Notes for an Address by Howard I. Wetston, Director of Investigation and Research, Consumer and Corporate Affairs Canada

Canadian Corporate Counsel Association
Calgary

August 19, 1991

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Introduction

I am pleased to be here this afternoon and to present some thoughts on the Bureau of Competition Policy's current enforcement agenda. I feel it is particularly appropriate to be making this presentation to you because many of you are in the unique position of providing or seeking practical advice about competition policy issues on a daily basis. The matters I am about to discuss are the most recent among a number of initiatives that the Bureau of Competition Policy has undertaken to enhance compliance with the Competition Act and improve the effectiveness of the enforcement process. By discussing these matters with you today, I hope to provide the business community and practitioners with additional guidance on how we in the Bureau administer Canada's competition law.

The two subjects I will be discussing are:

(1) the most recent development in the Bureau's program of compliance; specifically, our current thinking on recommending immunity from prosecution to the Attorney General where corporations voluntarily bring competition law violations to our attention; and

(2) the development of criteria for case screening and priorization by the Bureau to promote the more effective allocation of resources in the administration of the Competition Act and thereby ensure the attainment of its objectives.

To begin with, I would like to describe the context in which the Bureau fulfills its mandate. As you may know, the Director of Investigation and Research is an independent statutory official appointed by order-in-council. The Director is the head of the Bureau of Competition Policy, which is part of the Department of Consumer and Corporate Affairs. While the Director reports to Parliament through the Minister of Consumer and Corporate Affairs, he is solely responsible for fulfilling the statutory responsibilities attributed to him under the Competition Act.

Although the Director is responsible for the enforcement of the Competition Act and the management and administration of the Bureau of Competition Policy, he must work within the bounds of, and is affected by, the same fiscal restraint facing the federal government generally. Obviously, I do not have unlimited resources to pursue competition matters. The law has, however, conferred upon the Director considerable discretion with respect to enforcement policy, compliance policy, priorities and so on.

Competition Bureau Priorities

Canada's Competition Act is an important component of the federal government's marketplace framework policy. As you know, its scope of potential application is extremely broad and covers virtually all sectors of business activity. As a result, the expression 'doing more with less' is, for us at the Bureau, more than just a currently fashionable phrase; it is a constant imperative that derives from the necessarily broad scope of an effective competition policy. We must therefore continuously strive to focus our enforcement activities in a manner which best promotes a competitive marketplace and, as a direct consequence, a productive economy.

It is with this perspective in mind that I have stated, on several occasions, that we are placing an increased emphasis on the enforcement of the conspiracy, bid-rigging, abuse of dominance and merger provisions of the Act. The reason for giving a special priority to the enforcement of these provisions flows directly from the 'purpose clause' of the Competition Act itself. It emphasizes, among other objectives, the promotion of the efficiency and adaptability of the Canadian economy. The same may be said with respect to the misleading advertising and deceptive marketing practices sections, as these provisions also promote economic efficiency in purchasing decisions. I am nonetheless fully aware that the Bureau will continue to receive complaints relating to the other provisions of the Act, and that it is incumbent upon me to ensure that all the objectives of the Act are met as fully as possible.

I have spoken at length on many occasions about the administration of the merger provisions of the Competition Act. Therefore, I don't propose to do that today. Rather, I would like to discuss some aspects of our enforcement approach with respect to the other priority areas that I mentioned a few moments ago.

On the criminal side, we have chosen to focus our attention on horizontal restraints such as conspiracy and bid-rigging. These activities strike at the very heart of a dynamic and efficient market economy by suppressing rivalry among firms and enabling them to function as collective monopolies or cartels. These practices impose serious costs, not only on consumers, but on business, government, and the economy as a whole. They reduce total economic welfare by creating strong disincentives to innovation, to improving production efficiencies, and to increasing the quality and choice of goods offered. Moreover, there is a growing body of economic research indicating that these activities may also reduce the ability of Canadian businesses to compete internationally. Our concern with abuse of dominant position on the civil side is essentially driven by the same considerations.

