Annual Report of the Commissioner of Competition for the year ending March 31, 2003

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Interacting With Canadians

The Competition Bureau believes in effective communications, which are essential to its work. Consumers need information if they are to understand the workings of the marketplace and the Bureau's role in monitoring and reporting on it. Similarly, businesses benefit from receiving from the Bureau the information they need to comply with the law.

The Bureau communicates with Canadians in a variety of ways, including publications such as information bulletins, guidelines and warnings to consumers, its Web site and Information Centre, stakeholder consultations and speeches, all of which are described below, and conferences and seminars, which are discussed in chapter 3.

Information Bulletins and Guidelines

The Bureau uses its publications to inform Canadians about its competition activities. Information bulletins and guidelines clarify the Bureau's position on issues that the public and businesses often ask questions about, and on areas in which the interpretation of the Competition Act is not easily understood.

Bulletin on Abuse in the Canadian Grocery Sector

On December 2, 2002, the Bureau published its bulletin, The Abuse of Dominance Provisions (Sections 78 and 79 of the Competition Act) as Applied to the Canadian Grocery Sector, to give the grocery industry a better understanding of how the Bureau applies the abuse of dominance provisions, and to help deter anti-competitive conduct in the grocery sector by encouraging compliance with the law. In addition, the Bureau commissioned three background economic papers on the subject, which are available on the Bureau's Web site.

The Bureau's work to clarify its approach to enforcing the abuse of dominance provisions in the Canadian grocery industry became necessary because of significant consolidation in the distribution segment of the sector, and because of ongoing complaints about alleged anti-competitive activities in the sector.

Following the publication of the bulletin, the Canadian Council of Grocery Distributors commented in the February 2003 issue of Canadian Grocer that "the document that was released by the Bureau, in our opinion, demonstrated that the Bureau has the regulatory tools to deal with any issues that may or may not come up within the industry so there is no need for special provisions related to the grocery industry within the Competition Act." The publication of the bulletin also received positive comments from the Canadian Federation of Independent Grocers, which commented in the same issue of Canadian Grocer that "the bulletin removed the ambiguities and the case studies are very helpful. ... The bulletin ... clearly states what will trigger abuse investigations under the Act."

Bulletin on the Regulated Conduct Defence

On December 17, 2002, the Bureau published an information bulletin on the regulated conduct defence to foster compliance and ensure greater fairness, predictability and transparency.

Broadly speaking, the regulated conduct defence is an interpretive tool the courts developed to resolve apparent conflicts between two laws. The defence is of particular relevance to the Bureau's enforcement of the Competition Act because it protects conduct that would otherwise be subject to the Act when that conduct is allowed under other provincial or federal legislation.

The bulletin outlines and clarifies the Bureau's position on the defence, which is that it should only apply in limited circumstances.

Representations on the Internet

On February 18, 2003, the Competition Bureau issued an information bulletin on applying the Competition Act to representations on the Internet.

The bulletin outlines and clarifies the Bureau's position in this area to ensure that people making online representations understand their responsibilities under the misleading representations and deceptive marketing provisions of the Act.

Illegal Trade Practices Guidelines

On March 8, 2002, the Bureau released a draft version of Enforcement Guidelines for Illegal Trade Practices: unreasonably Low Pricing Policies for public comment. These draft guidelines, which are intended to promote the transparency of paragraphs 50(1)(b) and 50(1)(c) of the Competition Act, update the 1992 Predatory Pricing Enforcement Guidelines to reflect changes in economic thinking about low-pricing behaviour.

The draft guidelines propose two key changes to how the Bureau enforces these parts of the Act.

• Recoupment of losses. The Bureau will continue to include recoupment of losses as a factor in its considerations, but it will no longer use it as the sole screening criterion to determine whether an unreasonably low-pricing policy exists.
  
  
• Avoidable cost. When doing a cost-revenue analysis to determine below-cost selling, the Bureau will now apply the concept of "avoidable cost" rather than "average variable cost," as it had done previously.

The draft guidelines received a mixed response from the public. The Bureau will decide whether to issue revised draft guidelines for further consultation after the Competition Tribunal issues its decision on Commissioner of Competition v. Air Canada, and the launch of the consultations on amendments to the Competition Act in June 2003.

Warnings to Consumers

"Get Rich" Chain Letter

On April 8, 2002, the Bureau warned 450 Canadians that an international chain letter in which they were participating appeared to contravene the Competition Act by making false or misleading representations. The letter attracted the attention of law enforcement officials because it said that the U.S. Federal Trade Commission had endorsed the money-making plan set out in the letter, which was not true.

The Bureau's warning about the letter was coordinated with Northwest Netforce, an international initiative targeting deceptive spam (unsolicited e-mail) and Internet fraud. Partners in Netforce include the U.S. Federal Trade Commission and law enforcement agencies in a number of U.S. states and Canadian provinces.

Hang Up on Fraud Campaign

On September 3, 2002, the Bureau participated in Hang Up on Fraud, a consumer awareness campaign in Winnipeg to educate consumers about criminal telemarketing activities. Throughout the day, 80 volunteers called Manitoba residents with consumer protection messages, including tips on how to handle a telemarketing call.

The Bureau participated in this campaign with a number of partners, including the RCMP, PhoneBusters, the Manitoba government and the Winnipeg Police Service.

