Business Across Borders - Competition Law Enforcement In A Global Environment

Remarks by Francine Matte, Q.C.
Acting Director of Investigation and Research
Competition Bureau

11th Commonwealth Law Conference
Canadian Bar Association Annual Meeting
Vancouver

August 27, 1996

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I. Introduction

Mr. Moderator, fellow panelists, ladies and gentlemen -- good afternoon.

I appreciate the opportunity to participate in this panel on international competition law.

On behalf of the Competition Bureau and my Department, Industry Canada, I would like to extend a warm welcome to our distinguished visitors from the Commonwealth family of nations, our neighbours from the United States, and participants from elsewhere. I hope you enjoy a most pleasant stay in Canada.

Our theme today, Competition Law Enforcement in a Global Environment, is timely due to the need to address the difficulties of enforcing national competition laws against international anti-competitive business activity.

The liberalization of trade, through the WTO and regional free trade agreements, is fostering the evolution of a competitive global marketplace in which more and more business activities cross national borders. This results in pro-competitive effects in markets worldwide which benefit both individual consumers in terms of product choices and price, and promotes economic growth and efficiency which in turn makes domestic businesses more competitive in global markets. While the great majority of these activities are legitimate in nature, we must be aware that the increasingly international nature of business activity creates greater potential for international anti-competitive activities.

It is in this context that I would like to highlight some developments affecting Canada in particular with respect to international competition law enforcement in terms of two broad areas: Canada's recent experience in international cooperation, and prospects for the future.

II. Canada and the Internationalization of Competition Law

As I just mentioned, the rise in international trade is largely-pro-competitive but we must be aware of the increased potential for cross-border anti-competitive activity. The problem is that the jurisdiction of most competition laws is national, meaning that national competition authorities acting alone often cannot address international anti-competitive activity directed at their markets.

I believe that the most practical way to guard against such international anti-competitive activity is to show companies that they cannot rely on boundaries between jurisdictions to shelter them from the consequences of their illegal activity. Law enforcers have dealt with this problem in part through cooperation agreements with other enforcement agencies, particularly with their major trading partners. The effectiveness of Canadian enforcement has benefited from the expansion of both the number and the substance of our cooperation agreements with foreign enforcement agencies.

A. Instruments of International Cooperation - Multilateral and Regional

Canada has had a wide-ranging experience with multilateral, regional and bilateral cooperation agreements. A multilateral example is the 1995 OECD Revised Recommendation Concerning Cooperation Between Member Countries on Anti-competitive Practices Affecting International Trade, which is the latest in a series of non-binding agreements which provide for cooperation and consultation between member states. The OECD has proved, time and again, to be a very useful forum for the exchange of information about its members' competition laws and policies. The North American Free Trade Agreement ("NAFTA") incorporates a chapter on competition and has similarly proved itself to be a useful medium for discussing competition policy concerns.

B. Instruments of International Cooperation - U.S.

By far, the most significant achievements in enforcement cooperation have taken place between Canada and the United States, which have developed in large measure due to geography and our close economic relationship. Canada and the United States have had several formal bilateral understandings on competition law dating from 1959, including the 1990 Mutual Legal Assistance in Criminal Matters Treaty (or "MLAT"), and leading up to the most recent bilateral agreement which was signed last summer.

When the opportunity arises in the context of a criminal antitrust violation, the MLAT allows for extensive and formal cooperation and coordination. It allows enforcement authorities of either country to invoke the assistance of compulsory processes -- such as search warrants -- in the other country, and for the sharing of information, subject to confidentiality requirements, in order to obtain evidence of criminal offenses. I don't have to tell you that this is a powerful instrument against anti-competitive activity originating from or otherwise linked to the other country.

In addition to the MLAT, the 1991 amendments to the Canada/U.S. Extradition Treaty have also considerably expanded the potential scope for cooperation in enforcement, and were used to cause an American corporation and individual to attend a Canadian criminal court which resulted in a conviction in the Thomas Liquidation case. This case relates to misrepresentations in a letter circulated by Thomas Liquidations Inc., which claimed that a furniture store was being forced to close and would be required to sacrifice inventory, and that buyers could save as never before. All of these claims were later determined to be untrue and a fine of $ 130,000 was levied.

