Statement by Konrad von Finckenstein, Q.C., Commissioner of Competition

House of Commons
Standing Committee of Industry
Ottawa

April 13, 2000

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Introduction

Thank you for inviting me to speak to you today.

You will recall that I appeared here on November 25, 1999, to table the results of an independent study on the pricing provisions of the Competition Act and the Bureau's enforcement procedures.

I had commissioned Professor Anthony VanDuzer, of the University of Ottawa Faculty of Law, to examine the Act's anti-competitive pricing provisions and their adequacy in the light of today's economic forces. This study was intended to contribute towards your own review which followed your study of Mr. McTeague's Bill C-235.

At that time, I gave you my preliminary views on the findings of Professor VanDuzer and his colleague, Professor Gilles Paquet.

Response to the VanDuzer Report

Having listened to the witnesses that have appeared before your Committee to date, I have come to the following conclusions.

The real problem with the pricing provisions is their complexity. I don't believe amendments are needed, but a better explanation of how they work would be helpful:

1. The Bureau is revising its predatory pricing guidelines. These are intended to clarify the Bureau's enforcement policy and help the public understand the circumstances which may lead to an investigation under the Act.

2. The Bureau is developing guidelines for its abuse of dominance provisions. Abuse of dominance is a civil matter, intended to prevent a dominant player from stifling competition in a market. It can be used to deal with anti-competitive pricing as well as other conduct. I expect to release these guidelines very soon.

3. Finally, as soon as these guidelines have been finalized, we will review our selection criteria for assigning priorities to cases.

The Competition Act and the Global Economy

You have also asked me to comment on the Competition Act's effectiveness in face of the global economy.

This is an extremely important question. The Competition Act deals with competition in a marketplace that is undergoing a remarkable transition due to globalization and rapid technological change.

In the short term, we need legislative changes to address two trends.

First, we need to recognize how the scope of the marketplace is affected by globalization, by North American integration in particular.

• Businesses increasingly operate across borders. And, of course, that adds a new challenge to enforcing our competition laws. We need to be able to exchange information with our trading partners to enforce our respective competition laws.

• We also need to encourage the strategic alliances that Canadian firms rely on to compete in new, global markets.

Second, we need to recognize the impact of technology and globalization on market structure and business operations. In today's innovative economy, speed is paramount. This presents new challenges for law enforcement.

• Businesses need direct access to the dispute resolution process to deal with their own disputes quickly. And the dispute resolution process itself needs to be quick and efficient -- which calls for substantial improvements to the current Competition Tribunal process.

We also need to come to grips with the impact of electronic commerce and the Internet. We are expecting an enormous transformation of how businesses, conduct their transactions -- not only in the retail and distribution sectors, but also in production and services.

What kind of changes will we need, to make sure the Competition Act can deal with a borderless world of footloose firms in an electronic age?

Frankly, we don't yet know the answer to that. It's too early to say, but we will come back to you on this when the time is right. In the meantime, we will monitor developments carefully and study the issues that come up.

Responding to the challenges

I would like to share with you some of our ideas on our immediate agenda for two topics, the changing structure of markets and the need for speed in today's innovative global economy.

I. The changing structure of markets

In global markets, the effects of anti-competitive conduct are not limited by borders. This is a pressing problem for enforcing our competition laws, especially in the North American market, where Canada conducts most of its trade.

Canada has measures in place to allow enforcement agencies in different countries to exchange information on criminal matters but not for civil matters. And yet civil competition matters, such as merger review and abuse of dominance, are enormously important in the global economy. One only need to look at the trend towards international mega-mergers or the emergence of dominant players like Microsoft.

The solution is to introduce enabling legislation which would allow us to enter into mutual cooperation agreements with other enforcement agencies -- in the United States, the European Union, and elsewhere -- to allow us to exchange evidence on civil competition matters.

These agreements would not be open-ended. There would necessarily be restrictions to provide the right balance between maintaining confidentiality and a meaningful reciprocal exchange between antitrust agencies.

