Developments and Emerging Challenges in Canadian Competition Law

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

Fordham Corporate Law Institute
New York, New York

October 22, 1992

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In the past twelve months in Canada, we have witnessed a number of key judicial decisions under the Competition Act, including three in the Supreme Court of Canada. Indeed, the developments of the past year have been a watershed in the evolution of Canadian competition law. They signal a re-affirmation by the courts of the important role of competition policy to Canada's economic prosperity, thus further contributing to the trend that began with the passage of the new Competition Act in 1986.

The 1986 Act is, in my view, a modern and flexible law that is well adapted to the challenges of antitrust enforcement in a global economy. It did not spring into being in a vacuum, however. While it draws heavily from the experience of other jurisdictions and contemporary economic theory in the field of industrial organization, it also reflects Canada's particular economic, legal and institutional framework.

Canada's system of public law has historically given considerable prominence to the role of constitutional law in determining the validity and application of economic legislation as between federal and provincial governments. The impact of constitutional issues has considerably increased since the passage of the Canadian Charter of Rights and Freedoms in 1982, four years before the Competition Act.

Accordingly, one of the major challenges for antitrust enforcement in recent years has been to withstand the numerous Charter challenges to various aspects of the law, both substantive and procedural. While a number of trial decisions have hindered our progress in advancing several important cases, the courts in the past year have signalled their endorsement of the policy underlying several key provisions of the Competition Act. The courts have considerably reduced the uncertainty regarding the enforceability of these key provisions of the Act.

This presentation will first review a number of these landmark decisions from the perspective of our enforcement policy. I will conclude by discussing a few emerging issues, both domestic and international, that we have recently begun to address and that will command greater attention in coming years.

I. Recent Developments

In discussing recent judicial developments, I am especially pleased with the contrast between what I have to say to you today and the remarks contained in my last paper at this conference in 1990. Those of you who were in attendance may recall that at that time I reported that lower courts had struck down, on constitutional grounds, both the price-fixing and merger provisions of the Competition Act as well as the Competition Tribunal in its entirety.

A brief summary of the issues that have recently been decided by the courts will, I think, provide an indication of the significance of these recent developments:

• the constitutionality of the price-fixing provisions of the Act has been unequivocally upheld by a unanimous judgement of the Supreme Court of Canada. In this decision, the Supreme Court, for the first time, provided a comprehensive analytical framework for the interpretation of Canada's price-fixing laws;
• the Supreme Court upheld the power of the Competition Tribunal to enforce its decisions through contempt orders;
• the Supreme Court upheld the constitutionality of the misleading advertising provisions of the Act;
• the Supreme Court denied leave to appeal from a unanimous appellate court decision affirming the constitutionality of the merger provisions of the Act as well as that of the Competition Tribunal;
• the Competition Tribunal recently issued decisions in the first two fully-contested merger cases under the 1986 Competition Act as well as its second abuse of dominance decision; and
• the courts imposed record fines against both individuals and firms in price-fixing cases, as well as a record individual fine under the Act in a misleading representation case.

The recent case law, together with the release of enforcement guidelines concerning mergers (April 1991), price discrimination (September 1992), predatory pricing (May 1992) and misleading advertising (September 1991), have considerably advanced the important objectives of providing guidance to the business and legal communities with respect to the enforcement of Canada's competition law. Enforcement guidelines, in particular, have become an important tool in the Bureau of Competition Policy's efforts towards articulating and clarifying its enforcement policies and practices.

In the time allotted to me I will attempt to address a few of the key decisions that I believe have important implications for antitrust enforcement in Canada.

1. Criminal Enforcement

(i) Conspiracy

Of particular significance is the recent Pharmaceutical Association of Nova Scotia (PANS) decision where the Supreme Court not only dismissed a challenge to the constitutional validity of the conspiracy provisions of the Act but also outlined the analytical framework for the application of that section. The case arose from charges that were laid in 1987 against a number of pharmacists -- firms and individuals -- as well as their professional associations alleging, inter alia, that the accused fixed dispensing fees charged to private insurance companies in Nova Scotia. In a pre-trial motion, the accused obtained an order quashing the indictment.