The most recent Canada-U.S. agreement also expands our enforcement abilities, and served to update and replace the 1984 Memorandum of Understanding which focused on conflict avoidance. The 1995 Canada-U.S. Agreement Regarding the Application of their Competition and Deceptive Marketing Practices Laws now provides a framework for closer collaboration in the enforcement of our competition laws. In substantive terms, the Agreement incorporates an improved notification procedure, provides for expanded consultation and cooperation to minimize disputes between the two countries' authorities, and, for the first time, expands the ambit of our cooperation to include deceptive marketing practices.

The 1995 Agreement aims at establishing a more formal framework for cooperation in this area. For example, Canada and the U.S. have agreed to use their best efforts to cooperate in the detection of deceptive marketing practices, to inform each other of investigations and proceedings occurring, originating or affecting consumers in the territory of the other party. We have also agreed to share information on the enforcement of our deceptive marketing practices laws, and to study measures to further enhance the scope and effectiveness of cooperation.

To this end, the Competition Bureau and the Federal Trade Commission have agreed to establish a joint task force on cross-border deceptive marketing practices by the end of this year. The primary purpose of this task force is to provide a framework for implementing increased cooperation with respect to deceptive marketing practices with a transborder component.

This particular advance in cooperation is extremely important given that modern telecommunications and direct marketing by mail make it very easy for perpetrators in one country to target victims in another country.

A specific concern is the boom in telemarketing fraud. This typically involves representations made by telephone to promote the sale of products that either do not exist or are offered at grossly exaggerated value. Typical scams involve victims being asked to pay advance fees prior to being sent a non-existent prize, or to buy a cheap gift at an inflated price in order to qualify for a prize.

Telemarketing scams all too often operate from another jurisdiction and are extremely mobile. The perpetrators can disappear one day only to resurface a few weeks or months later at another address under another name. Telemarketing scams present a serious challenge to the ability of authorities to conduct timely investigations.

The Bureau considers deceptive marketing practices to be of such importance that, as part of its Public Education Initiative, it has produced a video entitled "Scam Alert!" to warn consumers and businesses about telemarketing and mail deception.

I would also like to say a few words on the International Marketing Supervision Network. The Network involves more than twenty member-countries from Europe, the Americas, Australia, New Zealand and Japan. Members regularly exchange information as to practices with a view to promote international cooperation in detecting and fighting unfair and deceptive marketing practices. The Deputy Director responsible for the Bureau's Marketing Practices Branch represents Canada as chair of the Network. At its next meeting in September, one of the items on the agenda is the issue of telemarketing practices. It is my belief that the Network is an essential forum to develop international cooperation among law enforcement authorities and consumer protection agencies.

C. Benefits of Cooperation

Of course, these types of agreements are of limited value if they do not have practical application. Fortunately, the Canada-U.S. experience demonstrates that international cooperation can be beneficial and highly effective.

Cooperative efforts between Canada and the United States in the Fax Paper, Plastic Dinnerware, and Ductile Iron Pipe cases have led to convictions for price fixing and substantial fines in Canadian and U.S. courts.

The Fax Paper case involved an international conspiracy to raise the price of thermal fax paper in North America. The conspirators were based in Japan, Canada and the U.S. The conspiracy was originally uncovered by the Canadian Competition Bureau, which determined that the conspiracy affected both the Canadian and the U.S. markets and that evidence was located mostly in the U.S. The Bureau used the 1984 Memorandum of Understanding to notify the U.S. Department of Justice of the conspiracy, and used the MLAT to request their assistance in gathering evidence in the U.S. Cooperation involved extensive coordination with respect to planning and strategy, joint interviews and searches. Open communication and sharing of information also allowed us to coordinate the timing of investigative activities and prosecutions. This joint investigation is still continuing, and guilty pleas have been entered and substantial fines have been paid by the concerned parties in both the U.S. and Canada.