I should point out that we are not alone in focusing our attention on horizontal restraints, and it is something that Canadian businesses should bear in mind as our economy becomes more closely integrated with that of the United States under the Canada-U.S. Free Trade Agreement. The United States Assistant Attorney General in charge of anti-trust, Jim Rill, has stated that the investigation and prosecution of price-fixing, bid-rigging and other types of cartel behaviour are among his highest priorities. He has also stated his intention to seek significant jail terms for individuals and substantial fines for corporations.

To illustrate the seriousness with which the American authorities view cartel behaviour, I need only remind you of the ongoing investigation and prosecution of U.S. dairy companies for bid-rigging in connection with milk sold to the U.S. Department of Agriculture for use in subsidized school lunch programs. As of a few weeks ago, the investigation had spread to at least 16 states and involved 34 cases against 44 individuals and corporations. Thus far, 16 individuals have received jail sentences and the U.S. Department of Justice is seeking fines in the order of $21 million (U.S.).

The trend toward more severe penalties for illegal cartel activities has been felt in several other countries, including Germany and Japan. As you are probably aware, in Canada we have begun to see an increase in the level of fines imposed in bid-rigging cases, as well as in instances of price maintenance. It will continue to be our policy to seek substantial fines in criminal prosecutions under the Act, particularly in conspiracy and bid-rigging cases. In addition, we will continue to recommend to the Attorney General that charges be laid against individuals, where the evidence warrants doing so. Our review of cases over the past several years has led me to conclude that more charges against individuals will be necessary to strengthen deterrence incentives. Among the factors that we take into account in making such a recommendation are the individual's position in the organization, his or her role in initiating, implementing or enforcing the conduct in question, and his or her kno wledge of the illegality of the conduct.

Program Of Compliance - Recent Developments

Criminal prosecution and contested civil proceedings are, of course, neither the only nor always the most effective means of ensuring compliance with Canada's competition law. The Bureau has for a number of years operated a program of compliance providing for a multi-faceted approach to attaining the objectives of the Competition Act without resorting to formal proceedings in each and every case. Indeed, some elements of the compliance program, such as the publication of speeches articulating the Bureau's enforcement policies, and providing firms with advisory opinions, date back to the 1960s.

The various elements of the program of compliance have been set out more extensively in an information bulletin issued by the Bureau in 1989 and have been commented on by my predecessors and by me on many occasions. I therefore do not propose to elaborate further on this topic today, except to say that alternatives to prosecution will be seriously considered where a party satisfies the criteria set out in the bulletin. Rather, I want to focus my remarks on the proposed expansion of the Bureau's program of compliance.

My staff and I have recently begun to develop a program aimed at providing greater incentives for corporations and individuals to voluntarily report their participation in conspiracy and bid-rigging activities before they have come to our attention. Given the covert nature of these offences, they are often difficult to discover or prove without the co-operation of persons who are themselves implicated in the commission of the offence. We therefore want to do whatever we can, consistent with the fair and impartial administration of the Competition Act, to encourage firms to come forward as soon as possible after it has come to the attention of senior management that the firm has been involved in collusive conduct contrary to the Act.

Given the respective roles of the Director and the Attorney General in the enforcement of the Competition Act, it should be clear that only the Attorney General can grant immunity from prosecution under the Act. Nonetheless, the Director's recommendations have historically received careful and serious consideration by the Attorney General.

The following observations describe our most recent thoughts with respect to the factors that could be relevant in determining whether to recommend immunity from prosecution to the Attorney General in a "first-in" situation.

1. The firm must be the first to approach the Bureau with evidence of the offence in question. I do not view it as appropriate to recommend immunity from prosecution if there is an existing complaint or investigation, or if an advisory opinion has already been issued by the Bureau regarding the conduct in question.

2. The firm must provide full and frank disclosure of the facts at its disposal. There must be no misrepresentation of the material facts, which shall be confirmed by the Bureau's investigation. In particular, the Bureau's investigation should not reveal offences beyond those which have been identified by the firm.

