Canadian Competition Law: Current Issues in Conspiracy Law and Enforcement

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

Meredith Memorial Lectures
McGill University Montreal, Quebec

November 30, 1990

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I. Introduction

Throughout much of the 1980s, enforcement of the criminal conspiracy provisions of Canadian competition law was overshadowed by the focus on developing, enacting and implementing an effective non-criminal law to deal with mergers and monopolies. With this task completed, the time is opportune to revisit the subject of our Canadian law against price-fixing and other collusive arrangements, and reaffirm its fundamental role in the modern antitrust enforcement agenda.

Collusive arrangements have been viewed by Parliament as serious criminal offences, and this is reflected in the treatment accorded to them under the Competition Act. There are at least two reasons for social condemnation of collusive behavior, one readily apparent, one perhaps less so.

Unlike other conduct addressed by competition law, bid-rigging, price-fixing and related activities are widely recognized to be unambiguously harmful. There are no redeeming social benefits. In many cases, the conduct of conspirators amounts to a form of theft from the public on a multi-million dollar scale.

Moreover, as this paper seeks to demonstrate, collusion has even broader and more pervasive effects on the nation's economic activities. While these effects can be difficult to quantify, economists have long recognized their relevance in making the case for a strong conspiracy law. If these effects are better understood by the public, then uncovering and deterring these activities will become more feasible.

Domestic economies and businesses are facing sweeping changes as the 1990s begin. These include the globalization of markets, the trend to deregulation, the dismantling of trade barriers in North America and the European Community, and the shift from a centrally planned economy in the Eastern bloc. Developments on the world stage necessitate that Canadian firms strive towards greater efficiency, both as a key to improved international competitiveness and as a means of countering the stronger role that imports will inevitably play in the domestic economy. Within this context, competition and free market forces offer the greatest potential to foster dynamic innovation and economic growth in the decade ahead.¹

Unfortunately, history has shown that many businesses, over the years, have pursued the shelter of collusive arrangements as a retreat from the challenge of the marketplace. Needless to say, collusive arrangements do not provide Canadian firms the best hope for international success. This may be an appropriate time, therefore, to present the economic arguments which support vigorous enforcement of the conspiracy law, to review the application of our present law and the current approach, and to discuss the factors that will shape its enforcement in future years.

II. Economic Aspects Of Collusion

(1) The Effects of Collusion

Canadian competition policy is based on the notion that free market forces, operating under competitive conditions, are the best means of allocating resources in the economy and maximizing total economic welfare. Competition is viewed as a dynamic process, in which constant pressure to improve and adjust to changing consumer demands or market conditions can only be met by firms operating in a flexible, unrestrained setting. It is the force which drives industry forward.

Collusion strikes at the core of this process. By suppressing the natural rivalry of firms, collusion enables them to function as a collective monopoly or cartel. This imposes serious costs not only on consumers, but on other businesses, government, and the economy as a whole. As economists say, it reduces total economic welfare. Ultimately, collusion harms the interests of all Canadians, a fact which may set it apart from other forms of white-collar crime.

To begin with, by establishing collective control over the behavior of the firms involved, collusion enables them to reduce output and/or to raise prices above competitive levels. This has an immediate, negative impact on the welfare of consumers--the so-called deadweight loss attributable to monopoly. This is a loss that consumers bear directly. They are worse off because they are consuming less and paying more for the relevant products than they would under competitive market conditions. In addition, collusion unjustly transfers wealth from consumers to corporate shareholders. An agreement to raise the retail price of a consumer product is the classic example of this form of injury.

Collusion is also harmful to Canadian businesses because it raises the price or reduces the availability of intermediate goods or other inputs such as resources. This impacts directly on the businesses' profitability and on the attractiveness of their products vis-à-vis those offered by foreign suppliers. Firms who must pay a premium for raw materials due to prices set by collusion suffer a serious cost disadvantage that is inevitably reflected in their own selling price. For example, in one case currently underway, a Canadian firm publicly reported that its costs were increased by 3 to 5 percent due to price increases alleged to be linked to a price-fixing agreement.

