Decisions and Developments: Competition Law and Policy

Remarks Delivered by Howard I. Wetston, Q.C.
Director of Investigation and Research
Bureau of Competition Policy

To the Canadian Institute
Toronto, Ontario

June 8, 1992

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Introduction

I am pleased this morning to review with you highlights of the Bureau of Competition Policy's past year. It is a particularly opportune time, in view of the number of issues that have been decided judicially and the progress we continue to make in achieving compliance under the Competition Act.

My glance back over the last year reveals numerous activities, many of which I do not have the time to deal with today. Instead, I would like to focus my remarks on what I believe to be one of the most challenging aspects of our job -- ensuring clarity and certainty of our enforcement policy. There are two principal means by which this seemingly simple, but often very difficult, task is achieved; and in both the Bureau has made significant gains in the last year. First, we have received several key decisions from the Tribunal and courts. Second, the effectiveness of our enforcement policy has been enhanced through the openness and transparency achieved by the release of guidelines and our continuing pursuit of alternative case resolutions.

Important Decisions

The development of jurisprudence and the incorporation of judicial pronouncements into our policies and procedures have been a priority for the Bureau for some time. Considerable progress has been made in these areas to date. The last year has seen decisions from the Competition Tribunal and the courts in a number of important areas:

1. the first two fully-contested merger cases have been decided;
2. the Tribunal issued its decision in the second abuse of dominance case;
3. various constitutional issues have been advanced or decided; and
4. several significant criminal cases have been concluded.

1. Merger Decisions

The Hillsdown and Southam cases are the first two merger matters to be fully litigated before the Competition Tribunal. Perhaps as a result, both cases were plagued with procedural disputes. In Southam alone, there were a total of ten decisions on interlocutory matters.

One of the most important of these rulings relates to discovery. The Tribunal decided that documents obtained on discovery by the Director may not be used in proceedings for purposes other than the litigation at hand. Thus, the Director may be precluded from using information so obtained to discharge other potential investigative responsibilities under the Act. It is our view that this protection may not necessarily extend to information voluntarily and informally given at earlier stages of an examination. I believe that this restriction may impinge upon my statutory responsibilities to enforce the Act where I have reason to believe an offence has been or may be committed. The decision is, therefore, under appeal.

On the substantive issues in Southam, we received the Tribunal's ruling just last week. Given its very recent release, my comments on the decision are preliminary only.

In short, the Tribunal found that there will likely be a substantial lessening of competition for real estate advertising in the North Shore of Vancouver as a result of Southam's acquisition of both the North Shore News and the Real Estate Weekly. The Tribunal has directed counsel to re-attend proceedings in order to submit evidence and argument on the appropriate remedy to address the problem, and so has not issued an Order at this time.

In respect of the major part of the application, the Tribunal concluded that Southam's acquisition of The Vancouver Courier, a community newspaper in the city of Vancouver, and the North Shore News, on the neighbouring North Shore will not likely harm competition for advertising between the Southam-owned dailies and the community newspapers in the Vancouver area. The Tribunal was not convinced that the daily and community newspapers compete with each other for the same advertisers. It concluded that each type of paper offers a distinct set of characteristics to advertisers. As a result, it denied my application for an order seeking divestiture of these publications.

One feature of the decision which I believe is worth noting, from my initial reading, concerns the extensive analytical evidence which the Tribunal appears to require of the Director in contested merger cases. The Bureau will need to study both the scope and type of information which we gather during our review process, and the manner in which we gather it. For example, do we need to undertake major pricing research and other analytical studies during our merger review, which would, of course, extend the time and cost necessary to resolve difficult merger cases? I believe it would be difficult to balance such a requirement with the need for expeditious merger review.

I would like to spend a few moments discussing the Tribunal's decision in Hillsdown which was issued March 9, 1992. My application alleging that Hillsdown Holdings' acquisition of Ontario Rendering Company Limited (Orenco) would likely substantially lessen competition in the market for the supply of rendering material in Ontario was filed a year earlier, in February 1991.

