to the local telecommunication network be the foreseeable long run average cost using the most efficient technology. In practical terms this means that the local Telcos would not be compensated fully for their past investments.

The Interac draft consent order provides to a large extent the same pricing mechanism: a very small contribution will be made to compensate past investments, and the users will pay the direct costs of operating the network on a volume of transaction basis.

In general, the abuse of dominance provisions focus on exclusionary conduct, and exclusionary conduct is associated with low prices. The charging of high prices is perceived as favouring entry and as such is not an anti-competitive act. An exception to this is a situation where a dominant, vertically integrated firm charges high prices for intermediate products for the purpose of excluding competitors. In these cases, the pricing itself becomes an exclusionary practice. One form of a such a vertical price squeeze is described in paragraph 78(a) of the Act.

I do not think there is a magic solution to pricing issues associated with access to an essential facility. The pricing access approaches such as Ramsey pricing or ECPR may assist as a guide but certainly do not resolve the issue. For the foreseeable future, competition authorities will be compelled to proceed on a case by case basis in a practical and pragmatic manner. This is clearly an area where further economic research is warranted.

2) Intellectual Property

Over the past decade, with the introduction and rapid growth of information based technologies, both in Canada and globally, there is a developing interest in the uses and protection of intellectual property rights.

To date, we have not had a case before the Tribunal in which the abuse of intellectual property rights was the central issue. As we move towards a knowledge-based economy, I believe the Bureau will become more and more involved in reviewing and resolving allegations of abusive conduct arising from the misuse of intellectual property rights. These cases may be addressed under sections 32 or 79 of the Competition Act. Section 32 provides for a special remedy involving the use of intellectual property rights where their use has injured the competitive market process. In addition, a situation could arise where the alleged abusive conduct has had or will continue to lessen competition substantially in a market and be addressed under the abuse of dominance provisions.

Were there to be a challenge under section 79, the interesting issue would be to determine whether the act complained of was only the exercise of an intellectual property right or the enjoyment of any interest derived thereunder, and therefore exempt from the abuse of dominance provisions, or whether it could be characterized as an anti-competitive act. The wording of section 79(5) indicates clearly that the provisions remain applicable to practices that are shown to constitute abuses of intellectual property rights, as opposed to the mere exercise of such rights.

3) Globalization of Commerce

Globalization has emerged as one of the most important and noticeable driving forces of economic growth. Globalization of industry refers to an evolving pattern of cross-border activities of firms involving investment, trade and collaboration for the purposes of product development, production and sourcing, and marketing. Underlying the trend to globalization are technological advances, the liberalization of markets and increased mobility of production factors. Globalization has brought with it more intense competition, greater economic efficiency, greater need for adjustment and more demands on national and international policy.

These international developments have special implications for competition policy authorities. More specifically, markets will undoubtedly change and this will have implications for some of the provisions of the Competition Act, in particular the abuse of dominance provisions. Moreover, there will be greater need for international co-operation in the areas of competition policy and competition law.

Global corporations may engage in anti-competitive conduct to foreclose markets or for other exclusionary purposes. These restrictive practices could be facilitated because of lack of transparency, sharing of information among the new emerging forms of organization and the inability to investigate effectively anti-competitive practices arising from other jurisdictions. Further, these problems may be compounded by other difficulties such as defining markets with extraterritoriality, establishing control or joint dominance, and differences in the laws of various jurisdictions.

There is greater need for international co-operation in the areas of competition policy and competition laws, flowing from a number of emerging trends discussed earlier. The three key international issues that are expected to be in the limelight are procedural matters concerning questions of information exchange, national treatment and managing extraterritorial issues.

4) Case selection

In all of the abuse of dominance cases to date, the question of dominance or joint dominance has not been a major issue. In fact, in all cases, the market share of these firms exceeded 90 percent, within their respective product markets. These circumstances should not be construed as a precondition for the Director to proceed under section 79. Each case must be reviewed on its own merits. Whether a given market share is sufficient for a finding of dominance depends upon other key aspects of a case, such as the barriers to entry and the ultimate effect on competition. The Tribunal has said that "'control' is synonymous with market power" and as we know market power can be found at lower market shares.

In the Director's view, a market share of less than 35% by the dominant firm in a particular product and geographic market would likely indicate that the company does not have market power. On the other hand, the Director will not hesitate to proceed under section 79 where a market share of less than 90%, combined with other requisite market conditions, appears sufficient for a finding of dominance.

Similarly with respect to joint dominance, the cases brought before the Tribunal to date should not be thought of as establishing an evidentiary threshold. In both CANYPS and Interac, the issue was not in doubt due to the presence of explicit agreements. However, section 79 which includes the words, "one or more persons", clearly envisages situations which do not involve an expressed agreement to control the market. What the Tribunal will ultimately establish as a minimum to reach a finding of joint dominance cannot be determined, but it may well be considerably less than an explicit agreement. Since the Tribunal has repeatedly ruled that the challenged acts must have been intended to be anti-competitive, one possible approach might be to look for a common anti-competitive purpose or some other common facilitating device.

Concluding Remarks

I started this discussion with a review of the most recent cases. I provided you with some reflections on how we, at the Bureau, perceived these cases and some of the unique issues that they raised. Finally, I have given some indication as to where the challenges are from a competition law enforcement point of view, particularly with respect to industries in transition, intellectual property, globalization of commerce and case selection.

Let me emphasize, in conclusion, that the enforcement of the abuse of dominance provisions will continue to be the highest priority of the Civil Matters Branch. In carrying out this work, we rely heavily on voluntary cooperation at all stages of the process. Given the present resource constraints, this is the only avenue available for effective law enforcement. This approach will continue.

In appropriate circumstances, the Director will ensure that resolutions be brought before the Tribunal for the issuance of a consent order. Effective consent orders can save significant financial and human resources for both the private parties and the Government while achieving the objectives of maintaining and encouraging competition in Canada.

Also, we will continue to be careful about the cases we take. As you may know, we have developed a case screening criteria to assist us in enforcing the Act in the most effective way. While we will continue to use this criteria, I should mention that they are being revised to ensure standardization across the Bureau's branches. In so doing, we are attempting to improve the management of the Bureau's overall enforcement priorities. More and more, cases are being looked at under both the civil and criminal provisions to see what approach offers the most effective remedy which is, of course, a restoration of competition at the lowest resource cost.

The emerging issues which I have referred to will undoubtedly provide opportunities to develop the jurisprudence and clarify the law. It is to be expected that this will benefit the business community by increasing certainty and facilitating voluntary compliance with the law.

I look forward to your questions and the other panelists' views.