The Nova Scotia Supreme Court held that the conspiracy provision of the Competition Act was too vague to withstand constitutional scrutiny on account of the imprecise standard required to establish that the alleged agreement would prevent or lessen competition "unduly". The Court also found the section to be unconstitutional since it does not require that full subjective intent be established by the Crown with respect to the accused's intention to lessen competition unduly. On appeal, the Nova Scotia Court of Appeal reversed the decision, finding that the section was not void for vagueness. The Court of Appeal, however, also interpreted the section as requiring proof of subjective intent as to both the intention to enter into the agreement and the intention to lessen competition unduly.

The issues before the Supreme Court of Canada were essentially constitutional in nature. However, in deciding the vagueness question, the Court had to clarify the meaning of "unduenesss". It further addressed the "undueness" issue in dealing with the question of the constitutionally required intent. Indeed, the Court noted in its unanimous decision, that it had not previously had the opportunity to consider the process whereby the undueness of a restriction on competition is assessed.

To understand the full significance of the PANS decision, it is necessary to review some of the jurisprudential history of the Canadian conspiracy provision. Unlike section 1 of the Sherman Act, section 45 of the Competition Act and its predecessors are not framed as a general prohibition against agreements in restraint of competition. Rather, section 45 contains an express qualifier requiring the prosecution to establish that an alleged agreement would prevent or lessen competition "unduly". Thus, the Court expressed the view that section 45 expressly precludes the development of a category of per se offences such as those which have been articulated by U.S. courts since the passage of the Sherman Act.

Until the late 1970's, however, Canadian courts generally interpreted the provision in a manner which recognized the intent of the drafters that "the preventing or lessening of competition is in itself an injury to the public". Prior to 1977, it appeared well settled under Canadian jurisprudence that (1) the Crown was not required to prove any public detriment beyond the lessening of competition past the specified threshold, that is, "unduly"; (2) that it was no defence for the accused to argue that the intended or actual results of the agreement were otherwise beneficial to the public; and (3) that the Crown had to establish that the accused intended to enter into the agreement which, if implemented, would prevent or lessen competition unduly, without being required to establish that the accused intended the agreement would have such effect.

The initial doubts about the foregoing propositions first appeared in the Supreme Court's 1977 decision in Aetna Insurance Co. v. The Queen, which involved alleged price fixing by approximately 70 percent of the fire insurance companies in the province of Nova Scotia through their industry association. In that case, the majority of the Court upheld the trial judge's decision to admit evidence as to the positive public benefits resulting from the association's activities, ostensibly on the basis that the evidence was "relevant in (the trial judge's) search for the design and plan of the agreement." Having done so, the majority created some uncertainty as to whether this evidence was admissible on the question of undueness or intent.

Yet a further source of uncertainty arose in connection with the degree to which competition had to be prevented or lessened in order to be characterized as "undue". The source of this ambiguity was a minority judgment in Howard Smith Paper Mills Ltd. v. The Queen, a 1957 decision of the Supreme Court of Canada, where Mr. Justice Cartwright stated that "an agreement to prevent or lessen competition ... becomes criminal when the prevention or lessening agreed upon reaches the point at which the participants in the agreement become free to carry on those activities virtually unaffected by competition ..." The ambiguity created by this statement had apparently been resolved by a 1976 amendment to the conspiracy section which clearly states that it is not necessary to establish that an agreement would have the effect of eliminating competition, completely or virtually.

Against this background, the PANS case assumes greater significance beyond the fact that the Court upheld the constitutionality of the provision. With respect to the interpretation of "unduly", the Supreme Court adopted as a starting point the view that "unduly" expresses a notion of seriousness or significance. More importantly, however, the Supreme Court's decision appears to herald a more modern economic orientation to the interpretation of section 45. Indeed, the Court prefaced its analysis of the provision by an express recognition that the Competition Act is a central feature of Canadian public policy in the economic sector.

The Court then proceeded to elaborate its view with respect to the major elements of the examination mandated by section 45, that is, "(1) the structure of the market and (2) the behaviour of the parties to the agreement." With respect to market structure, the court clearly emphasized that the main objective is to determine the degree of market power enjoyed by the parties to the agreement. Market share, while a relevant factor, is not determinative and must be considered in the context of a host of other relevant economic factors. In this regard, while the Court relies on existing Canadian jurisprudence in describing the nature of this assessment, it also clarifies the economic focus of the examination.