The basis for this allegation stemmed from a number of factors. First, the merger significantly increased concentration in a highly concentrated market. Second, it was my view that foreign competitors were not likely to provide effective competition to the merged entity given the added costs of supplying the Canadian market from U.S.-based plants. What is important here was not whether the border posed an absolute barrier to the provision of rendering services, but whether it posed enough of a hindrance to allow the merged entity to raise prices materially. Third, rendering was a necessary service for which there are virtually no substitutes. Fourth, I believed entry by potential competitors was not likely to occur on a scale sufficient to ensure that a price increase could not be sustained for more than two years in view of government regulation and the costs of constructing a new plant. Fifth, prior to the merger, Orenco was a vigorous and effective competitor to Rothsay. I did n ot believe the remaining competition, post-merger, would be sufficient to constrain effectively an exercise in market power. Finally, we determined that only a portion of the cost savings which the parties attributed to the merger were likely to occur. That portion was not of sufficient magnitude nor likely to offset the anticompetitive effects likely to result from the merger.

Although the Tribunal agreed with many of the points raised above and so concluded that competition would be lessened as a result of the merger, it did not find that this lessening of competition would be substantial. Essentially, the difference of opinion was in regard to the supply elasticity of the "fringe"; in this case, the competitors and potential competitors to the parties post-merger. In contrast to my position, the Tribunal found that competitors held enough excess capacity to thwart a price increase of a substantial nature.

Despite the ultimate decision, the approach to merger analysis articulated by the Tribunal in Hillsdown does not significantly deviate from the underlying analytical process set out in the Merger Enforcement Guidelines. Slight differences in interpretation appear with respect to market definition and ease of entry. However, these differences may result more from differing assumptions as to what constitutes a substantial lessening of competition. The Tribunal did not offer any guidance in respect of the magnitude at which a price increase would be deemed to be substantial.

The Tribunal also considered the effectiveness of a divestiture order under the particular circumstances of the Hillsdown case. The Director's application was seeking an order requiring Hillsdown to divest itself of the business operated by Orenco or to divest such assets as the Tribunal may designate. In pursuing this remedy I sought to restore a competitive marketplace while being fully cognizant of the changes that were occurring within the industry -- namely, the independent decision of Rothsay to close their Toronto facility, and the likely exit of Darling from Toronto. Our objective was not to restore the pre-merger (1988) market structure but rather to place the market in the configuration it would have taken in 1992 had the merger not occurred.

No doubt, an important feature of the Hillsdown decision is the treatment of efficiencies. While the discussion is obiter dictum, it does give an indication of the Tribunal's, or at least the Chairperson's, leaning in interpretation of this section. The Tribunal makes it clear that the onus of proving existence of the efficiencies claimed, and the likelihood of their existence, rests with the parties. In analysing the cost savings claimed by the parties, the Tribunal articulates the relevant test as "whether the efficiency gains would likely have been realized in the absence of the merger." This is the test employed by the Merger Enforcement Guidelines, despite the Tribunal's characterization of the Director's position as requiring that the cost savings arise uniquely from the merger.

More significantly, the Tribunal questions the traditional economist's use of allocative inefficiency (deadweight loss) as the only effect of the likely substantial lessening of competition against which claimed efficiency gains are to be balanced. While recognizing that economists generally refrain from judging in whose hands a dollar is more valuable, thereby giving a neutral weight to transfers of wealth from consumers to producers, the Tribunal appears to question whether this was the intention of the policymakers enacting the section. Rather, a more consumer-oriented approach to the section is advanced.

The Tribunal does not outline a specific legal test, but offers a series of questions for consideration in balancing efficiency gains against expected competition effects. One interpretation proposed is the weighing of efficiencies against the likelihood that detrimental effects (both the deadweight loss and the wealth transfer, or a portion thereof) will arise from the substantial lessening of competition. In sum, the larger and more likely the price effects of a merger, the less weight would be given to efficiencies. Mergers involving goods or services with inelastic demand would, therefore, face a higher efficiency "hurdle" than those with a more elastic demand, due to the greater transfer effects of an equivalent price rise. Finally, the Tribunal raises the possibility of differentiating between domestically and foreign-held firms in any trade-off analysis.