Bid-rigging is another type of activity where the effects of collusion can be clearly demonstrated. For example, bid-rigging in the U.S. highway paving industry has been widely reported as having resulted in overcharges of more than $260 million annually in that country. Here in Canada, it was estimated that purchasers in a western Canada bid rigging case paid premiums of between 20 and 137 percent on rigged bids. As these examples illustrate, the costs of a large firm's operations, or more frequently of government operations, can be severely affected when the system of competitive tendering, designed to secure best value for money, is undermined. In the end, either taxpayers must face higher taxes or scarce government resources must be reallocated from other worthwhile projects to cover the extra costs caused by collusive bidding.

Collusion also has critical effects on the dynamic forces that spur efficiency and innovation. By suppressing the normal competitive forces that foster productivity improvements, collusion can result in technical inefficiency in the form of higher per unit costs.² There is also reduced scope for innovative marketing strategies and competitive experimentation, and the incentive to engage in research and development may be limited. These effects are precisely the opposite of what is needed to foster the efficiency and international competitiveness of Canadian industry.

Another harmful aspect of conspiracy is that the colluding firms may tend to set prices at the level necessary to benefit the highest-cost participant. Inefficient players may thus be protected, while normal market forces would have removed them from the marketplace.

The damage caused by collusion is not confined to individual consumers or industrial sectors. The potential relationship between an effective competition law and the achievement of broader economic goals cannot be overlooked. Conspiracy law, in particular, helps to prevent artificially high price levels across the economy. Moreover, by encouraging greater efficiency and economic growth, competitive conditions can enhance international performance, contribute to the attainment of full employment, and overall help to provide a better standard of living for Canadians.

Finally, in addition to its direct economic costs, collusion is harmful because it undermines public confidence in the competitive market system. It erodes the belief that the system is based on honest dealings and ultimately works to the benefit of consumers. If left unchecked, therefore, collusion could lead to other forms of government intervention in the marketplace.³

For all these reasons, a clear majority of scholars, including individuals who have been critical of other aspects of antitrust policy, strongly support the systematic prohibition of collusive activities. For example, Robert Bork, who has criticized numerous aspects of U.S. antitrust policy as excessively interventionist, has described the U.S. law against price-fixing as providing an enormous contribution to consumer welfare over the decades.⁴ In a similar vein, Posner concludes that "the elimination of the formal cartel is an impressive, and remains the major, achievement of American antitrust law."⁵

(2) Factors that Facilitate Collusion

Economists have suggested a number of factors that can facilitate the formation or operation of cartels. These factors are present in many Canadian industries, which suggests that enforcement officials need to be particularly alert to the possibility of collusive agreements in Canada. The result may be that natural marketplace mechanisms which can work to defeat the successful attainment or maintenance of conspiracies are not present, and agreements reached may have a better chance of survival.

It is widely believed that the fewer the number of firms, the easier it is to establish and police a cartel. This is partly because, the greater the number of players in the market, the more likely there will be diversity among firms' cost structures, and the less likely that each will view a particular price as the appropriate one.⁶ Higher industry concentration levels are also thought to facilitate effective collusion. Many Canadian markets present this risk factor. Due to the country's relatively small and widely dispersed population, Canadian markets tend to be small and tend to be highly concentrated.

Collusion is also made easier where an industry's products are homogeneous. When firms sell undifferentiated products, the number of variables which they must agree upon is reduced. In Canada, a significant proportion of the domestic economy is made up of resource-based industries where this kind of product homogeneity is often found.

Beyond these factors, collusion may also be facilitated by characteristics such as the dispersion of buyers and the nature of transactions in the marketplace. In particular, the frequency of transactions and the value of individual sales may affect the ability and incentive to engage in secret discounting.

Collusion can also be greatly facilitated by a variety of other practices that limit the ability of individual firms to "cheat" on their co-conspirators, a practice which can lead to the eventual breakdown of any cartel. Practices used to prevent cheating may include price posting and open-pricing policies, the allocation of specific buyers or geographic markets to particular suppliers, the maintenance of market shares, the pooling of profits, or the use of most-favoured-nation (buyer) clauses, which require price cuts to be passed on to all customers. Such measures enhance the transparency of business transactions and thereby make it easier to enforce an agreement.