A similar focus on economic aspects of the behavioural element of the offence is also evident in the Court's decision. However, it is with respect to the interaction between these two elements that the Court's decision presents the greatest opportunities for the enforcement of section 45. As the Court indicates, it is the combination of the two elements -- market power and behaviour -- that makes a lessening of competition undue. The Court noted that:

"Many combinations are possible. For one, market power may come from the agreement . . . Market power may also exist independently of the agreement, in which case any anti-competitive effect of the agreement will be suspicious. A particularly injurious behaviour may also trigger liability even if market power is not so considerable."

Indeed, the fact that antitrust economic analysis should inform section 45 enforcement decisions is further illustrated by the Court's reference to its standard as lying part-way on a continuum between a per se standard at one end and a full "rule of reason" standard at the other, as these concepts are understood in U.S. antitrust law. The Court characterized the section as creating a partial rule of reason; "partial" only, because it mandates an inquiry into the seriousness of the competitive effects of the agreement while precluding "a full-blown discussion of the economic advantages and disadvantages of the agreement."

Furthermore, the Court clearly endorsed the traditional Canadian position with respect to the public policy underlying the conspiracy provision as being grounded on the premise that "the preventing or lessening of competition is in itself an injury to the public. It is not concerned with public injury or public benefit from any other stand-point." Indeed, after noting section 1 of the Sherman Act and article 85 of the Treaty of Rome, the Court stated that the conspiracy provision of the Competition Act "is not just another regulatory provision. It definitely rests on a substratum of values. . ." to the effect that competition is presumed to be in the public benefit.

With respect to the requisite intent, the Court concluded that section 45 required the proof of subjective intent of the accused with respect to the entering into the agreement and of objective intent with respect to lessening competition unduly. In other words, the Crown must "demonstrate that the proof, viewed objectively (i.e. by a reasonable business person), establishes that the accused was aware or ought to have been aware that the effect of the agreement ... would be to prevent or lessen competition unduly." It is significant that the standard set by the Crown was that of a reasonable business person "who can be presumed to be familiar with the business in which he or she engages."

As a result of the Supreme Court's decision, the PANS case is now going to trial and other prosecutions in which the accused had raised similar constitutional issues will now proceed through the courts in due course.

In the context of the internationalization of competition law, the PANS decision portends additional significance. The Supreme Court of Canada devoted considerable attention to a comparative analysis of the legal provisions relating to horizontal restraints of trade in Canada, the U.S. and the European Community. Of particular interest was the Court's unhesitating use of foreign law, particularly section 1 of the Sherman Act, to characterize the nature of the anti-competitive restraint under Canadian law.

As you know, considerable attention is being paid to the role of competition law in an international economy. Closer to home, the application of our respective competition laws will come under increasing scrutiny, particularly as the Canadian and U.S. economies become increasingly integrated under successive free trade agreements. Decisions such as PANS may inspire discussion regarding whether the substantive laws in relation to horizontal restraints of trade, for example, are converging somewhat in the absence of legislative reform.

The convergence issue may take on even greater significance in light of chapter 15 of the NAFTA which reflects the Parties' commitment toward maintaining -- and in Mexico's case, adopting -- effective antitrust laws, as well as a commitment to cooperate in antitrust enforcement activities.

The impact of the PANS decision on enforcement policy must also be considered in the context of the tight resource constraints under which the criminal law provisions have operated in recent years. As a result of these constraints, emphasis has been placed on developing case screening criteria to select those cases with the greatest impact. Similarly, in recent times emphasis has been placed on high deterrence enforcement techniques, such as targetting individuals and the development of an immunity policy.

The analytical framework developed in the PANS decision supports and legitimizes to a great extent the screening criteria already in place. Conspiracy under the Canadian law has never been a per se offence, but it may now be possible to identify types of collusive behaviour that may be contrary to section 45 even if market power is not so considerable. In these situations we may be able to make greater use of alternative case resolution instruments, such as consent prohibition orders, which correct borderline behaviour, but save the cost of litigation.