Clearly, these views diverge from the test articulated in the Merger Enforcement Guidelines. However, as this part of the decision is obiter dictum, and since the Tribunal does not explicitly endorse a new balancing test but rather offers points for consideration, there appears to be no requirement to revise the Guidelines at this time.

The section itself is broadly framed, and so, it may be argued, supports various interpretations. Economists have advocated treating the wealth transfer neutrally owing to the difficulty of assigning weights a priori on who is more deserving of a dollar. Even considering that some system of weighting could be articulated, the practical implications of this are likely insurmountable -- for, who is losing and who is receiving the transfer? Shares are often widely held in companies. Are the shareholders of pension-fund investors in a firm more or less deserving than the customers of that firm? Moreover, who are the customers? In cases of intermediate products, is one looking to the shareholders of the consuming companies or to their customers?

One solution to this dilemma is to adopt the U.S.-style approach to consideration of efficiencies; namely, that savings must be passed on to consumers. Yet, if Parliament's desire had been to deny the possibility of any price impact on customers by giving consideration to the wealth transfer effects of a merger, then this could also have been specified in the language of the section.

Under these circumstances, I am respectfully of the view that, from an enforcement perspective, it is preferable not to depart at this time from the approach adopted in the Merger Enforcement Guidelines. Moreover, it should be understood that, regardless of the interpretation, the number of cases falling into this category will not be large.

2. Abuse of Dominance

This year we obtained an important decision from the Tribunal in Laidlaw Waste Systems Ltd., only the second abuse of dominance case since the provision became law in 1986. Before I talk about this case, I would like to comment briefly on what abuse of dominance is and is not.

First, the law seeks to attack abuse of dominance. Dominance itself is not illegal under our law. If a firm becomes dominant because it has found a way to produce a better mousetrap, we have no objections. Indeed, in a dynamic, innovative economy firms will often become dominant as they drive their less efficient competitors out of business in the rough and tumble of the marketplace. We do not seek to discourage efficient market behavior.

What the law does object to, however, is the abuse of dominance. Abuse of dominance can potentially mean many things. In the Laidlaw matter, what we saw was a large firm engaging in a variety of practices designed to create and protect a dominant market position, a dominant position based not on superior efficiency, but on a series of restrictive and exclusionary acts.

The case concerned the supply of solid waste collection and disposal services to commercial customers in three districts of Vancouver Island. Laidlaw's strategy included:

1. buying up all competitors in the region in a series of transactions, none of which were large enough by themselves to generate a significant lessening of competition;
2. maintaining the dominance gained through acquisition by signing customers to long term exclusive contracts, thus reducing beyond reasonable levels the supply of customers for any remaining competitors or potential entrants;
3. including meet-or-release clauses in the long-term exclusive contracts that gave Laidlaw the right to match the price of any competitor that arose, thus making it even harder to enter the market. Further, the contracts provided for the imposition of heavy financial penalties in the event a customer sought early termination;
4. and finally, and perhaps most importantly, engaging in "sham" litigation, that is, actual and threatened litigation without any underlying merits against those firms which did manage to gain contracts for garbage collection, thus imposing high legal fees on their competitors and sending a strong signal that they were willing to impose large costs on any future entrants.

This case builds on our previous experience in NutraSweet in a number of respects:

1. it was the first abuse of dominance case involving the services sector of the economy;
2. it was the first in which a series of acquisitions were challenged under the abuse provisions when the individual transactions would not in themselves give grounds for concern under the merger provisions; and
3. it was the first involving the use of threatened and actual litigation as an anticompetitive act.

It should be noted that the Tribunal ruled that Laidlaw's restrictive contracts constituted a barrier to entry that is contrary to public policy. Moreover, the Tribunal did not require proof of subjective intent; one can presume that it was intended that actions would have the effects which actually occurred, in the absence of convincing evidence to the contrary. From the perspective of remedies, it should also be noted that the Tribunal ordered Laidlaw, among other things, to make amendments to its customer service agreements and to refrain from enforcing those terms in existing agreements that were found to be anticompetitive.