In the meantime, Canadian businesses are doing their best to compete more effectively in these global markets. Some are developing close ties with other firms, to gain access to technologies, to cooperate in research and development and to achieve economies in marketing and supplier arrangements in new markets.

The challenge, here, concerns the conspiracy provisions of the Act, which prohibit agreements that lessen competition unduly. The problem is that strategic alliances often involve agreements among competitors. Consequently, the criminal sanctions against conspiracy may discourage businesses from entering into strategic alliances.

It's a problem Professor VanDuzer raised: that the criminal law is not well suited to distinguish between truly anti-competitive conduct and conduct that is in fact, a manifestation of healthy competition.

In our view the Competition Act should be strengthened by drawing a clearer line between egregious criminal behaviour to be caught by the conspiracy provisions -- behaviour such as fixing prices and sharing markets -- and arrangements among competitors whose effects might be better assessed under civil law.

II. The need for speed in today's innovative global economy

Currently only the Commissioner of Competition can refer reviewable matters to the Competition Tribunal. If the Commissioner decides not to take a case, perhaps because the impact on competition is minimal, then the complainant cannot take it up on his own behalf. This contrasts with the criminal provisions, where section 36 of the Competition Act allows private parties to sue.

Private action would complement public enforcement; it would increase the deterrent effect of the law; and it would help build up a much needed body of jurisprudence.

Private rights of access to the Competition Tribunal would work well for conduct which is essentially a private matter between buyers and sellers and which therefore does not warrant public intervention. The provisions targeted are sections 75 (refusal to deal) and section 77 (tied selling, market restrictions and exclusive dealing).

In previous discussions about the merits of private access, stakeholders have expressed concerns about the need for safeguards against strategic litigation. Private access would be introduced with safeguards such as leave from the Tribunal to bring an action, cost awards, and no damages.

If private access is to be a feasible option, however, the review process will have to be quicker and more efficient. This brings us to another area for improvement.

The current Tribunal review process can be slow and onerous. In today's innovative economy, speed counts and a complainant may well have gone out of business before a case can be heard and a remedy ordered.

Several procedural changes would improve the dispute resolution system.

• References would allow key issues on which a case hinges to be resolved early, possibly avoiding the need for a full review.

• The discretion to award costs would give the Competition Tribunal a lever to discipline delay tactics and strategic litigation.

• Summary dispositions would allow the Tribunal to bring a case to a quick close if the evidence on either side appeared to have no merit.

• And finally, new cease and desist powers would allow the Commissioner to put a temporary stop to the abuse of dominance in all sectors. This would be similar to the powers already introduced for airlines.

The Private Members' Bills

Most of these proposals are already before you, in two private members' bills:

• Mrs. Jennings' Bill C-471 would provide for international cooperation between competition authorities on civil matters, and would introduce references;

• Mr. McTeague's Bill C-472 deal with strategic alliances, private rights of access to the Competition Tribunal, cost awards and summary dispositions, and would introduce new cease and desist powers.

Consumer protection is another important area affected by competition laws. Two other private members' bills, aimed at improvements to the Competition Act, will strengthen consumer protection:

• Mr. McTeague's Bill C-402 deals with abuse of dominance in the retail sector, responding to consumer concerns about markets dominated by a few big players;

• Mrs. Redman's Bill C-438 prohibits deceptive contests sent through the mail, a measure which you have recently endorsed.

Conclusion

Our short term agenda for improving the Competition Act largely coincides with the four private members' bills before you.

The Minister of Industry, the Honourable John Manley, has asked me to announce that he agrees with the principles behind these bills and that he is contemplating rolling them into a government bill.

First, however, he wants to hear from stakeholders. He wants further consultation and discussion before making legislative changes.

We have hired the Public Policy Forum to conduct these consultations to make sure of the widest possible participation. There will be a discussion paper based on the four bills, a call for submission from interested stakeholders and discussion fora in seven cities. Hopefully there will be enough support to reach a consensus on the proposed changes and provide the foundation for a government bill to deal with the challenges of enforcing competition law in the global economy.

We hope that amendments along these lines, combined with the guidelines I mentioned at the outset, will result in a more effective Competition Act.

I would be glad to answer your questions.