I should add that, despite the uncertainty surrounding the interpretation of the conspiracy section prior to the Supreme Court's decision, the Bureau of Competition Policy continued to vigorously enforce that provision. A measure of the success that we have experienced during the past year in this regard is the Compressed Gas case which, through guilty pleas in the fall of 1991 resulted in record fines in excess of $6 million being levied under the conspiracy provision against the five major suppliers of compressed gas in Canada. It is also significant that the Courts have levied record individual fines of $75,000 against three executives and $50,000 against a fourth in that same case. These precedents are consistent with the Bureau's policy of seeking increased penalties and, where appropriate, charges against individuals in order to increase deterrence.

(ii) Misleading Advertising

Canada's Competition Act includes criminal provisions relating to restrictive trade practices as well as provisions concerning fair trade. In this regard, another important recent decision of the Supreme Court of Canada in the case of R. v. Wholesale Travel Group Inc. dealt with the constitutionality of section 60(2) of the Competition Act in the context of a prosecution 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 Court upheld the onus on the accused to establish that it exercised due diligence and took reasonable precautions to avoid a misleading effect. 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.

I should also mention that the largest fine ever levied against an individual under the Competition Act was obtained pursuant to the misleading advertising provision this year in the Cormie case. The accused, the President of the Principal Group, was convicted for making misleading representations, on which a large number of investors had relied, to the effect that the firm had moved out of real estate before the market had collapsed. The court imposed a record fine against an individual under the Act in the amount of $500,000. This case is also significant in that the representations in question were made in the Principal Group's annual report, thus acknowledging that the misleading advertising provision is not limited to representations made in more conventional advertising contexts alone.

2. Civil Enforcement

In addition to criminal enforcement, the Competition Act also addresses a number of important anti-competitive practices through civil provisions adjudicated by the Competition Tribunal. During the past year, we have obtained several important decisions in relation to abuse of dominance, mergers, and the Tribunal's powers to enforce its orders.

(i) Abuse of Dominance

In the Laidlaw case, we initiated proceedings before the Competition Tribunal under the abuse of dominance provisions of the Competition Act. The application sought relief with respect to conduct designed to create and protect a dominant market position.

Among the practices of the respondent firm that we asked the Tribunal to address were the following:

• acquiring competitors in the relevant market in a series of transactions, none of which were large enough by themselves to generate a significant lessening of competition;
• entering a market by acquiring the sole competitor and then excluding that competitor through restrictive covenants;
• 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;
• including right-to-compete clauses in the long-term exclusive contracts that gave Laidlaw the right to match the price of any competitor that arose, or any provision requiring the customer to take Laidlaw's offer, thus making it even harder to enter the market;
• and finally, engaging in "sham" litigation, that is, actual and threatened litigation without any reasonable underlying merits against those firms which did manage to gain contracts for garbage collection, thus imposing high transaction costs on its competitors and sending a strong signal that they were willing to impose large costs on any future entrants.

The Tribunal upheld the Director's application and issued an order requiring 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.

This case builds on our previous experience under the abuse of dominance provisions in a number of respects:

• it was the first abuse of dominance case involving the services sector of the economy;
• 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
• it was the first involving the use of threatened and actual litigation as an anticompetitive act.

The Bureau of Competition Policy has been successful in both abuse of dominance cases brought before the Tribunal in recent years. The abuse of dominance provisions of the Act are a key element of the framework for control of anti-competitive practices in the Competition Act. The assessment of unilateral monopolistic practices is a complex and challenging task. Practices which are harmful to competition in a particular context can be pro-competitive or competitively neutral in other market circumstances. Much of what the Bureau accomplishes in protecting markets against anticompetitive practices is obtained through deterrence. Favourable Tribunal decisions clearly enhance deterrence.

(ii) Merger Review

Earlier this year, the Competition Tribunal issued two important merger decisions. The Hillsdown and Southam cases were the first two merger applications to be fully litigated before the Tribunal.

The first decision, Hillsdown, was issued March 9, 1992. The Tribunal dismissed an 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.