Laidlaw involved a relatively small market in economic terms. I believe strongly, however, that Laidlaw has major implications far beyond the three communities that were directly affected. With respect to the waste disposal industry, Laidlaw has now voluntarily agreed to amend its contracts across Canada so as to remove the restrictive elements which the Tribunal found to be objectionable. I believe that Laidlaw's voluntary extension of the reach of the order is responsible. It is an example to the other major participants in this industry of a self-generated pro-competitive initiative. With respect to enforcement policy, the Laidlaw decision is significant. Exclusionary and restrictive clauses are a frequent occurrence in certain industries' contracts. Where these clauses serve individual companies only in protecting their dominant positions by creating barriers to entry, the Director will seek enforcement action.

3. Constitutional Challenges

This year we received important decisions on constitutional challenges to the Competition Act and the Competition Tribunal. Two cases remain outstanding in the Supreme Court of Canada -- a leave to appeal application in the Couture case and a judgement on the merits in the Pharmacy Association of Nova Scotia (PANS) case.

As you may know, the majority decision of the Supreme Court of Canada in the case of R. v. Wholesale Travel Group Inc., released in October 1991, dealt with the constitutionality of section 60(2) of the Act in the context of a prosecution under section 52(1)(a) for misleading advertising. Section 60(2) required accused persons who had published a false or misleading advertisement to take timely corrective measures in order to successfully avail themselves of the defence of due diligence.

The Supreme Court of Canada upheld the onus on the accused to establish that, in its advertising, it exercised due diligence and took reasonable precautions to avoid a misleading effect. In the broader context, this decision upheld the constitutionality of strict liability offences -- of which, it is estimated, there were 97,000 in 1983 -- and which place a similar burden to demonstrate due diligence on accused parties. The decision avoided significantly raising the burden of proof on the Crown in such prosecutions, which would have been the case had the Ontario Court of Appeal decision not been reversed. However, the timely retraction prerequisite to make use of the due diligence defence was unanimously held to be unconstitutional and therefore no longer remains in effect.

From an enforcement policy perspective, this decision means two things. First, parties who make representations to the public which come within the scope of the misleading advertising and deceptive marketing practices provisions of the Act should examine whether their actions can withstand the kind of scrutiny enunciated in this case by the majority of the Supreme Court. Parties who may wish to avail themselves of the defence of due diligence must demonstrate that they took reasonable care to avoid a misleading effect. Examples of behaviour that might satisfy this requirement include a formal policy of executive review of advertising materials which entails reasonable follow-up to ensure their accuracy and making timely corrections, where inaccuracies are found.

Second, although placing a timely corrective notice is no longer a statutory prerequisite to availing oneself of the due diligence defence, it is our policy nevertheless that it may influence our decision regarding the enforcement remedy that will be sought in respect of a valid complaint. The publication of a corrective notice would be a positive consideration in the exercise of our enforcement discretion. I should note that our experience is that businesses often take corrective action as a matter of course. Once an error is discovered, it is simply good business practice to take corrective measures to avoid alienating customers.

The challenge to the merger involving Sanimal Industries Inc. and Alex Couture Inc. Holdings, as well as other companies, began in June 1987. Couture then submitted its constitutional challenge to the Quebec Superior Court. The Superior Court earlier declared that the Competition Tribunal, as well as provisions of the Competition Act with respect to mergers, were unconstitutional.

This decision was overturned in September 1991 by the Quebec Court of Appeal. The constitutionality of the Tribunal and the provisions of the Act with respect to mergers were confirmed. While we have a strong affirmation of constitutionality on this front, Couture has requested leave to appeal to the Supreme Court of Canada. As of this date, the Supreme Court is still considering the leave application.

With respect to the decision in PANS, the Nova Scotia Court of Appeal last spring upheld section 45, the conspiracy provision of the Act . This seems to have created a more favourable enforcement climate. Following the decision, the Bureau has seen a renewed willingness by parties to advance discussion regarding section 45 cases. For the time being, the difficulties of the previous year have been placed behind us as no new challenges have been initiated. We expect the Supreme Court of Canada decision very soon. We hope it will settle the intent and vagueness arguments that have been advanced in recent years with respect to the conspiracy provisions.