In recent years, these practices have been an important focus of antitrust enforcement activity. For example, most-favoured-nation and other collusion facilitating practices were the focus of the 1984 U.S. Ethyl case.⁷ This case considered whether the non-collusive adoption of such pricing policies by the only four market participants could constitute a violation of the Federal Trade Commission Act.

Additionally, collusion may be facilitated by the existence of a trade association. Such associations provide a natural vehicle for monitoring compliance with cartel arrangements such as by collecting and disseminating information on suggested or prevailing prices or on industry costs. Trade associations have figured prominently in recent cases involving lawyers, real estate agents, and trucking services.

(3) Beneficial Co-operation Between Competitors

While remaining vigilant against harmful manifestations of collusion, it is important to recognize that not all joint activities or agreements involving competitors fall into this category. In fact, some such arrangements may serve pro-competitive functions. For example, the development of common product standards can facilitate efficient transactions in the marketplace and enhance brand substitutability, thereby providing more options for consumers. In addition, subject to appropriate restrictions, agreements among firms to collaborate in the area of research and development can enhance technological innovation in an industry. Specialization agreements can contribute to the beneficial rationalization of industries. The pro-competitive potential of each of these activities is recognized in one way or another in the existing provisions of the Competition Act.⁸

Another justification that is often advanced for agreements among firms is the need to compete effectively in global markets. This rationale must not be accepted blindly. Many writers have argued to the contrary--that vigorous competition in the domestic market is important to position firms to meet the tests of international competition.⁹ Nevertheless, it is recognized that in appropriate cases, joint ventures or other collaborative arrangements among competitors can enable firms to mount a more effective marketing effort or achieve synergies that make it possible to compete more effectively. Also, where markets are genuinely international in scope, agreements for solely export-related purposes are unlikely to significantly restrict competition in the domestic market.

Some economists have made more far-reaching assertions regarding the need for co-operation among competitors to ensure efficient market outcomes in certain circumstances.¹⁰ However, while these views raise interesting issues for industrial organization theorists and policy makers, they are still regarded with considerable caution in the antitrust enforcement field. In practice, it would be very difficult to distinguish cartel arrangements which are arguably justified by efficiency-related considerations from those that serve no purpose but to transfer wealth from buyers to sellers. Furthermore, if such arrangements were exempted from the general law on conspiracy, elaborate regulatory structures might be needed to prevent them from going beyond their legitimate functions.¹¹

In sum, economic theory and the empirical evidence regarding the social costs of cartelization strongly support the systematic prohibition of horizontal price-fixing, market sharing and other collusive activities. Recent developments in oligopoly theory can help to identify markets in which collusion is most likely to occur. Many Canadian markets fall into the risk category, suggesting particular vigilance in enforcement is required. At the same time, however, the Government recognizes that the law against conspiracy should leave room for limited arrangements between firms in regard to specific activities, such as standard-setting and research and development, which are likely to be efficiency-enhancing.

III. Issues In The Application Of The Canadian Law

(1) Overview of Provisions

The general legal prohibition against conspiracies in restraint of trade is currently found at section 45 of the Competition Act. The provision declares that it is an indictable offence for any person to conspire, combine, agree or arrange with another person to prevent, limit or lessen competition unduly. The Act provides a limited defence applicable to agreements relating to matters such as the defining of product standards or the exchange of credit information--areas where co-operation may be expected to produce pro-competitive efficiencies. However, the defence is not applicable where such an agreement is nonetheless likely to lessen competition unduly in respect of prices, quantity or quality of production or certain other critical dimensions of competition.

This section does not prohibit any or all types of agreements outright, necessitating an assessment of the likely effect of the agreement on a case-by-case basis. While complicating the task of conspiracy law enforcement, the Canadian threshold approach reflects an historical acceptance of concentration and a concern that government intervention only occur when restrictions have clear undue competitive effects. However, the wording of section 45 also gives flexibility to the law by accommodating the notion that market dynamics play an important role in determining what level of structural concentration will be harmful to competition. This can be particularly important in assessing the impact of agreements pertaining to subjects such as advertising, or other non-price dimensions of competition.

