Notes for an Address by Konrad von Finckenstein, Commissioner of Competition

Canadian Bar Association
Competition Law Section
Annual Meeting
Ottawa, Ontario

September 20, 2001

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Introduction

Thank you to the Competition Law Section of the CBA for giving me the opportunity to address the Annual Fall Conference, which I view as one the most important speaking engagements I have each year. The conference provides an important opportunity for those interested in competition law and policy to exchange views and information on an important area of public policy. This year's conference programme presents an interesting and challenging agenda with excellent speakers in a number of key areas.

I want to provide you with my perspective on the significant issues and cases dealt with by the Bureau in the past year and the priorities we intend to focus on during the coming year. The past year has seen significant accomplishments in all areas of the Bureau's activities and the coming year presents considerable challenges. As in the past, my remarks are organized along the Bureau's Branch structure.

Year in Review

Communications Branch

I have emphasized in many of my speeches the importance I attach to the Bureau's communications activities. They are a key part of the Conformity Continuum and essential to our objectives of education and deterrence of anti-competitive behaviour. In the past year, we have established the former Communications Directorate as a separate Branch headed by an Assistant Commissioner of Competition. The Branch has full responsibility for raising public awareness of the Bureau's important role in the economy.

In order to better gauge the environment surrounding the Bureau's communications strategy and activities, a third party was commissioned this year to conduct a survey of key stakeholders. Findings from the survey have been useful in developing a revised approach to communications that targets consumers and small and medium sized enterprises (SMEs) in addition to the legal community.

The Communications Branch was also involved in preparations for the millennium conference held in Toronto earlier this year, Canadian Competition Policy: Preparing for the Future. The conference brought together competition experts from Canada and around the world to discuss the necessary evolution of Canadian competition policy to meet the challenges of the coming years.

Compliance and Operations Branch

Compliance and Operations Branch is one that this audience does not often encounter in its dealings with the Bureau. However, the C&O Branch is crucial to the effective operation of the Bureau, providing the essential administrative, computer support and policy development roles that all organizations need.

We have made significant advances in the past year in our capability to obtain and handle evidence in electronic format. A formal Unit, dedicated solely to this task, has been created within the C&O Branch. Officers in the Unit are given state of the art training in gathering and handling electronic evidence in a secure manner that maintains its integrity. Our capability in this area is among the best in the country. Members of the Unit gave an excellent presentation on issues in dealing with electronic evidence at the Cartel Conference held in Brighton, England last October.

The Branch also led the merger benchmarking study that compared the Bureau's merger review process with other agencies and provided a comprehensive report with recommendations for improvements. The report was discussed in detail at the mergers forum held this past June.

C&O was also given responsibility for the challenge function of ensuring a consistent approach to the use of section 11 orders. We are making every effort to ensure that requests made under this section are clear and focus on relevant issues. While we recognize the fact these orders place a burden on parties, we are committed to using this power in appropriate cases in a responsible manner.

The Bureau continues to examine all aspects of its work processes to ensure that it is using available human and financial resources in as efficient a manner as possible. Stage one of this process has been completed with a detailed survey of all Bureau employees examining all aspects of our processes. Branches have had the opportunity to consider and discuss the narrative report and provide recommendations for improvements.

Finally, the Branch is now in the process of implementing a new information management system for the Bureau which will allow more accurate tracking and reporting of all activities in a consistent manner. The new Bureau Information Management System will replace a large number of existing systems across the Bureau. The system architecture is now in place and being implemented Branch by Branch.

Competition Policy Branch

The former Economics and International Affairs Branch was restructured recently and renamed as the Competition Policy Branch. There are three divisions: Legislative Affairs (the former Amendments Unit), International Affairs and Economic Policy and Enforcement.

On the legislative front, this past year saw completion of the extensive consultation process by the Public Policy Forum on the private members' bills proposing amendments to the Competition Act. Analysis of the report from that process has culminated with the introduction of Bill C-23 now before Parliament.

The Bureau has also been heavily involved in international negotiations involving both the place of competition policy in international trade agreements and international cooperation agreements on the enforcement of competition laws. The Bureau led the Canadian delegation in the negotiations on competition policy in the Costa-Rica Free Trade Agreement which was signed in April 2001. In October 2000, the Bureau and the Australian and New Zealand competition agencies signed a cooperation agreement regarding the application of their respective competition and consumer laws.