While not a constitutional matter, I should also mention the most recent developments in the Chrysler case. It is one of only two refusal to deal cases brought before the Competition Tribunal. Chrysler had actively encouraged Brunet, an automotive parts supplier in Montreal, to develop market opportunities. However, once markets developed, Chrysler Canada was directed by Chrysler U.S. to cut off the supply of automobile parts to Brunet. In October of 1989, the Tribunal issued an order forcing Chrysler Canada to resume supply to R. Brunet Company, its only export account.

We later sought from the Tribunal a contempt order against Chrysler for not following the terms of its order to re-supply Brunet. Chrysler appealed both the Tribunal's decision on the merits and the jurisdiction of the Tribunal to grant the contempt order. The Federal Court found in the Director's favour on the substantive issues, and Chrysler's leave to appeal application to the Supreme Court was dismissed earlier this year. Chrysler's appeal on the contempt issue, however, was successful with the Federal Court of Appeal ruling that the power to punish for contempt committed outside the presence of the Tribunal was not clearly conferred on the Tribunal under the Competition Tribunal Act. Our appeal from this decision was heard by the Supreme Court in January 1992. No decision has yet been rendered, though clearly, it will be one of considerable significance for the Bureau.

4. Criminal Cases

The vigorous enforcement of the conspiracy and bid-rigging provisions of the Act remained a high Bureau priority with continuing emphasis on increased penalties and charges against individuals, where appropriate, to increase deterrence. The Bureau's resolve to use these tools was demonstrated in its inquiry into the compressed gas industry which, through guilty pleas in the fall of 1991, resulted in record fines of greater than $6 million being levied under the conspiracy provisions against the five major suppliers in Canada. It is also significant that charges were laid against two senior executives of one of the companies, who were assessed record fines of $75,000 each.

The largest fine ever imposed on an individual under the Competition Act was also obtained this year. Donald Cormie, President of the Principal Group, was convicted of one count under the general misleading advertising provisions for his "Chairman's Message" in the Principal Group's 1985 Annual Report. Investors had relied on his representation of the firm's move out of real estate before the market had collapsed. The Alberta Court of Queen's Bench imposed a fine of $500,000.

In summary, in the last year we have seen significant progress in three areas:

1. the development of Tribunal jurisprudence -- this will guide our internal procedures as well as business activities;

2. the resolution of some constitutional challenges -- although Supreme Court of Canada judgements on Couture and PANS are outstanding, the constitutional threats appear to have receded somewhat; and

3. the setting of sentencing precedents in criminal matters -- the high level of fines in cases shows a willingness by the courts to impose significant penalties on corporations and individuals for serious violations of the Competition Act.

These developments have resulted in a greater measure of certainty in a number of areas and it has, we hope, created a climate of stronger deterrence in respect of potential contraventions.

An Effective Enforcement Policy

The second major area I wish to comment on today is our enforcement policy. As alluded to earlier, this encompasses a number of elements:

1. promoting education on the law in a proactive way -- through speaking engagements and the issuance of enforcement guidelines;
2. ensuring compliance with the Act -- through legal actions which I have already discussed, and also through what I have termed alternative case resolutions.

1. Enforcement Guidelines

Enforcement guidelines form the heart of the educational side of our Program of Compliance. They are an indispensable tool to building a sound understanding of the Competition Act among the legal profession, the business community and the general public. They also ensure internal consistency in the application of the Act. The Bureau has made extensive progress in its goal of building a solid program of information dissemination to the public. We strongly believe that an appreciation of how the Bureau will enforce the Act promotes compliance, prevents violations and avoids costly litigation. The Compliance Branch within the Bureau of Competition Policy has become a vital part of our enforcement operations.

Of course, guidelines cannot be a binding statement of how discretion will be exercised in all situations because the specific standards set out in any set of guidelines must be applied to a broad range of possible factual circumstances. Guidance regarding specific situations may therefore be requested from the Bureau through its Program of Advisory Opinions. The Bureau will apply the standards of its enforcement guidelines reasonably and flexibly to the particular facts and circumstances of such situations.