The Competition Act contains two other measures directed against collusive agreements. First, there is a specific per se prohibition against agreements relating to bid-rigging activities. Section 47 prohibits agreements to refrain from submitting a bid in response to a call or request for tenders, and also prohibits the submission of bids arrived at by agreement in response to a call or bid for tenders. It is an indictable offence to engage in such activities. The section does not, however, apply to situations where the agreement is made known to the tendering authority before bids are made, or where the agreement involves affiliated companies.

This provision was added to the law in 1976 to overcome difficulties which had been encountered under the general conspiracy law in proving that bid-rigging practices would unduly lessen competition. It was found that many bid-rigging allegations implicated small firms who had only a small share of the market, but who nonetheless had been the only parties to respond to the call for tenders.¹² However, the per se treatment of bid-rigging also reflects widespread societal condemnation of this conduct. Mr. Justice McKeown described bid-rigging in the tender for government hotel accommodation as a "public scandal" in R. v. York Hannover Hotels Ltd. et al.¹³

Under section 49 of the Act, agreements between banks regarding matters such as the rate of interest on deposits or loans also currently receive per se treatment. Such agreements are not subject to the general conspiracy section. While the special treatment accorded agreements between banks is an historical anomaly, public acceptance of the per se standard in this industry may be attributed to a recognition of the fundamental importance of the banking system, and particularly the need to ensure that capital is allocated in accordance with free market forces. This treatment will similarly be extended to federally-incorporated trust and loan companies if Bill C-83, the proposed Trust and Loan Companies Act, is passed into law, considerably expanding the scope of application of section 49.

(2) Investigative Issues

Conspiracy and bid-rigging activities have accounted for roughly one-third of the Bureau of Competition Policy's workload since the 1960s, a situation which is likely to continue well into the 1990s. Despite increased efforts to promote awareness and understanding of the law, some Canadian firms continue to engage in conspiratorial behavior. Seven major conspiracy investigations are currently underway in the Bureau relating to price-fixing or bid-rigging activities.

Certain realities of the enforcement process remain unchanged. Conspiracy cases remain the most difficult ones to investigate, due to the inherent difficulties in detecting covert arrangements, the higher evidentiary burden of proof in criminal cases, and the scope and complexity of conspiracy investigations. There is a considerable spectrum of behavior ranging from explicit written agreements to informal arrangements which the law might potentially address. While the Competition Act allows both direct and indirect evidence of conspiracy, most conspiracies must still be proven through an intensive process of drawing inferences from circumstantial evidence.

Searches are still necessary in the vast majority of conspiracy cases, with the accompanying increase in resource demands associated with the pre- and post-search documentation requirements introduced by the 1986 amendments. Litigation in the matter of Cottrell Transport Inc. v. Canada has resolved some issues of interpretation concerning document retention proceedings.¹⁴ New questions, however, will undoubtedly continue to arise. In particular, the Bureau is still exploring the ramifications resulting from the need to search for records stored on computers.

Given the degree of concentration in many Canadian industries, the treatment of conscious parallelism is an ongoing concern. In economic theory, conscious parallelism refers to the uniformity of behavior, whether in pricing or in other areas, commonly exhibited by firms in an oligopolistic industry selling a homogeneous product, such as gasoline. Uniformity arises not from agreement but from each firm taking account of its rivals' likely reaction in determining business strategies--recognizing that a price cut will be matched by all and produce only a brief competitive advantage. Because of the apparent prevalence of this phenomenon here in Canada, and the tendency of consumers to view price uniformity as inherently suspicious, the Bureau receives a considerable number of complaints of this type each year.

Canadian courts have not accepted that mere conscious parallelism is sufficient to attract the application of the law, absent evidence of an agreement.¹⁵ In practice, however, collusion and conscious parallelism can be difficult to distinguish, particularly in industries where vehicles to facilitate price-fixing are readily available. The Bureau scrutinizes such situations when they are brought to its attention to determine whether there is other evidence, such as meetings or other means of communication between competitors, suggesting a possible agreement or evidence of reprimands or apologies for non-conforming behavior. Given the potential significance of interdependent behavior in other areas of competition law, the Bureau's draft Merger Enforcement Guidelines, which were circulated for comment in November 1990, explicitly address this matter.