The Economic Policy and Enforcement Division was instrumental in developing the Bureau's position on the efficiencies issue in the Propane case and the Bureau's submissions in the review of the Canadian Transportation Act.

Civil Matters Branch

Matters under section 79 of the Act have been the principal concern in the Civil Matters Branch in the past year. The final version of the Bureau'sEnforcement Guidelines on the Abuse of Dominance Provisionsof the Competition Act was issued on August 1, 2001. The Guidelines provide businesses and their counsel with an additional tool to help them better understand and comply with the abuse of dominance provisions of the Act. They also inform Canadians of the Bureau's approach to protecting the marketplace against anti-competitive acts.

We also issued Draft Guidelines on Abuse of Dominance in the Airline Industry. A main point of these guidelines is the discussion of the notion of avoidable costs as the appropriate standard to assess low pricing in the context of section 79 cases. The approach set out in the Draft Guidelines is being argued in the current Competition Tribunal hearing in the Air Canada matter. The application was filed on March 5, 2001 and the hearing commenced on August 29. This hearing arose from an inquiry into allegations of exclusionary and predatory conduct on the part of Air Canada's conduct. In the course of the inquiry, the power granted to the Commissioner under section 104.1 of the Act was exercised and a temporary order was issued against Air Canada on October 12, 2000. The order required the withdrawal of certain discounted fares offered on five routes in Eastern Canada. As allowed by the provisions of the Act, the order was extended on October 30, 2000 for an additional 30 days, but only in respect of three routes. Air Canada challenged the temporary order before the Competition Tribunal but it was upheld. Air Canada has appealed the Tribunal's decision to the Federal Court of Appeal.

Air Canada also challenged the issuance of the temporary order in the Quebec Superior Court, arguing that section 104.1 was unconstitutional. The Court rejected Air Canada's allegations in its decision of July 12, 2001. Air Canada has appealed this decision to the Quebec Court of Appeal.

In a non-airline related matter, the Bureau was successful in reaching an agreement to modify a covenant involving the sale of products from the petroleum products refinery located in Come By Chance, Nfld. A covenant included with the original sale of the refinery by Petro-Canada specified that products from the refinery could not be sold anywhere in Canada except Newfoundland, without compensation being paid to Petro-Canada that would have rendered the sale unprofitable. After examination of the matter, the Bureau's concerns were addressed by an agreement that allows the sale of products to other parts of Canada with a profit-sharing arrangement between the current operator of the refinery, North Atlantic Petroleum and Petro-Canada.

Civil Matters is also principally responsible for the Bureau's intervention role before federal and provincial regulatory boards. In the past year, the Bureau made submissions to the CRTC in respect of its consideration of a new contribution regime for local telephone service and the extension of the sunset rule on the unbundling of near-essential facilities. The Bureau also intervened before the Nova Scotia Utilities and Review Board in its hearings in support of fair and effective competition in the supply of natural gas and related appliances and equipment to consumers. The Bureau's nine recommendations, all endorsed by the Board, will be instrumental for ensuring the benefits of competition to Nova Scotia natural gas consumers and for providing all businesses the opportunity to compete in the relevant markets.

Criminal Matters Branch

The Bureau issued its Information Bulletin on the Immunity Program under the Competition Act at the time of last year's section conference. We can say without hesitation that the first year of operation has been a success. Since publication, we have seen an increase in the number of immunity requests and on average, we receive one a month.

Most of the Branch's resources have been devoted to the investigation of domestic and international cartels. Approximately 18 international matters have been examined. In January 2001, Freyssinet Limitée was fined $800,000.00 for its role in a bid-rigging scheme relating to the Hibernia oil project. This case was also an excellent example of the immunity program in action. VSL Corporation was granted immunity in exchange for being the first party to approach the Bureau with information on the matter.

In recent months, convictions and fines have been imposed in cases involving international cartels in food additives, graphite and carbon electrodes. In the fiscal year 2000-2001, fines totalling approximately $18,000,000.00 were levied by the courts for offences under sections 45, 46 and 47 of the Act. During the year we also met with both the United States Department of Justice and the European Union Cartel Unit to discuss improving cooperation among the agencies.