The application challenging the merger was based primarily on the following factors:

• the merger significantly increased concentration in a highly concentrated market;
• foreign competitors were not likely, in our view, to provide effective competition to the merged entity in that the Canada/U.S. border, while not creating an absolute barrier, posed enough of a hindrance to allow the merged entity to raise prices materially;
• rendering was a necessary service for which there are virtually no substitutes;
• entry by potential competitors was not likely to occur, in our view, 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;
• the acquired firm, Orenco, was a vigorous and effective competitor prior to the merger;
• only a portion of the efficiency gains claimed by the parties were likely to occur, and that portion was of insufficient magnitude to offset the anticompetitive effects likely to result from the merger.

The Tribunal agreed with many of the points raised above and so concluded that competition would be lessened as a result of the merger. In the final analysis, however, the Tribunal felt that this was a border-line case and 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. (Interestingly, these fringe competitors were located in bordering U.S. states.) In contrast to our 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 did not significantly deviate from that elaborated in the 1991 Merger Enforcement Guidelines. There are differences in point of detail regarding, for example, market definition and ease of entry, that may be due to differing assumptions as to what constitutes a substantial lessening of competition. The Tribunal did not, however, offer any guidance in respect of the magnitude at which a price increase would be deemed to be substantial.

The Hillsdown decision's treatment of efficiencies has, however, generated considerable attention. While the discussion of efficiencies is obiter dictum in this case, it gives an indication of the Tribunal's, or at least the Chairperson's, leaning in interpretation of this section. The Tribunal questions the 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.

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. The Tribunal also raises the possibility of differentiating between domestically and foreign-held firms in any trade-off analysis.

The efficiency section itself is broadly framed, and so, it may be argued, supports various interpretations. Economists have advocated treating the wealth transfer effects of mergers 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?

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 presumably would have been specified in the language of the section.

Under these circumstances, and given that the Tribunal does not explicitly endorse a new balancing test, 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 is not large.

The second merger case, Southam, involved an application before the Competition Tribunal with respect to Southam's acquisition of several community newspapers in the Vancouver area. Southam is a major Canadian newspaper publisher that owns both daily newspapers in the Vancouver region. The application alleged that the acquisition would likely substantially lessen competition in the markets for print advertising in the Vancouver region and for real estate advertising on the Vancouver North Shore.

The Tribunal dismissed the application with respect to the print advertising market, but found that there would likely be a substantial lessening of competition for real estate advertising in the relevant market.

In respect of that part of the application which dealt with print advertising, 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, the application for an order seeking divestiture of these publications was denied. This decision is presently under appeal before the Federal Court of Appeal.

In essence, the grounds of appeal address the following concerns regarding the decision's impact on merger review:

1. the approach to market definition, particularly where product differentiation and dynamic market considerations are an issue;
2. the burden of proof on the Director, particularly in merger matters before the Competition Tribunal; and
3. the respective roles of economic theory versus industry facts in formulating views regarding market definition and anti-competitive intent.

In my view, bringing sound merger cases is essential to an effective competition policy. Despite these two adverse merger decisions, the Bureau of Competition Policy will not fundamentally alter its approach to the enforcement of the merger provisions of the Act. It is important to recall that due to our merger enforcement policy some potentially anti-competitive mergers are not even attempted. If they are, we are often able to achieve a resolution that involves a restructuring of the transaction in a manner that reduces our concerns regarding competition in the Canadian marketplace.

(iii) The Competition Tribunal's Contempt Power

Another significant decision of the Supreme Court was the Chrysler refusal to deal case. In October of 1989, the Competition Tribunal issued an order requiring Chrysler Canada to resume supplying Brunet, an automotive parts supplier, who was its only export account. We later initiated contempt proceedings before the Tribunal 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 of Appeal 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.

With respect to the contempt issue, Chrysler's appeal to the Federal Court of Appeal was successful. The case was appealed to the Supreme Court of Canada. In a majority judgment issued in July of 1992, the Supreme Court affirmed the Competition Tribunal's jurisdiction to enforce its orders through contempt proceedings. Thus, the Tribunal can continue to bring its specialized expertise to bear in ensuring that its orders are respected without having to invoke judicial proceedings before another forum.

3. Conclusion

As I indicated at the outset, the developments of the past year amount to a strong judicial endorsement of the basic premises underlying the Competition Act and its central role in Canada's economic policy. This endorsement will be of great assistance to the Bureau of Competition Policy in the enforcement of the Act. It will ensure that the Canadian consumers and producers will continue to benefit from a vigorous and competitive economy.