(3) Charter and Constitutional Litigation

As is often the case in Canada, Charter and other constitutional challenges have been raised recently with respect to several provisions of the Act, some of which have been directed at the conspiracy provision. In the recent case of R. v. Nova Scotia Pharmaceutical Society (PANS)¹⁶ the Supreme Court of Nova Scotia struck down section 45 on the basis that two elements of the offence, the requirement of undueness, and the mens rea or intent element, violated certain sections of the Charter of Rights.

Conspiracy under the Competition Act, as at common law, is an inchoate offence consisting of the act of agreeing to do something. As the offence lies in the agreement and not in its implementation, numerous courts have concluded that the mens rea element is met when it is shown that the parties intended to enter and did enter into the subject agreement. It is not necessary to demonstrate that the accused intended to lessen competition unduly. In PANS, it was held that this single intent requirement would give rise to situations where it would be possible to convict an accused despite a reasonable doubt as to whether the accused knew or ought to have known that competition would be lessened unduly as a result of entering into the agreement. This was judged to conflict with notions of fundamental justice protected by section 7 of the Charter, as it would result in the conviction of the morally innocent. In addition, the Court agreed with defence counsel submissions that the meaning of the word "unduly" was too vague and uncertain. Consequently, it was considered to deprive the accused of its rights to fundamental justice, to make full answer and defence, and to a fair trial (sections 7, 11(a) and 11(d) of the Charter).

The application of the intent and "undueness" requirements have been the subject of much discussion in the past. On the question of the meaning of undueness in particular, the courts over the years have devoted considerable attention to identifying factors which can serve to establish a framework for its assessment. Moreover, considerable guidance can be obtained from the provisions of the Act itself.

Challenges such as PANS are not, however, wholly unexpected, given that the courts are continually expanding the jurisprudence pertaining to procedural rights protected by the Charter. These are significant issues in competition law cases. Furthermore, it is not surprising that corporations that possess the financial resources to test the limits of the law choose to do so.

At this point in time, challenges such as this raise obstacles of a practical nature. They inevitably deflect effort and resources from the fundamental task of investigating such crimes. However, despite these matters, the Bureau is proceeding with investigations of collusive activities in Canada, and intends to continue referring evidence of offences to the Attorney General of Canada. As the trial decision in PANS is not binding, proceedings in conspiracy cases will continue to be initiated.

(4) Penalties

One of the most significant conspiracy law issues in the 1990s will be the quest for appropriate penalties. The sanctions which may be imposed for collusion in Canada are among the highest in the world. Under the general conspiracy provision, both corporations and individuals may be sentenced to fines up to ten million dollars, while individuals may be sentenced to jail terms of up to five years. Fines for bid-rigging agreements are not constrained by a monetary upper limit and may be set at the discretion of the court, although the maximum prison sentence is also five years.

In practice, the fines awarded by Canadian courts in conspiracy cases have not nearly approached the levels provided for by law. While deterrence has been emphasized as a fundamental sentencing issue in competition law cases, it is unlikely that the present level of fines has even begun to achieve this purpose. Indeed, it can be argued that to date, the fines have functioned as little more than a licence fee.¹⁷ The highest monetary penalty imposed to date on an individual firm for a single count under the conspiracy provision of the competition legislation is $400 000. Factors frequently referred to as determinative in sentencing decisions include the size of the firms involved and their share of the market, the duration of the conspiracy, the nature of the product involved, the degree of control achieved by the agreement, and the relative involvement of various participants in promoting the agreement.

Canadian courts have traditionally treated individual conspirators in competition law cases with greater lenience than their counterparts south of the border. Although about forty individuals have been convicted of "combines" offences since 1940, individual fines have not exceeded $7 500 to date. These penalties stand in sharp contrast to the heavy fines and prison sentences which are frequently awarded to individuals found guilty in conspiracy and bid-rigging cases in the United States.