Enforcement guidelines are also not intended to bind or affect in any way the discretion of the Attorney General in the prosecution of matters under the Act. Nor are they intended to be a substitute for the advice of legal counsel. Final interpretation of the law is the responsibility of the courts and Competition Tribunal.

We now have more than a year's experience with the Merger Enforcement Guidelines. All indications point to their widespread use and application. For the Bureau, they represent a formal and precise expression of directing principles and procedures that had been used internally. They have promoted rigorous and consistent assessments. For the business community, we believe that a better understanding of our enforcement policy has resulted. We know that it has improved the submissions we receive from parties to mergers. These submissions now deal more incisively with information that is relevant to speedy and thorough assessments. A great deal of the success of the Merger Enforcement Guidelines is due, I believe, to the responsive and open consultations we had with the business and legal communities prior to publication.

This year has also witnessed revision of the Misleading Advertising Guidelines. Our updated version of the Misleading Advertising Guidelines was published to meet the business community's expressed need for concise and accessible guidelines to assist them in interpreting and applying those provisions. The publication has been well-received, evidenced in part by its wide circulation and continual requests for copies.

In addition to these publications, we have successfully expanded the range of our guidelines to encompass two more major provisions of the Act. Our year-long process of consultation has yielded the Predatory Pricing Enforcement Guidelines, just recently published and will shortly yield the Price Discrimination Enforcement Guidelines.

Section 50(1)(c) of the Act reflects the view of Parliament that certain unfair pricing practices should not be used to diminish competition and its benefits by creating the criminal offence of predatory pricing. However, there is a fine line between predatory pricing and vigorous, but healthy price competition, and little jurisprudence to guide the business community. The guidelines seek to make clear the Director's enforcement policy in this area to remove any chilling effect that the existence of the provision may have on vigorous price competition.

The guidelines draw on enforcement experience and developments in economics to produce an analytical framework which helps to identify pricing behaviour which is truly harmful to competition, as distinct from that which does not require corrective action. Rather than focussing initially on whether the alleged predator's prices are below costs, emphasis is placed on the likelihood of the firm being able to recoup its losses in a later period. This involves an analysis of market power, the ability of the alleged predator to profitably maintain prices above the level that would prevail in competitive conditions.

The enforcement guidelines on predatory pricing will allow the Bureau to do its work more effectively, in a less intrusive fashion, and, at the same time, guide business on the great deal of freedom that exists under the law to engage in vigorous price competition.

Similarly, the Price Discrimination Enforcement Guidelines will point to the legitimate scope which exists, within section 50(1)(a), for the adoption of innovative pricing practices and strategies. These guidelines, which we expect to release shortly, are the result of difficult but informative and useful consultations.

Compared to predatory pricing, there is virtually no case law to guide the business community with respect to the limits of the fair treatment to purchasers. The complex wording of the section, and the variety of interpretation which can be given to its elements, may lead to misunderstandings. It was determined that this state of affairs fell short of providing the certitude both business and the Bureau need to ensure compliance with the Act.

Since the Price Discrimination Enforcement Guidelines are not yet published I would like to give you an overview of some key areas where we consulted heavily and where changes were made to the draft guidelines distributed in January 1992.

The guidelines will continue the approach to the term "available" identified earlier, which promotes a great deal of flexibility in granting price concessions to competing purchasers. In addition, the guidelines will set out the approach to the treatment of buying groups, franchise organizations and the granting of international volume price concessions.

On availability, there will be no change concerning the basic premise that conditional discounts are permissible provided they are "available" as described in the statute. However, we have spent considerable time and effort in clarifying the respective obligations of sellers and purchasers as to the degree of disclosure that will satisfy the Director that a discount is available. The extent to which a price concession should be disclosed to competing purchasers in order for the Director to consider it "available" varies depending on the circumstances. If the seller unilaterally decides to offer a price concession, such as a volume rebate, it should be communicated to competing purchasers of like quality and quantity. By contrast, such broad disclosure is not required if the seller grants a price concession only as a result of negotiations initiated by a purchaser who agrees to provide a service in exchange for the concession. Here, for the concession to be considered "availa ble" it need only be communicated to those competing purchasers who ask for similar concessions on similar terms as the favoured purchaser. The seller is not obliged to extend such a concession to a purchaser who simply asks for the seller's "best deal", as a matter of form.

