Competition Law and Policy in Canada

23^rd Annual Conference on International Antitrust Law and Policy
Fordham Corporate Law Institute
New York (New York)

October 17 - 18, 1996

---

Note: Remarks were presented by Don Mercer, Acting Deputy Director of Investigation and Research, for the Acting Director of Investigation and Research.

Introduction

It is a pleasure to be here today and I appreciate this opportunity to join distinguished international panel members to discuss the present state of affairs in competition law.

This morning, I would like to provide you with an overview of recent developments in competition law enforcement in Canada.

I will be briefly reviewing a number of major cases from the past year and looking at some of our efforts in industries in transition as well as other challenges. Finally, I will provide you with an update on our amendments proposal.

Recent Developments in Canadian Competition Law and Policy

Criminal Matters

While there were a number of notable criminal cases that the Bureau dealt with in the last year. I want to specifically address a few.

Three cases in the province of Quebec, involving driving schools, waste disposal services, and ready mix concrete, resulted in the first jury trial in the history of the Act, the first jail sentence imposed as a penalty in a conspiracy case, and record fines.

In the matter involving driving schools, the charges included conspiracy, price maintenance and predatory pricing. One accused individual elected trial by jury, which was held earlier this year. He was found guilty and the court imposed a one year jail sentence. In the sentencing decision the judge specifically recognized the seriousness of the offences.

In the waste collection matter, a single accused pled guilty on a conspiracy charge and was fined $1.95 million (Cdn.). This is the second highest fine imposed on a single firm under the Act. The fine represented 40% of the volume of commerce of the accused in the affected market.

The ready mix concrete matter related to a market sharing arrangement among competitors in Quebec City. The agreement was directed at projects requiring more than 300 cubic metres of ready mix concrete. Four firms pled guilty and were fined a total of $5.8 million (Cdn.). This is the second highest total fine against a group of accused.

This case also clearly demonstrates the effect of vigorous enforcement activity.

Following the Bureau's investigation, the bid prices for ready mix concrete in Quebec City dropped, resulting in significant savings for consumers and construction firms in the area.

Finally, I would like to mention that after six years of proceedings, a very significant conspiracy case was recently brought to a successful conclusion. On October 9, 1996, the last of seven executives was convicted for his involvement in the compressed gas conspiracy. The fines imposed on the parties in that case totals $6.46 million, a record for a Competition Act case.

Overall, I am encouraged that these results demonstrate a tougher attitude of the courts to competition offences, especially price-fixing and market sharing arrangements among competitors.

A much less satisfying result was the decision in a lengthy criminal conspiracy case in Ontario Court against five freight forwarders which are: companies providing transportation services by pooled, or jointly booked, railway freight cars, from Toronto to Western Canada.

Notwithstanding clear evidence of a long standing agreement to fix prices, the accused were acquitted on the grounds that the Crown did not establish that pool car services formed, on their own, a relevant antitrust market. Within the broader market accepted by the court, the agreement was not found to lessen competition unduly, which is the relevant test under Canadian law.

Finally with respect to criminal cases, let me update you on the Fax Paper matter, which involves an agreement among competitors based in Japan, the United States, and Canada to raise prices for thermal fax paper. This matter demonstrates the important benefits of successful enforcement co-operation between Canadian and United States authorities.

Effective co-ordinated efforts between The Bureau and the U.S. Department of Justice allowed us to co-ordinate the timing of investigative activities and prosecutions.

In July 1996, as part of this continuing investigation, the New Oji Paper Company Limited pled guilty to one charge of conspiracy to set prices and was sentenced to pay a fine of $600,000 (Cdn). This brings the total Canadian fines in this matter to nearly $2.6 million (Cdn.).

Significantly, this was the first prosecution in Canada of a Japan-based manufacturer for its participation in a conspiracy that directly affected the prices paid by Canadian consumers and businesses.

Telemarketing Issues

Turning from a discussion of specific criminal cases, I want to spend some time addressing the area of telemarketing. Although a generally legitimate activity, the abuse of deceptive marketing schemes in a broad range of areas has grown to significant proportions.

Fraudulent and deceptive use of telemarketing deprives legitimate companies of the use of an effective marketing tool. One estimate indicates that victims of deceptive telemarketing lost more than $60 million (Cdn.) in one year. Moreover, it appears that senior citizens on low and modest incomes bore the brunt of the losses.

With the growth in electronic commerce on the Internet, a vast new arena has opened for less ethical marketers. This will raise new challenges for law enforcement agencies that will require working together on creative solutions.