The penalties awarded by the Canadian courts in conspiracy cases are also in contrast to the million dollar fines and three- and five-year prison sentences handed down in the Hamilton Dredging case in 1979. This case involved charges laid under the Criminal Code against several parties involved in a conspiracy to defraud the Government through a significant bid-rigging scheme. Charges were laid under the Code as no separate bid-rigging offence existed under the competition law at that time. In fact, there is little to distinguish this case from many other conspiracy offences despite the greater stigma sometimes associated with charges under the Criminal Code.

Greater compliance with antitrust laws will come about only when penalties are sufficient not only to appropriately punish collusive behavior once detected, but also to deter other persons from engaging in such activities. Successful deterrence of such crimes requires that penalties be greater than the expected profits from successful collusion. If the penalties only equal the actual profits reaped by the defendants in individual cases, they will not be sufficient. We know that the crime of robbery would not be adequately deterred if convicted persons merely faced the prospect of having to return their stolen property to society.

Collusion is also unlikely to be adequately deterred if the penalties awarded in such cases are paid directly or indirectly by the corporations involved, rather than by the executives responsible for the decision to break the law. As indicated, the prosecution and conviction of individual corporate offenders, and the potential for severe penalties for such individuals, are part of the deterrence package available under the law. These measures must be seen to be real risks of illegal behavior, rather than mere symbolic penalties.

Accordingly, an increase in the incidence of individuals charged under the conspiracy or bid-rigging provisions is a necessary by-product of achieving deterrence. The Bureau is now conducting its investigations with a view to identifying cases where individual charges would be appropriate, and gathering evidence which would support such action. The criteria relied upon by the Bureau in making its recommendations to the Attorney General in such cases include the position of the individuals in the organization, his or her role in initiating, implementing or enforcing the agreement and the degree of knowledge of illegality, or moral turpitude of the particular party. Recently, charges were laid against seven corporate officers in the pharmaceutical price-fixing case currently before the courts in Quebec.

Ultimately, however, penalties can only reflect society's condemnation of the conduct in question. Efforts to increase them will only receive acceptance when there is greater understanding of the serious harm caused by collusive activities. As we have seen, these effects are felt not only by individual consumers, but also by firms who must purchase critical inputs at inflated levels, by taxpayers who bear the price of bid-rigging in government procurement and by all members of Canadian society who are affected by these types of activities. These effects must be understood and accepted by the purchasing public, businesses of all sizes, and, of course, the judiciary.

(5) Enforcement Approach

Effective deterrence requires not only appropriate penalties, but also a reasonable degree of certainty that they will be swiftly imposed--a prompt and unequivocal response. It is possible that in the past the deterrent effect of competition law investigations was somewhat reduced by the length of time which elapsed between the commission of an offence and the imposition of legal sanctions.

Recently, the Bureau has revised its approach to these investigations to ensure enhanced organizational efficiency and a prompt enforcement response. The new approach encompasses some computerized document processing and analysis techniques, improved officer training in investigative techniques, greater reliance on a team or multi-disciplinary approach, and, where possible, earlier involvement of legal counsel in the investigative process. This latter measure has produced considerable time savings by enabling shortcomings in the case to be identified at an earlier stage, and by facilitating the review of search warrants, requests for witness immunity and other matters. This means that the Bureau has opened its doors to accused parties before the evidence is all in, in the interest of promoting discussions of benefit to both sides.

Although prohibition orders have been relied upon to resolve some conspiracy cases over the years, these and other forms of compliance resolutions will be less available in cases under the conspiracy and bid-rigging provisions. Moreover, without revisiting the facts on a case-by-case basis, it is fair to say that most instances in which prohibition order settlements without conviction were accepted involved either special extenuating circumstances related to the certainty of a successful prosecution, the unusual or far-reaching effect of the proposed order, or the local nature of the offence. While future cases will, of course, be judged on their own merits, we continue to view conspiracy and bid-rigging as the most serious of competition law offences, and the ones most deserving of full enforcement measures.

(6) Private Litigation

Since the Bureau seeks to discharge its mandate by the most efficient means possible, it does not have sufficient resources to take on all cases which may exist, and must inevitably focus its activities on those areas of greatest significance. In the U.S., the effectiveness of antitrust enforcement has long been assisted by the high level of private litigation. Civil suits have greatly increased the costs of anticompetitive activity, due largely to potential treble damage awards. In addition, they have greatly increased the probability of antitrust offences being exposed and sanctions being imposed.