3. The firm must co-operate fully with the Bureau's investigation and with any ensuing prosecution or other legal proceedings.

4. The evidence provided by the firm must be important and valuable in terms of any prosecution or other legal proceedings.

5. The firm must be prepared to make restitution commensurate with the facts and its responsibility in the matter.

6. The evidence must confirm that the firm took immediate steps to terminate the activity and report it to the Director as soon as it was discovered by its senior executives.

7. A prior record of anti-trust violations by the firm will be a significant factor in deciding whether to recommend immunity to the Attorney General.

8. The firm should usually be prepared to consent to the issuance of an order of prohibition of fixed duration under section 34(2) of the Competition Act pursuant to which the commission of an offence is admitted.

9. The role of the firm in the conduct in question will also be considered. For example, it may not be consistent with responsible enforcement of the Act or the administration of justice to recommend immunity for the instigator of criminal conduct.

It is my hope that this proposal will provide considerable incentive for firms to come forward voluntarily when senior management becomes aware of a violation of the Act. Certainly, that has been the experience in the United States in recent years. However, you should bear in mind that the carrot afforded by this extension of our program of compliance has a flip side consistent with our policy of seeking greater fines and laying charges against individuals where appropriate. In effect, while the benefits of being the first to report a violation of the Act in a conspiracy or bid-rigging situation may be considerable relative to the potential sanctions, the failure to do so will generally raise the stakes in any subsequent settlement negotiations.

These are only some of the considerations which will be relevant in the context of my recommendations to the Attorney General following a request for immunity from prosecution. I hope to be able to elaborate on this aspect of our enforcement agenda as it is further developed with the benefit of experience and of our ongoing consultations with the Attorney General's office.

Case Screening Criteria

Given that the Bureau cannot investigate every matter brought to its attention with equal vigour, we have been developing criteria for screening and priorizing cases for enforcement outside of the mergers and marketing practices fields. These criteria are based on our accumulated knowledge of markets, economic principles, case law and on our enforcement experience. We have applied these criteria in our case screening process over the past year and I am encouraged by the initial results. I should stress, however, that we do not apply these criteria mechanically. Their application must be, and is, tempered by the exercise of judgment and discretion. Indeed, in view of my statutory responsibilities, I cannot fetter my discretion by adhering rigidly to any formula. Nor would I want to. Flexibility is, in my view, essential to the enforcement of competition law. The Supreme Court of Canada appears to have indirectly confirmed this in recent decisions such as City National Leasing and Thompson, by taking competition law out of the narrow confines of purely criminal law and acknowledging its trade and commerce aspect.

The Bureau's case screening criteria may be divided into three categories: (1) economic impact factors, (2) enforcement policy factors, and (3) management factors. These factors are assessed individually and the more important ones, as I will point out, are given greater weight. The final result of the application of these case screening criteria is to provide guidance as to the priority to be given to each case for the allocation of the Bureau's resources.

Economic Impact Factors

One of the first factors that we address is the nature and scope of the sector at issue. While the size of the sector is a consideration, we also look at its strategic importance vis-à-vis the economy as a whole. A related consideration is whether national, international or major regional participants are involved in the conduct at issue. Similarly, infrastructure industries which have important linkages to other sectors are generally of higher significance, since the effects of anticompetitive behaviour in those industries may be considerably more extensive than in other sectors.

Second, we direct our attention not only to domestic markets but also to the effect of our intervention on the international competitiveness of the firm or firms under investigation as well as that of their customers and suppliers. Our aim is to remove impediments to domestic competition so that companies may position themselves to acquire the competitive edge necessary to compete on a global basis.

Third, we carefully consider the economic impact that enforcement action is likely to have. For example, more weight will be given to those cases where the intended remedy will have an appreciable effect on economic efficiency through the promotion of competition. If, however, the market is likely to correct itself within a short period of time, or another government agency or individual private action would likely lead to corrective or remedial action, it may be more beneficial to focus our attention on other matters. Furthermore, where enforcement action on our part would support government policies or initiatives which encourage economic efficiency, such as the regulatory reforms underway in transportation and telecommunications, we would give a case greater weight in the assessment process.