II. Emerging Challenges

Antitrust practitioners can rest assured that new enforcement issues are continually arising. For example, during the past year we have increasingly turned our enforcement attention to the issue of joint dominance.

1. Joint Dominance

Joint dominance is a broad concept that encompasses a range of practices through which a group of firms in an industry can exercise market power collectively. Such conduct may occur without an explicit agreement and often falls short of behaviour that violates antitrust conspiracy provisions. It may include the operation of common facilities in ways that exclude potential entrants from a market, the joint use of vertical restraints to entrench the market position of incumbent firms and strategic entry deterrence through signalling behaviour. In view of the high levels of concentration in many Canadian industries, the potential abuse of market power by jointly dominant firms takes on a particular significance.

Antitrust authorities have not always been successful in their attempts to address such conduct. In considering the application of Canadian competition law to such conduct, it is helpful to reflect on the FTC's experience in the 1984 Ethyl case, which dealt with consciously parallel but independent signalling behaviour designed to stabilize prices in the market for anti-knock gasoline compounds. In that case, the Commission chose not to appeal a decision of the Court of Appeal for the Second Circuit which reversed the Commission's prior ruling that four manufacturers of such compounds had engaged in unfair methods of competition under section 5 of the FTC Act. I note that, more recently, the Commission appears to be dusting off section 5, and is applying it to various practices that are not otherwise explicitly covered by the U.S. antitrust laws, although it remains to be seen how far the Commission will go in applying the section to joint dominance situations.

In Canada, joint conduct that lessens competition substantially may be addressed under the abuse of dominance provision, section 79 of the Competition Act. Paragraph 79(1)(a) of the Act refers explicitly to situations in which "one or more persons" substantially or completely control, throughout Canada or an area thereof, a class or species of business. Previous judicial interpretation of similar wording in the old Combines Investigation Act suggests that the present section 79 is applicable to situations whereby "one or more persons, inclusive of independent corporations, through the coordination of their activities work together as a unit." It should be noted that the mere existence of dominance in an industry -- whether involving one or more firms -- is not actionable under section 79. Rather, it must also be shown that the firm(s) involved have engaged in a practice of anti-competitive acts that have had the effect of lessening competition substantially.

To date, the cases dealt with by the Competition Tribunal under section 79 have dealt with exclusionary practices by individual firms rather than joint dominance situations. Currently, however, members of my staff are examining some matters that involve the potential application of section 79 to joint dominance. These include the operation of common facilities in ways that exclude potential entrants from a market and concerted use of vertical restraints to entrench the dominance of incumbent firms. These are some of the most complex matters that have been looked into by the Bureau of Competition Policy during my tenure of office. In such matters, arguments are often put forward that the practices involved are justifiable for efficiency-related purposes, such as lower transaction costs or prevention of free-riding. These issues require careful consideration, to ensure that competition policy deals effectively with anti-competitive practices without interfering with arrangements that facilitate beneficial innovation or otherwise enhance the efficiency of marketplace transactions. Thus, the area of joint dominance is likely to be one of the most challenging ones for antitrust authorities and private practitioners in the 1990s.

2. International Challenges

I would like to conclude with a Canadian perspective on some of the challenges facing competition policy enforcement internationally. The influence of international factors has become increasingly pervasive in our enforcement work. For example, mergers and acquisitions in Canada frequently involve foreign purchasers or sellers.

While globalization and trade liberalization affect us all, their impact is felt particularly strongly in a small and open economy like ours. By way of illustration, we may compare the degree of foreign participation in Canadian merger activity with that in the United States. According to a recent article by James Rill, former Assistant Attorney General, 22 percent of the 1500 Hart-Scott-Rodino reported transactions during the first nine months of 1991 involved foreign nations. By contrast, of the 500 mergers that came to the attention of the Canadian Bureau of Competition Policy during the first eight months of 1991, whether by pre-notification or otherwise, 73 percent involved foreign acquisitions.

Against this background, the reduction of trade barriers pursuant to successive GATT rounds, the Canada-U.S. FTA -- and soon NAFTA -- has provoked substantial structural adjustment in the Canadian economy as firms adapt to increasingly international -- even global -- markets. In consequence, trade liberalization has brought about an increased sensitivity to international considerations in our administration of Canada's Competition Act.