Since the constitutionality of the civil damage remedy was upheld by the Supreme Court of Canada in General Motors of Canada v. City National Leasing¹⁸, firms here now clearly face potential exposure to civil liability for the financial damages suffered by customers or competitors as a result of a conspiracy. The provision in the Competition Act enables firms to pursue private litigation where they can demonstrate losses arising from conduct that is contrary to any of the criminal offence provisions of the Act. Litigants benefit from the lower civil standard of proof, and may recover the full costs of any investigation in connection with the matter as well as those related to the proceedings. Although Canada has no treble damage rule, a sizeable award may nonetheless flow from a successful and prolonged criminal violation.

In future years, it is hoped that fear of potential civil liability will become an important additional deterrent to illegal conduct. However, this will come about only if firms affected by collusive behavior make use of the opportunity now unquestionably available to them, and pursue such litigation vigorously, rather than relying solely on government enforcement.

(7) Future Directions

In the decades ahead, conspiracy law enforcement will be influenced not only by domestic developments and priorities but also by international trends. To begin with, greater competitive pressures will be exerted by international sources on industries that previously were sheltered by government intervention or regulation. The need for structural adjustment of the Canadian economy to the forces of globalization and freer trade will provide further impetus to focus on the removal of competitive restraints arising from collusion.

Some might argue that trade liberalization will break down collusive behavior. If this is so, it will not happen immediately. Foreign firms will likely take time to identify inefficient and sluggish competitors and target them. In the interim, consumers bear the full cost of these practices. Moreover, there will likely always be some sectors of the economy where markets are local in nature. Consequently, increasing international competition is not viewed as a plausible ground for limiting conspiracy law enforcement.

Second, Canadian firms can be expected to pursue international strategic alliances and other co-operative arrangements as a means of realizing economies of scale not attainable in the domestic market, and as a vehicle to gain improved access to foreign customers. The proliferation of such arrangements, and the internationalization of markets in many industries, will inevitably affect the analysis of antitrust issues such as market definition, entry barriers and the countervailing influence of foreign firms on domestic market power. The Bureau's approach to many of these matters is articulated in the draft set of Merger Enforcement Guidelines that has recently been released.

Third, business arrangements of an international dimension create enhanced potential for the incidence of conspiracies involving multi-country participants. The cost and complexity of conspiracy detection may well rise as evidence-gathering becomes a multi-country project. The Bureau may need to build on existing co-operative arrangements with antitrust authorities in OECD countries and develop links with other national antitrust authorities to enable successful investigations of international scope. The Canada-United States Mutual Legal Aid Treaty, which provides a formal mechanism to obtain assistance in the investigation and prosecution of indictable offences in either country, is a good example of international co-operation in this regard.

Finally, in an age of stateless corporations, the Canadian antitrust enforcement climate must be recognized as one of the package of factors that may influence the choice of firm location. We are currently witnessing an increasingly pro-active enforcement stance in numerous industrialized nations including the United States, Germany, France and Japan. Moreover, antitrust legislation is currently being introduced into Eastern bloc countries as part of the shift from a centrally planned economy. While there is a clear consensus on the importance of effective legal prohibitions against conspiracy, it is possible that divergences between countries in competition law and enforcement practices could affect international trade flows or injure international co-operation.

Canadian competition law is currently on the right track. It prohibits harmful collusive activities without deterring beneficial co-operative research and development initiatives or other pro-competitive business arrangements falling within the exceptions to the conspiracy offence. However, international trends towards stiffer fines for corporate and individual offenders emphasize the importance of ensuring that Canadian sanctions are not perceived to be low compared to other countries.

IV. Conclusion

Collusion is justifiably regarded as a serious crime in most industrialized nations. The reasons for this are well-documented and overwhelmingly persuasive. While conspiracy law enforcement is scarcely a new development, and most firms are undoubtedly aware of the basic parameters of the law, the continued occurrence of these crimes remains a major concern. Throughout the industrialized world, we are now witnessing a renewed commitment to the vigorous enforcement of conspiracy offences.