The issues include gathering evidence and locating the perpetrators of the crimes. As well, questions such as the role and responsibilities of service providers and other intermediaries, will need to be examined.

As I mentioned earlier, the Canadian and United States authorities have already achieved excellent results from working closely together.

The Canada-U.S. Competition Agreement Regarding the Application of their Competition and Deceptive Marketing Practices Laws, signed in August 1995, provides for improved and expanded notification, consultation and co-operation between antitrust authorities.

Following on that agreement, the Competition Bureau and the Federal Trade Commission signed an agreement on September 10, 1996, to establish a Joint Task Force on Cross Border Deceptive Marketing Practices.

We are aware that, with easy re-location of facilities and available technology, abusive telemarketers can readily target consumers located outside their country.

The task force will provide a framework for co-operation between the Canadian and American agencies with respect to deceptive telemarketing practices.

Although I will be updating you on the complete amendments package later on, I would like to describe the amendments aimed at deceptive telemarketing now.

We are looking at:

• creating an offence prohibiting deceptive telemarketing schemes that fail to disclose relevant information or involve advance payments;
• expanding liability regarding the actions of agents or employees; and
• improving the availability of interim injunctions to allow the immediate halt of a scheme, if warranted.

These proposals would likely enhance the effectiveness of telemarketing for legitimate businesses.

In another initiative related to deceptive marketing practices, the Bureau has prepared a video entitled "Scam Alert!" This is part of our efforts to better inform the public on this issue.

The video is designed to explain various fraudulent and deceptive schemes that are commonly offered over the telephone or through the mail.

Before leaving the topic of deceptive marketing practices I would like mention the International Marketing Supervision Network. The Network is an alliance of organizations from member and observer countries of the OECD involved with the promotion and enforcement of fair trading practices. Its primary objectives are to share general information on cross-border activities that impact on markets.

At the most recent Network conference, held in Ottawa in September 1996, examples of deceptive telemarketing schemes and successful cross-border enforcement initiatives were discussed.

Delegates also examined their different regulatory regimes and how these can be effectively reconciled to achieve the common goal of promoting fair trading practices.

With the globalization of business activity, advances in technology, and greater potential for international deceptive marketing practices, this type of proactive and co-operative approach to enforcement has become increasingly necessary.

Mergers and Civil Matters

I want to now mention a number of civil law matters from the past year, starting with a contested merger case that is currently before the Competition Tribunal.

On March 1, 1996, the Director challenged two acquisitions by companies controlled by a prominent U.S. businessman with extensive interests in the Western United States and Canada. Our application argues that the mergers are likely to lessen or prevent competition substantially for the provision of ship berthing services in Vancouver harbour and barging transportation services in British Columbia coastal waters.

The hearing is scheduled to begin in January, 1997.

Another matter involved the Law Society of Upper Canada, the governing body for lawyers in the Province of Ontario. On the basis of a complaint from a group of lawyers, the Director initiated an inquiry into the Society's requirement that all practising lawyers purchase professional liability insurance from a company wholly-owned by the Society.

The applicants alleged that the Law Society's scheme, which does not permit members to buy insurance competitively on the open market was contrary to the abuse of dominant position and tied selling provisions of the Act.

The Law Society brought a motion which challenged our jurisdiction. The Director argued that the Ontario Law Society Act does not confer a specific authority to operate a mandatory insurance scheme on behalf of its members and that the Society's motion was premature, given that the matter was only at the inquiry stage.

Prior to this matter, the issue of the regulated conduct defence had only arisen in criminal proceedings.

The jurisprudence holds that activities authorized or carried out pursuant to a valid scheme of regulation are deemed to be in the public interest and, therefore, cannot be found in violation of the Act.

In March 1996, the Court found that the Ontario Law Society Act contained specific authority to operate an insurance scheme and therefore the regulated conduct defence applied. Accordingly, the Director could not proceed with the inquiry.

The last civil case I would like to mention has generated a lot of interest. In June 1996, the Competition Tribunal granted an application by the Director, under the abuse of dominance provisions, for a consent order against Interac Inc. and its controlling charter financial institutions.

Interac, a Canada-wide electronic payments network, is the dominant supplier in Canada of a product defined as shared electronic network services. The application set out three broad categories of anti-competitive acts: restricting access to the network, creating barriers to innovation, and, pricing.

The Order requires Interac to expand the representation on its Board and to amend its rules and by-laws so as to eliminate the access restrictions and the current constraints to product innovation and price competition.