Mergers Branch

To better deal with the workload faced by the Mergers Branch, a separate Merger Notification Unit was created this year. The Unit is responsible for receiving and processing all notification filings and requests for advance ruling certificates. In addition, it establishes the level of complexity for purposes of service standards and conducts the analysis and assessment of the vast majority of non-complex transactions. The experience with the Unit has been very positive, with efficient handling of non-complex matters and a consistent approach to classification of transactions. This allows the remainder of the Branch's staff to focus their efforts on the analysis and assessment of the complex and very complex merger transactions.

The Bureau hosted a second forum on service standard performance in Toronto on June 28. The forum focussed on a discussion of the Merger Benchmarking study completed by the C&O Branch. While there is general agreement that the overall performance is good, suggestions for improvements were made and are being considered.

In April 2001 the Federal Court of Appeal upheld the Commissioner's appeal of the Competition Tribunal's decision in the Propane Case. The FCA agreed with our submission that the Tribunal erred in its application of the efficiencies defence when it did not consider the effect of the merger in eliminating all consumer choice and all competition in some markets.

Another important case litigated at the Tribunal this year was the application concerning the acquisition by Canadian Waste Services of certain assets of Browning Ferris Industries. Most issues in the case were resolved on consent, allowing the litigation to focus on one specific aspect, the acquisition of the Ridge Landfill facility. The Tribunal found that the acquisition would result in a substantial lessening of competition. Also, the hearing was a successful pilot project for the use of computer technology in the court arena. All documents and evidence in this matter were filed electronically.

In the Lafarge/Blue Circle merger, the Tribunal issued a consent order requiring divestitures valued at more than $1 billion, the biggest divestiture in the history of Canadian competition law. As well, the merger was subject to a consent order in the US covering the same assets. This is the first instance in Canada of a merger being subject to parallel remedial orders to address competition issues.

In the Chapters/Indigo matter, the Competition Tribunal approved a consent order containing a code of conduct for the operation of the merged entity. Responsibility for resolving disputes on the code lies with an independent arbitrator.

Fair Business Practices Branch

In Fair Business Practices Branch, criminal investigations involving deceptive telemarketing and mail solicitations have been a major focus of activity in the past year. There are currently more than 40 active investigations in these areas. C.S.R.H. Heritage Group Inc. was fined $700,000.00 for telemarketing offences. More importantly, the company's manager, Ronald Howell, was also convicted and given a 6-month conditional jail term. In December 2000, Stephen Clark, the Director of three telemarketing companies, S.S. Viking Industries, S.C. Canadian Clearing Centre Inc. and Exclusive Premium Distribution S.C. Corporation, was fined $300,000.00, the highest fine imposed against an individual under the Act for telemarketing offences.

In November 2000, three individuals and two companies were charged under the misleading advertising provisions for allegedly invoicing businesses for unsolicited Internet directory listings. The charges alleged that the mailings were misleading because while they gave every appearance of being an invoice for actual listing services, they were in fact solicitations. On February 5, 2001, the Bureau issued a warning to businesses to be careful before paying invoices for products and services.

Although I am unable to discuss individual cases, I can convey that we have begun using the wire tap provisions of the Criminal Code as an investigative tool in criminal telemarketing inquiries.

The Branch has also expanded the use of the civil provisions relating to misleading advertising and deceptive marketing practices. For example, a consent order was registered with the Tribunal against Gestion Professionelle (Électroprotections) Inc. The matter involved deceptive marketing practices for claims concerning an anticorrosion device. Among other provisions, the order requires GPI and its president to refrain from selling the device, or similar devices, in Canada for a period of 10 years. We also recently completed a hearing before the Tribunal in an application for an order under section 74.1 against P.V.I. International, a company involved in the promotion of fuel saving device.

We have completed consultations on the "Made in Canada" guide to the marketing and advertising of diamonds. These consultations focussed on the approach of the Bureau when reviewing promotional claims to Canada as being the place of origin of diamonds.

There has also been significant activity under the standards based statutes. Most matters in this area are resolved through the regular inspection process. However, in some cases, court proceedings prove to be necessary. In December 2000, Gaston Charbonneau Floral Ltd. was fined $3,000.00 for misleading representations on packaging for fertilizing materials.

Charges are still pending against 2 other parties for misleading representations on product packaging: Laurentide Atlantic Limited (paint) and Gotham Industries (antifreeze and paint thinner). There have also been ongoing consultations on a number of labelling issues. The Bureau was an active participant in the effort to create a guide with respect to the labelling of pet food products. A Labelling Guide has been finalized and will be issued shortly.