This commitment is based on widespread acknowledgement that the competitive process is the most effective stimulus to growth, innovation and efficiency on the part of individual firms, and is ultimately the best means of ensuring continued effective economic performance in a rapidly changing world. To the extent that collusion tends not only to raise prices and restrict output, but also blunt the competitive pressures that stimulate efficiency, conspiracy law has an important role to play in the decade ahead.

NOTES

1. For a fuller discussion of relevant international trends, and their implications for competition law as an aspect of the legal and policy framework for the national economy, see Bureau of Competition Policy, Canadian Competition Policy: Its Interface with Other Economic and Social Policies (Hull, Quebec: Consumer and Corporate Affairs Canada, 1989).

2. Some qualification is appropriate regarding this point. It is recognized that cartelization does not necessarily eliminate the incentive for firms to control their costs, since lower costs can still help to achieve higher profits. However, by reducing the scope for innovative marketing strategies and experimentation, and encouraging rent-seeking by monopolistic input suppliers (e.g., labour), collusion (or monopolization) often reduces firms' ability to control their costs. For related discussion, see Dennis W. Carlton and Jeffrey M. Perloff, Modern Industrial Organization (Glenview, Illinois: Little, Brown Higher Education, 1990), pp. 102-103.

3. This concern is emphasized in Chris Green, "Industrial Organization Paradigms, Empirical Evidence and the Economic Case for Competition Policy," Canadian Journal of Economics, vol. xx, no. 3, August 1977, pp. 402-505.

4. Robert H. Bork, The Antitrust Paradox (New York: Basic Books, 1976), p. 263.

5. Richard A. Posner, Antitrust Law: An Economic Perspective (Chicago: University of Chicago Press, 1976), p. 39.

6. F.M. Scherer, Industrial Market Structure and Economic Performance (Boston: Houghton Mifflin Company, 1980, second edition), p. 199.

7. E.I. Du Pont de Nemours v. FTC (2nd Cir., 1984). The FTC's initial decision prohibiting the use of these practices was overturned on appeal.

8. See the Competition Act, sections 45(3) and 57.

9. See, in particular, Michael E. Porter, The Competitive Advntage of Nations (New York: Free Press, 1990). See also Economic Council of Canada, Interim Report on Competition Policy (Ottawa: The Queen's Printer, 1969), p. 22.

10. See, for example, Donald Dewey, "Information, Entry and Welfare: The Case for Collusion," in American Economic Review vol. 69, no. 4, 1979, pp. 587-594. Dewey suggests that by reducing uncertainty, the sharing of information among firms can facilitate efficient investment and production decisions. See also Lester G. Telser, "Cooperation, Competition and Efficiency," Journal of Law and Economics, vol. 28, 1985; and George Bittlingmayer, "Decreasing Average Cost and Competition: A New Look at the Addyston Pipe Cast," Journal of Law and Economics, vol. 25, 1982. Telser and Bittlingmayer suggest that in many industries with high fixed costs, a stable competitive equilibrium may not exist.

11. See John Shepard Wiley Jr., "Antitrust and Core Theory," The University of Chicago Law Review, vol. 54, no. 2, Spring 1987, pp. 556 to 589.

12. "Background Papers: Stage 1 Competition Policy" (Ottawa: Bureau of Competition Policy, Consumer and Corporate Affairs, 1976).

13. Unreported decision of the Ontario High Court, April 27, 1988.

14. Cottrell Transport Inc. v. Director of Investigation and Research and Attorney General of Canada (1988), 19 C.P.R. (3D) 308 (Ont. C.A.).

15. See R. v. Canadian General Electric Company Limited et al. (1976) 75 D.L.R. (3d) 664 (Ont. H.C.).

16. R. v. Nova Scotia Pharmaceutical Society et al. (Supreme Court of Nova Scotia, September 5, 1990). This judgment is currently under appeal.

17. For pertinent discussion, see R. v. Shell Canada Products Limited (Manitoba Court of Appeal, February 8, 1990). This decision considered the appropriate fine to be levied for a violation of the criminal price maintenance provision of the Competition Act.

18. (1989) 24 C.P.R. (3D) 417.