The result should be a more innovative and competitive market for electronic payments, including the potential for inter-system competition.

Regulatory Issues

No doubt, the financial services sector is one of several industries in transition, in which we will continue to see significant change

At present, the government is reviewing the legislative and regulatory structure of this sector.

Under consideration are a number of housecleaning amendments to certain statutes. As well, more substantive issues, such as mergers and the areas in which different types of financial institutions are permitted to operate, are being examined. The Bureau will be providing submissions on several of these issues as the process continues.

Another industry in transition where the Bureau continues to be active is the telecommunications sector.

The ground rules for local interconnection, unbundling, resale and other issues regarding access to telephone company networks are being greatly revised.

This will no doubt, have a substantial impact on the structure and competitiveness of that industry.

As in the U.S. and other jurisdictions such as the United Kingdom, the telecommunications industry in Canada continues to evolve rapidly. The Government has announced its convergence policy. It sets a pro-competitive framework for the development of the information highway.

At this moment, the CRTC, our version of the U.S. FCC, is conducting hearings on interconnection, unbundling and resale issues. Decisions will be announced shortly. This a most important proceeding for the expansion of competition in local telephone service.

My submissions to the CRTC hearings incorporated a number of key recommendations including:

• significantly minimize regulation;
• not regulate new entrants;
• move aggressively to adopt market-based pricing;
• require incumbents to provide interconnection and unbundling to facilitate entry.

The Future and Competition Act Amendments

Now I would like to provide you with an update as where we are on our proposal to amend the Competition Act.

As mentioned last year at this forum, Canadian competition law was most recently amended in 1986. It has became clear, over the years, that some modification is needed to address emerging issues. Furthermore, we felt we needed better enforcement tools to meet the challenges of the modern business environment.

In part, the proposed amendments will address telemarketing and other marketing practices issues.

I have already described the amendments related to telemarketing. Here is what is proposed on other marketing practices issues:

• adding a civil law track to the existing criminal provisions; and
• refining the law regarding price comparisons.

These changes would provide more accurate market information to consumers and ensure fair and effective rules of the game for businesses. The criminal law track would still remain for the most egregious of offences.

Other proposed amendments would:

• make prohibition orders a more effective tool to promote compliance with the criminal law provisions and avoid costly prosecutions , and
• create more effective provisions with respect to pre-merger notification, including stronger information requirements to provide the Director with a better information base to assess mergers.

We had intended to propose amendments to the confidentiality provisions of the Act, to better facilitate co-operation between the Bureau and international anti-trust agencies.

However, a recent decision rendered by the Federal Court of Canada (Trial Division) in the Karlheinz Schreiber case has resulted in these proposals being set aside. This decision, which is under appeal, holds that prior judicial authorization ought to be required before a request to search for and seize records can be submitted to a foreign authority.

It became clear that the issues of the confidentiality of information and international mutual assistance need to be considered together.

Accordingly, amendments in this area have been deferred until these issues are clarified.

As I am sure you are aware, the Competition Bureau, like other government agencies, continues to operate under severe resource constraints. To make better use of our available resources, we are actively encouraging compliance initiatives.

This includes a program of public education on the provisions of the Act, focusing on the small business community. In addition we will be shortly releasing a bulletin setting out the Bureau's views on the essential elements that should be part of corporate programs designed to ensure compliance with the Competition Act.

Another change coming for the Bureau, is the proposed implementation of cost recovery for some of our services, for example, pre merger notification filings. Revenues from this initiative will be used to fund improvements in the activities of the Bureau. We expect to be consulting with the business and legal communities on this topic in the very near future.

Closing Remarks

In closing, for 23 years Fordham School of Law has gathered us here to consider competition law enforcement in an international context. It is evident daily, from business press reports, that international commerce is growing at an incredible pace.

In Canada, the growth of international competition and, for many industries, the accelerating transition from regulation to competition will continue. The Competition Bureau and other antitrust agencies face new and exciting challenges.

To better equip the Bureau to confront these challenges we will continue with the process of updating our competition law. Along with this amendment process, the Bureau will continue its initiatives in communicating our policies and views to the legal and business communities to assist them in complying with the laws of Canada.

Finally I hope that my comments today have demonstrated to you that the Government of Canada is continuing its commitment to effective competition law enforcement. This includes a proactive approach to international enforcement initiatives and co-operation with all participants in the antitrust field - government, business and academia, such as the Fordham Institute.

I wish to thank the organizers for giving me this opportunity to be with you today.