Summary

In summary, the past year has seen key developments in all areas of the Bureau's responsibilities. There have been important litigated cases including the Air Canada hearing and the Propane appeal. There has also been a wide range of other civil and criminal case matters dealt with through both court and Tribunal proceedings and alternative case resolution mechanisms. The Bureau has dealt with major policy issues, including the introduction of needed amendments to the Act, formulation of guidelines and bulletins, interventions and competition advocacy. International cooperation among agencies, especially with the U.S. and the EU, is an increasingly important component of our strategy, particularly in merger, cartel and deceptive telemarketing cases.

Year Ahead

Communications Branch

In the coming year, the Communications Branch will further develop and refine strategies to increase the awareness of the Bureau's key role in the Canadian economy. Enforcement of all provisions of the law has to be undertaken with an understanding of the purpose of the Act, sending the clear message that effective competition policy provides significant benefits to all Canadians. We will be developing a proactive strategy for stakeholder relations, ensuring that the business, legal and consumer communities have ready access to information on Bureau activities.

Internally, a Bureau Intranet will be established to assist Bureau staff in providing services to the Canadian public. This will be an effective communications vehicle giving staff ready access to reference materials and other working tools.

Compliance and Operations Branch

Activity in the Compliance and Operations Branch in the coming year will focus around four areas. As part of the continuing effort to ensure that the services of the Bureau are provided to the public in as effective and efficient manner as possible, we will be conducting a benchmarking exercise on our Information Centre. The Centre handles approximately 50,000 information requests and complaints annually and is, in most cases, the point of first contact with the Bureau.

There has been a great deal of discussion recently regarding resourcing of the Bureau. Many have expressed the view that the Bureau does not have sufficient financial and human resources to adequately deliver on its mandate. The Bureau, led by C&O, will be making every effort to secure increased funding.

The Bureau will also be carrying out full implementation of the new information management system. Increased functionality will be added as the system is rolled out. Before long, all Branches will work from a common matter tracking system that will provide more accurate and more timely information on all Bureau activities.

Having completed a staff survey on work processes, we now want to move forward on improving work processes in all areas. This is critical to ensuring that our staff and resources are being allocated as efficiently as possible.

Competition Policy Branch

The Legislative Affairs Division will, of course, focus its efforts on the amendments package contained in Bill C-23. The bill will be on the agenda of the Industry Committee this fall and we hope that it will be passed expeditiously. Also, on the legislative affairs front, we will be undertaking consultations on the feasibility of amending section 45, the conspiracy law. As part of this exercise we have contracted with three competition law experts to provide studies on the issue.

It is important that the law be effective in deterring hard core cartel behaviour without discouraging legitimate joint action by competitors, e.g. strategic alliances. On this point, Economic Policy Division will be working on revising the Bureau's information bulletin on strategic alliances. The Bureau will also be providing policy advice on the scheduled review of the Broadcasting Act.

On the international cooperation front, as a supplement to Chapter J of the Canada-Chile Free Trade Agreement, the text of a bilateral "agency to agency" cooperation agreement with our Chilean counterparts has been finalized and will be signed in December. We are currently negotiating a state-to-state cooperation agreement with our Mexican counterparts, which could be signed by the end of the year. We have concluded negotiations of a Positive Comity Agreement with the United States and are working with relevant government officials to coordinate signing of the agreement. We will also be continuing efforts to establish a global network to address competition issues that involve international issues.

Civil Matters Branch

Clearly the airline industry will continue to be an important priority for the Civil Matters Branch. The Tribunal will deliver its decision in the current section 79 application and our intention is to finalize the Airline Industry Section 79 guidelines in accordance with the outcome of the hearing. The Branch will also have to deal with the appeals on section 104.1, both in the Quebec Court of Appeal and Federal Court of Appeal.

Again, it is a Branch priority to bring, in appropriate cases, other litigated section 79 matters before the Tribunal. There are currently four major investigations under way and I would not be surprised to see at least two of them before the Tribunal in the coming year. The abuse provisions are a cornerstone of the Act and it is important that jurisprudence be developed to clarify application of the law for both the Bureau and the business community.

The Branch will be active in the area of interventions, with important submissions in the telecom sector. The CRTC is conducting a Price Cap Review and examining the issue of expanded local call areas. The Branch will also continue its policy advocacy role in the energy industry, pursuing consultations with the Ontario Energy Board targeted at an interface agreement and will be preparing Guidelines for the enforcement of the Act in the grocery sector. A first draft will be issued for consultation shortly.