A second key area where there has been a significant change since the draft guidelines were published is in the area of defining the "purchaser" for the purposes of the price discrimination provisions. We have been persuaded that the section need not be applied in a manner that penalizes some forms of business structures or some types of transactions over others, where such business structures or transactions are legitimate. Whether an issue regarding group volume discounts is raised under the section usually depends on who is the true "purchaser" of articles in a given transaction. This question often arises in the context of buying groups, franchise operations and international corporate buying arrangements. In determining which party is the "purchaser", the Director is prepared to review all the circumstances of a transaction. The true purchaser in any transaction will normally be the firm that has made the necessary contractual commitment to acquire the goods sold.

For buying groups, this will generally be satisfied if the group assumes liability for the articles purchased. For franchise systems and international volume price concessions, the franchisor or multinational parent company would satisfy this requirement by committing their franchisees or international subsidiaries respectively to purchase from the seller granting the concession.

These approaches to determining the "purchaser" would seem to be in accord with the marketplace as it currently functions and we believe are less intrusive than previous interpretations under the price discrimination provisions.

In summary, we have endeavoured to produce a set of price discrimination guidelines that will permit sellers to design and implement price inducements and other innovative marketing incentives without risking an unknowing violation of criminal law. Sellers must still treat competing purchasers equitably, but the theory driving these guidelines is that the market should determine the relative acceptability and efficacy of these concessions unless the law clearly prohibits them.

2. Alternative Case Resolutions

An effective enforcement policy requires that, in light of current resource constraints, we look beyond the traditional means of criminal prosecution and formal proceedings before the Tribunal for resolutions. We must look not only at the punitive but at the remedial aspects of final resolution, which can include prohibition orders, undertakings and other corrective action. A primary concern is to correct anticompetitive practices in the marketplace, and if this can be done more effectively and efficiently through alternative means, we will entertain proposals to resolve matters short of litigation. Rarely, however, will this approach be acceptable for serious criminal offences like sections 45 and 47, where a court penalty may be important for deterrence.

Orders of prohibition and undertakings are two typical alternative means of resolving cases short of litigation. While orders of prohibition vary greatly in content, depending on the practice in question, undertakings in misleading advertising often contain common terms, including:

• an undertaking to publish, within thirty days of the signature of the undertaking, a corrective notice
• an undertaking to inform in writing all of the party's dealers, sales representatives, sales employees, etc. of the contents of the undertaking within thirty days of its signature.

Consider a recent misleading advertising example which was resolved through an order of prohibition under section 34(2) of the Act and undertakings in lieu of prosecution. The example is Air Canada. In promoting itsfrequent flyer plan, Air Canada represented in its "Aeroplan Travel Rewards Chart" that the award category "JA2" provided three free economy class tickets with the redemption of 60,000 "aeromiles." Investigation revealed that restrictions were placed on members ability to redeem "aeromiles" for tickets under the "JA2" category in a manner which was inconsistent with the general impression conveyed by the chart. In one case, a member would have required the unnecessary expenditure of 10,000 "aeromiles" in order to receive the three free economy class tickets represented in the award category "JA2".

Air Canada undertook to reimburse all eligible customers who had suffered losses in redeeming their "aeromiles" by providing them with "aeromile" credits, in addition to the usual terms. In this case, the alternative resolution saved the time and cost of prosecution and may even have provided for a better resolution from the consumer's perspective, 56 of whom received reimbursement.

To summarize, the past year has been one of considerable progress. It can be characterized as a year of notable resolution and clarification. We have had several significant decisions from the Tribunal. We have seen some uncertainty related to constitutional challenges to the Act reduced -- this has increased our ability to enforce the Act. And, we eagerly await decisions of the Supreme Court in the remaining constitutional challenges. We have witnessed record fines imposed for criminal breaches of the Act. Internally, the Bureau has clarified its enforcement policies in respect of misleading advertising and predatory pricing through release of revised or new guidelines. Price discrimination guidelines are almost completed. And we continue on various fronts to expand our efforts in achieving compliance with the Act through various means.