As a result of the increasing pace of globalization, the international antitrust community faces a number of important challenges in the immediate future. These challenges are not restricted to merger control but relate to other aspects of enforcement work as well.

First, we must ensure that we have the tools in place to successfully address anti-competitive behaviour on a global scale. Second, we must improve on the existing mechanisms to minimize the frictions that arise when antitrust enforcement in one jurisdiction has an impact on the economic interests of another. Third, it has become clear during the past year that we can -- and should -- do considerably more to ensure that the divergent merger review processes in different jurisdictions do not result in excessive transaction costs or otherwise deter pro-competitive transactions.

Existing arrangements such as the OECD Recommendation, the Memorandum of Understanding between Canada and the U.S., the recent U.S./EC Agreement and other similar instruments, represent a good starting point. The chapter on competition policy in the just completed NAFTA accord is in a similar vein. However, it will be important to find new avenues for cooperation to minimize the frictions that arise as a result of antitrust enforcement involving foreign elements or significant overlap between agencies, as well as to remedy anti-competitive behaviour on an international scale. For example, the recent Mutual Legal Assistance Treaty (MLAT) between Canada and the U.S. provides a stronger set of powers to investigate conspiracies and other anti-competitive conduct under our criminal laws. This Treaty allows each country to invoke the compulsory processes of the other to effectively prosecute criminal violations of our antitrust laws. Similarly, recent amendments to the Canada - U.S. Ext radition Treaty now allow either country to seek extradition of individuals charged criminally under price-fixing and other conspiracies. While I am not at liberty to discuss particular cases at this time, I can say that we have invoked the provisions of the MLAT in two investigations thus far and I am confident that the results will be significant.

A major hurdle to increased international cooperation in antitrust enforcement today, however, is the restriction on information sharing between competition authorities imposed by the various national competition laws. For example, Canada's Competition Act prohibits the disclosure of information obtained by the Director pursuant to the use of formal investigatory powers except for the purpose of the administration or enforcement of the Act. Disclosure of information obtained from merging parties during the course of a merger review is similarly prohibited. The prohibition prevents even disclosure to other Canadian government agencies, let alone foreign government agencies.

While some discussion between competition authorities is possible to the extent that it can be limited to information that is publicly available about a particular industry or firm, we are unable to pursue discussions at a more detailed enforcement level.

Having said this, I do not mean to question the rationale for the existence of strong confidentiality provisions. The protection of commercially sensitive information pertaining to private parties is absolutely essential to the preservation of both the integrity and the effectiveness of a competition policy regime. This is nowhere truer than in connection with mergers and acquisitions. One easily appreciates the legitimate concerns that would be provoked by the prospect that such information might be disclosed without the consent of the firms involved.

However, it is important not to leave the topic of information sharing without noting that governments can and do share sensitive information in a number of domains as a matter of course. There are also precedents for the sharing of private commercial information between governments. We must therefore be careful not to magnify the obstacles in the way of effective international cooperation in a way that prevents us from seriously examining the available options. One preliminary step might be to establish a mechanism allowing merging parties to consent to information sharing among reviewing agencies internationally. While information sharing under such circumstances would only be likely when it is advantageous to the merging parties, it will nevertheless provide competition authorities with much-needed experience in the area of cooperative merger review.

Conclusion

The challenges and constraints facing competition authorities in the international domain are evident. I believe that the major industrialized countries should be prepared to test the existing arrangements for international cooperation to their limits while pursuing more comprehensive mechanisms to attain common objectives. However, we should also face the possibility that our current arrangements could be inadequate in the face of the potentially global reach of anti-competitive conduct. The international community may need to explore additional vehicles, including the incorporation of competition policy provisions into multilateral trade agreements. We have begun this process in chapter 15 of the NAFTA.

On the domestic front, the developments of the past twelve months that I reviewed at the outset have already had a important beneficial impact on antitrust enforcement in Canada. I believe that the Bureau's policies and approach are well suited to the challenges facing the Canadian economy in the future. Our reliance on economic analysis to inform enforcement decisions will continue to guide us in uncovering and remedying anti-competitive conduct in Canada.