Enforcement Policy Factors

 As I indicated earlier, we have decided to focus our attention on those types of anticompetitive behaviour which have the greatest potential to do harm to the Canadian economy--namely, conspiracy, bid-rigging, and abuse of dominance. Consequently, although we must consider all complaints made under the Act--and I hasten to add that we will take prompt action in any case where the circumstances and the evidence so warrant--we will be especially vigilant where one of the three types of conduct I have mentioned are involved. Where other types of conduct are concerned, however, we may often be in favour of using an alternative case resolution approach as described in the Program of Compliance bulletin.

An important consideration is whether bringing a particular case to prosecution or before the Competition Tribunal will provide important new case law. Many of the provisions of the Competition Act are still relatively new and have had little or no judicial interpretation. Similarly, many of the provisions carried over into the new act from the former Combines Investigation Act have given rise to limited, or, on occasion, to ambiguous judicial interpretation. In my view, the development of additional jurisprudence is necessary as a cornerstone to an enforcement and compliance policy in this area.

We also assign weight to matters in which our involvement will be likely to resolve an identified competition problem. Likewise, urgency will also play a role in determining the weight to be assigned to a given matter, with a higher priority accorded to those cases in which a timely intervention by the Bureau, either through prosecution or alternative means, can be expected to prevent or correct serious anticompetitive effects.

Finally, achieving compliance with the Act and enhancing deterrence require the promotion of a greater understanding of the Act and its provisions within the business community and the public at large. Therefore, those cases that deal with pressing issues in the marketplace will be accorded more weight. The current investigation with respect to gasoline prices in several markets across Canada is a case in point.

Management Considerations

 This last category of factors relates to the internal administrative considerations, which are fundamental to our ability to simultaneously conduct a large number of inquiries efficiently. One important aspect, which I hardly need remind this audience in particular, is the cost of pursuing a case.

We try to estimate the total costs required to complete all stages of any inquiry. These costs vary considerably from case to case and can change suddenly with little warning. As you can imagine, simultaneous searches in several cities, with several officers at each location, is an expensive proposition. These costs have to be factored in, as do the costs and delays associated with the frequent Charter challenges common to all fields of law enforcement. As well, the costs of outside legal, industry and other professional expertise must be taken into account. The final factor is an assessment of the time and effort required to be in a position to take legal proceedings on a case. All things being equal, those matters which are closer to completion will be given more weight.

I should point out that, throughout this process, there is no single factor which causes the Bureau not to proceed with a case. To do so on the basis of any predetermined criteria would inappropriately fetter the exercise of enforcement discretion. However, as I stated earlier, we do consider some elements to be more important, such as the nature and scope of the sector, potential impact of the remedy, jurisprudential value, marketplace sensitivity and cost.

Conclusion

 One of my goals in implementing the case screening process is to avoid costly and lengthy litigation in areas where the anticompetitive activity in question is of low economic impact and the remedy's success is doubtful. The better articulation of our case screening criteria is an ongoing process which can only benefit from the considered comments of experienced corporate counsel such as yourselves. Indeed, you are well-placed to provide us with practical suggestions to improve our administration of the Competition Act. You are in a unique position within the business community and you have a good understanding of the markets in which your firms compete. I invite you to write to me with your comments and suggestions on the matters that I have discussed today.

I also invite you to consider the role that you can play in the effective implementation of our enforcement policies, and our desire to achieve a mutually beneficial resolution of competition concerns in an expeditious and less costly manner. It is perhaps worth noting that we have had a number of experiences during the past year with U.S. corporate counsel, acting through Canadian counsel, who, in a proactive manner, have been very instrumental in achieving positive results regarding competition in the Canadian marketplace. This is no doubt due, in part, to the historical sensitivity to anti-trust matters in the United States. However, as North America becomes more economically integrated, I am confident that Canadian counsel will also adopt a similar approach to these important marketplace matters. I look forward to hearing from you about the issues I have addressed.

Thank you.