The Plastic Dinnerware and Ductile Iron Pipe cases are also excellent examples of joint work -- although in these cases, prosecutions and pleas did not take place in both countries. Plastic Dinnerware involved a conspiracy among both U.S. and Canadian parties to raise the price of plastic dinnerware sold in the U.S. The U.S. resolution of the case benefited from the gathering of evidence in Canada under the provisions of the MLAT.

The Ductile Iron Pipe case involved a conspiracy to have a U.S. pipe manufacturer exit the Canadian market. Open discussions and exchange of information between the Bureau and the U.S. DOJ helped to determine that the main effects of the conspiracy were in Canada, and in collecting a record fine in Canada of $ 2.5 million.

D. Lessons Learned from Cooperation and Room for Improvement

The Fax Paper, Plastic Dinnerware and Ductile Iron Pipe cases demonstrate that close cooperation between competition authorities can be an effective instrument to address anti-competitive conduct with an international dimension. In all three cases, early notification of the activities of one authority allowed the other to commence and coordinate its investigation at an early stage, resulting in joint prosecutions in one case and parallel investigations in the two others.

Despite our successes, there remains room for improvement in the scope of our cooperation. Currently, both U.S. and Canadian laws prevent the exchange of confidential information which often contains key evidence related to a case on the other side of the border. Another apparent gap is the fact that the use of compulsory processes to obtain information on behalf of the other authority is limited to criminal investigations.

The U.S. has taken the initiative by passing the International Antitrust Enforcement Assistance Act ("IAEAA") which provides for the communication of confidential information and for the use of an agency's compulsory investigative powers on behalf of a foreign antitrust authority in both criminal and civil matters. Sharing of confidential information requires that there is a mutual assistance agreement with the foreign authority; the foreign country has or will provide an equal level of assistance; confidentiality safeguards exist at a level equal to that in the U.S.; and only if the exchange is in the public interest. However, this cooperation is subject to the entering of reciprocal agreements, and we cannot reciprocate under our current legislation.

III. Future Prospects for International Competition Law and Enforcement

A. Amendments

As many of you know, at the behest of the Minister of Industry, the Hon. John Manley, since June of 1995, we have been engaged in consultations on amendments to the Competition Act. A Consultative Panel made extensive recommendations to the Director on the subject this past March.

One of the major areas we have examined is confidentiality and international cooperation. The Bureau's existing policy on confidentiality already attempts to strike a balance between the need of the Director to exchange information with other agencies in order to effectively enforce the Competition Act, and the concerns of the legal and business communities that commercially sensitive information provided to the Director not be communicated to third parties. Under the current legislation, only the types of information enumerated under section 29 of the Act receive explicit protection against communication to third parties. However, our present policy is to treat all information received that is not publicly available as confidential, and not to share it with other agencies except in instances where doing so would assist us in the administration or enforcement of our legislation.

The amendments package is intended in part to enable us to reciprocate the cooperation which foreign enforcement agencies may provide to us. It would clarify the Director's ability to assist our foreign counterparts in terms of authorizing the use of compulsory investigative powers under the Act on their behalf, and would also clarify the Director's ability to exchange confidential information with these other enforcement agencies.

B. Impact of Schreiber Decision on International Enforcement and Amendments

The recent decision rendered by the Trial Division of the Federal Court of Canada in the Karlheinz Schreiber case potentially has an impact on the amendments process which I have just mentioned. It also has potential ramifications for international enforcement issues important to the Competition Bureau.

This decision stands for the proposition that prior judicial authorization is required before a request can be submitted to a foreign authority to search for and seize records in that foreign country.

Naturally, from an international enforcement perspective, an additional level of judicial scrutiny would necessitate a new step in the process for making information requests to other countries. The effects of this decision have been stayed pending appeal.

As I mentioned, part of the proposed amendments would clarify the Director's ability to exchange confidential information with and request assistance from a foreign competition authority with a view to more effective and efficient enforcement of competition laws. The amendments did not contemplate a system of prior judicial authorization of requests for assistance as required by the Schreiber decision.