Criminal Matters Branch

Although it is not possible to discuss specific matters, in the coming year Criminal Matters Branch will focus its enforcement resources on domestic and international cartel activity. It is important to attack this most basic of anticompetitive activity on all fronts.

The Bureau will also be hosting the International Cartel Workshop in Ottawa, November 25-27, 2002. This is a meeting of cartel investigators from many jurisdictions designed to discuss developments in investigative methods and analytical tools. This year's conference follows on the highly successful meeting held in the U.K. last year.

On the educational front, the Branch will be launching a presentation on the issue of bid-rigging, providing information on how to recognize and deter or prevent such activity. The presentation will be available in both CD-ROM and Internet Web formats. We will also be issuing revised Enforcement Guidelines for Illegal Trade Practices: Unreasonably Low Pricing Policies. The guidelines will address the issue of low pricing under both section 50(1)(b) dealing with geographic price discrimination and 50(1)(c) dealing with the policy of selling products at unreasonably low prices designed to substantially lessen competition or eliminate a competitor.

Mergers Branch

Following rejection, by the Supreme Court of Canada, of Superior's application for leave to appeal in the Propane case, the Competition Tribunal will proceed with a hearing on October 9, which will address the issue of the efficiencies trade-off on the basis of the decision of the Federal Court of Appeal. That decision requires the Tribunal to assess all of the merger's effects on competition, not only those relating directly to efficiency considerations, against the anticipated efficiencies stemming from the merger. The Merger Enforcement Guidelines will be revised to reflect the ultimate resolution of the issue of efficiencies in Propane.

While there are no specific proposals at this time, there is considerable discussion of potential mergers in the banking sector and many industry participants anticipate that transactions will be proposed at some point in the near future. Accordingly, Mergers Branch is making preparations to be in a position to deal with any mergers that may be proposed.

In recognition of the continuing heavy workload, a third division will be established in the Branch. This, along with the creation of the Merger Notification Unit, will enable more even distribution of the workload and more efficient merger reviews.

As we all know, mergers increasingly have an international dimension on the substantive analysis of their competitive effect. In recognition of this, the cooperation with other agencies, especially in the United States and the European Union, will increase in the coming year.

Fair Business Practices Branch

The Fair Business Practices Branch is pleased with the success achieved in the use of the civil provisions for misleading marketing practices and intends to make greater use of these in future. It allows appropriate matters to be dealt with effectively and in a timely matter, leaving the criminal provisions to be used only with particularly egregious practices. The Branch also intends to continue its active pursuit of perpetrators of deceptive telemarketing and mail schemes and to use all available investigative tools, including wiretaps.

On the policy front, the Branch will work closely with various stakeholders in the establishment of voluntary codes and partnerships. There will be a comprehensive review of regulations under the labelling statutes, starting with the Precious Metals Marking Act. The Branch will also be issuing the final guidelines on the country of origin issue on diamonds this year.

Effective enforcement of both the civil and criminal provisions requires effective partnerships with other law enforcement agencies to improve information sharing and enhance cooperative efforts. Considerable resources will be directed toward this objective in the coming year.

Summary

In the coming year, we face a number of challenging issues in all areas of Bureau activity. On the policy front, Bill C-23 is proceeding through the Parliamentary process. There will be consultations on the feasibility of amendments to section 45. We will also be issuing a number of enforcement guidelines and bulletins, including those on the grocery industry, section 50(1), and strategic alliances. There are several important litigation matters to finalize, particularly Propane and Air Canada. In the international arena, the Bureau's objective will be to focus on cooperation with other agencies in enforcement matters and put in place the agreements necessary to that cooperation. Finally, it is also critical that the Bureau secure adequate resources, both financial and human, to effectively fulfil its mandate.

Conclusion

In closing I want to re-emphasize a point I have made many times. The Bureau's Conformity Continuum guides the approach to all aspects of our responsibilities. It is my intention to continue our compliance oriented approach to achieving conformity with the law, while continuing to use necessary adversarial investigative and prosecution tools in appropriate circumstances.

As I have also stated in the past and in many fora, I view the cooperative relationship that has developed between the Bureau and the Competition Law Section of the Canadian Bar Association, and the staff of both organizations at all levels, to be key to our continued success.

Thank you all for the opportunity to address you today. Please enjoy the rest of the conference.