Future Initiatives

This brings me to what initiatives we plan to tackle in the future. Much of what we have accomplished will be further built upon. Key decisions in Couture and PANS are expected this year. Constitutional challenges have also impressed upon us the need to revise a number of our enforcement practices in light of the Charter and to review our information gathering procedures in light of recent court cases. And we will continue to sharpen our criteria for case selection to ensure that we bring the right cases forward.

On the criminal side, price-fixing and bid-rigging cases will remain Bureau priorities. Our work in the area of misleading advertising will continue to focus on national cases or regional cases involving high-priority issues such as telemarketing and environmental claims. In all of these matters, we will continue to seek substantial fines and recommend to the Attorney General that charges be laid against individuals where the evidence so warrants, in order to maximize deterrence.

In the area of enforcement policy generally, we have several initiatives planned, in some of which work has already commenced. A proactive public education program will continue. We will continue our efforts to explain the role of the Act and our enforcement of it to government and business through speaking engagements. Our contributions to the Government's economic policy agenda, in particular prosperity and competitiveness, have revealed a few misconceptions about the Act which we will continue to address.

I also anticipate developing a more comprehensive approach to the Bureau's exercise of discretion regarding recommendations for immunity, sanctions, and other related issues. For instance, it may be time for the Bureau to assess how it enforces the statute against price maintenance given the vigor of the economic debate which surrounds this issue.

I would like to add a few words about our recent work, in cooperation with the Attorney General's office, on the subject of witness immunity in matters involving the Competition Act.

I first commented on this topic during my presentation to the Canadian Corporate Counsel Association in Calgary on August 19, 1991. At that time I indicated that we had begun to develop a policy aimed at providing greater incentives for corporations and individuals to voluntarily report their participation in conspiracy and bid-rigging activities before they came to our attention. This initiative is just one aspect of our more general efforts aimed at ensuring effective, fair and timely resolution of investigations arising under the Act.

We have, since last August, held lengthy consultations with the Attorney General's office and experienced members of the private competition bar in order to examine the many complex issues and concerns which the related issues of plea negotiations, sentencing and immunity give rise to. We have also had the benefit of the Canadian Law Reform Commission's thorough and thoughtful report on "Immunity From Prosecution" which was issued earlier this year. These consultations have allowed us to clarify many of the issues that must be addressed in order to ensure that the possibility of a grant of immunity by the Attorney General continues to be a useful and effective tool to promote compliance with the Competition Act consistent with the fair and impartial administration of justice.

In general, I believe remedies will be an area of increasing Bureau attention this coming year. We need to have a well-developed policy that encompasses advisory opinions, undertakings, criminal convictions and Tribunal orders, including consent orders and injunctive relief. Further thinking must be done on the type and magnitude of penalties on the criminal side. The courts, as I have noted, are responding well, but clearly further work is needed if deterrence is to be enhanced. On the civil side, we must fully analyze both the legal and economic implications of the remedies sought.

Too often enforcement agencies complete only half a job. We cannot stop at identifying and prosecuting the anticompetitive activity. We must also seek relief which will enable competition at the level at which it would have been without the anticompetitive act. It is important to note here that one must anticipate the course of events which the industry may be competitively advancing towards, such as was the case in Hillsdown, as I have already mentioned.

The means of achieving relief is as important as the end itself. By choosing procedures which, in themselves, may not have a pro-competitive impact, the desired outcome will not be achieved. Although relief must be remedial rather than punitive, except in criminal matters, of course, it must be effective notwithstanding any necessary hardship upon the parties. In this regard, I believe greater use needs to be made of the various tools at our disposal under the Act in both civil and criminal matters. Section 11 discovery and hearings as well as injunctive relief are obvious examples. Furthermore, the consent order process has been subject to much commentary. I believe we must work towards reinstating the use of consent orders in merger cases as well as commence their use in other civil matters such as abuse and vertical restraints cases.

In conclusion, the Bureau must ensure that the remedies we adopt are effective and enforceable if we are to achieve our goal of improving the public's understanding of how the Bureau seeks to promote competition in the Canadian marketplace.

Thank you.