In light of this decision, I am assessing the impact it may have on the proposed amendments on confidentiality and mutual assistance. I am looking at options on which I will base my recommendations to the Minister. These options range from proceeding with the amendments package notwithstanding Schreiber, to holding up the amendments in this area pending the resolution of the appeal.

C. Future Cooperation

Finally, allow me to make a few observations on the future of international competition law enforcement.

As the Fax Paper, Ductile Pipe and Plastic Dinnerware cases illustrate, cooperative efforts with a foreign agency have directly resulted in the successful detection, prosecution and punishment of international anti-competitive activity.

The benefits of close cooperation extend beyond the more obvious points just mentioned. One benefit is that these agreements, and the cooperation which has taken place, have proven that enforcement cooperation can occur even amongst different legal and procedural regimes. Indeed, this substantial cooperation has led to a large degree of coordination in our enforcement approaches. This high degree of coordination allows for synergies in terms of reducing the amount of resources expended by each agency in an investigation.

This coordination also allows competition authorities to present more of a united front in addressing covert anti-competitive activity. It also allows us to keep track of case developments in other jurisdictions, and thereby ensure that certain pro-competitive activities, such as most strategic alliances and mergers, are not unnecessarily involved in time-consuming reviews by different agencies.

These increased contacts with other agencies lead to greater awareness of each other's laws and enforcement practices, which in turn tends to lead to greater similarity in enforcement approaches as we learn from the experiences of foreign agencies. Through our experience to date, we are already learning of areas where we could address anti-competitive activity even more effectively.

Such communication and coordination in enforcement also bodes well for international relations. Multilateral and bilateral cooperation efforts allow countries to understand and consider the interests of their trading partners, particularly when other countries' interests are affected by businesses' anti-competitive conduct or other governments' enforcement activities.

The inclusion of negative comity and, more recently, positive comity principles in these agreements also serves to limit the perception that a country needs to invoke extra-territorial application of its competition laws in order to combat international anti-competitive activity directed against it. The principle of negative comity has existed in Canada-U.S. agreements since 1959. Under this principle, one country forebears from enforcement activity that would affect the other's interests, or at least notifies the other of its intended enforcement action where such self-restraint is not practicable. Recently, the concept of positive comity that was first seen in theU.S.-E.C. Agreement in 1991 was also included in the 1995 Canada-U.S. Agreement. This principle is a strong deterrent against the use of extraterritoriality since it allows a country affected by foreign-based anti-competitive activity to request that the authorities in that for eign country undertake enforcement action against the offender.

It is by the continuing growth in both number and scope of these regional, multilateral and especially bilateral agreements that cooperation is evolving towards greater information exchange and respect for each other's competition laws and policies. The greater the exchange of information about what each of our nations views as important in terms of competition, the more natural the evolution towards similarity in our enforcement interests. I believe that the strengthening and deepening of cooperation will result in greater convergence in our approach to competition law enforcement while still respecting the fact that different nations may have different competition policy needs that would not be well served by a single uniform law or policy.

Domestically, as I have already mentioned, we are attempting to address improvements through our amendments process, which contemplates improving our domestic enforcement capability and our ability to cooperate with foreign competition law authorities, while accounting for the very legitimate concerns of business and the Bar regarding the sharing of confidential information.

Internationally, our experiences have already led us to upgrade our 1984 Canada-U.S. Memorandum of Understanding last year to the status of an international agreement with important new cooperative commitments, particularly those involving negative and positive comity. Our forthcoming bilateral agreement with the E.C. will be substantively similar to the 1995 Canada-U.S. Agreement.

IV. Conclusion

In closing, let me stress that there is increasing recognition that the current economic environment requires closer relations between competition enforcement authorities. It is clear that communication, consultation and cooperation between competition agencies is here to stay, and will continue and intensify.

Although there is clearly further work to be done with respect to specific mechanisms to enhance enforcement cooperation, the rationale for international enforcement cooperation is beyond dispute.

To be successful in establishing and maintaining an effective international enforcement framework, we need the support, cooperation and participation of the business and legal communities.