Bait-and-Switch Advertising

On October 18, 2002, the Bureau warned consumers about "bait-and-switch" advertising. This scam involves attracting consumers to a store by advertising a bargain-priced product that turns out to be sold out or not available. A salesperson then "switches" consumers to a higher priced item or induces them to make other purchases.

The Bureau warned that this anti-competitive activity could contravene the Competition Act, and asked consumers or competitors who noticed it to report it to the Bureau.

Deceptive Telemarketing of Office Supplies

On November 18, 2002, the Bureau warned businesses and non-profit organizations across Canada and the United States to be careful about giving information to telemarketers about their office equipment or the individuals responsible for purchasing office supplies. The Bureau receives hundreds of complaints about the deceptive telemarketing of office supplies, including toner products, supplies for credit card machines and business directories. The Bureau pointed out that some telemarketers make false or misleading statements about their product and about previous orders to make sales. As well, they fail to disclose pertinent information, such as the price of the product and the terms and conditions of delivery.

Prepaid Long-distance Phone Cards

On November 21, 2002, in the light of the numerous reports it received, the Bureau warned consumers to take precautions when buying prepaid long-distance phone cards, to avoid such problems as hidden fees and higher per minute rates and fewer minutes provided than advertised.

The Bureau warned consumers that they should ensure all significant information is clearly disclosed before they buy a card. Consumers should also look out for calling time restrictions, an expiry date on the card, minimum charges, connection, service and maintenance fees, and additional charges for calling overseas to a cellular phone.

Renewal of Memberships

On February 19, 2003, the Bureau warned professionals and businesses to be wary of mailings that appear to be from well-known associations requesting payment for membership. These mailings arrive in the form of bills or invoices and use names similar to those of existing associations in which the recipients may be members. Examples of the false names include the Veterinary Association of Canada, Dental Association of Canada, Pharmacists Association of Canada and Convenience Store Association of Canada. The Bureau cautioned businesses and consumers to check carefully before paying any invoice.

The Web Site

The Competition Bureau Web site continues to be a valuable source of information. The site features an automatic e-mail distribution list that allows users to indicate whether they would like to receive Bureau updates. So far, almost 2000 people have subscribed to this service.

Information notices, news releases, speeches, warnings, a calendar of events and the most recent versions of all publications are available on the site. Consumers and business also have access to electronic commerce applications through the site.

Over the past year, the site changed in several ways. The home page was redesigned to highlight top stories and give users easy access to the latest news and events. The popular Request for Public Comments section was centralized on one page to make it easy to access information about all open and closed consultations. A new section, Documents Endorsed by the Bureau, was added under Publications to highlight industry codes and initiatives the Bureau supports.

The Bureau also conducted an online poll to find out about users' experience browsing the site. The responses received from the poll, as well as from personal interviews with key stakeholders, are being used to redesign the site. The redesign will make the site more user friendly and ensure it meets the needs of Canadians.

The Information Centre

The Information Centre is the primary gateway into the Bureau for Canadian and international consumers, businesses and agencies. Nine employees at headquarters dealt with 55 462 complaints and information requests in 2002-2003, an increase of 10 percent from the previous year. The information captured and contained in the Bureau's database provides valuable information that the Bureau uses to target education and enforcement activities.

The Centre provides service through a toll-free line available from 7:30 a.m. to 8 p.m. (EST), by e-mail and an electronic complaint form on the Web site, by facsimile and by mail. The Bureau shares relevant information with other enforcement agencies, such as the U.S. Federal Trade Commission and PhoneBusters. With the explosive growth of electronic commerce and the Bureau's increased accessibility and profile through Government On-Line and media coverage, the Centre has seen a more than twofold increase in contacts via the Internet since 2000-2001.

Claims about health-related products, phoney invoices and deceptive mail (lotteries and contests) generated the most contacts in 2002-2003.

Consultations

Between July and December 2002, the Bureau held consultations with key stakeholders to solicit input about the appropriate fees and thresholds for merger notification, the appropriate fees for written opinions and advance ruling certificates, and its fee and service standards policy and handbook. The Bureau also sought public comments on its Internet guidelines and bulletin on strategic alliances in 2002-2003.

Please note that there is an error in the pie chart entitled Information Requests and Complaints, below. The Information Centre received 82.3% of requests and complaints via Telephone, and 10.3% via Internet/E-mail.

Merger Notification Thresholds

Under the Competition Act, acquisitions of assets, acquisitions of voting shares, and combinations must be reported when the total value of the assets, or the acquired party's gross revenues from sales, exceeds a certain threshold. The size-of-transaction threshold for merger notification was raised from $35 million to $50 million on April 1, 2003.

The change resulted from recommendations by the House of Commons Standing Committee on Industry in June 2000 and April 2002. The increase reduces the burden for parties involved in smaller transactions, while allowing the Bureau to better focus its resources on mergers that are more likely to raise competition concerns.

Fees for Written Opinions

The enactment of section 124.1 of the Act was delayed until April 1, 2003. This section enables the Commissioner to provide legally binding written opinions. Further information on this issue can be found in Chapter 6.

Fee and Service Standards

The Bureau received many comments during its consultations about its fee and service standards policy and handbook. The resulting changes will enable the Bureau to continue to provide client service in a predictable, timely and transparent manner. On April 1, 2003, the fee for merger notifications and advance ruling certificates was raised from $25 000 to $50 000 to cover the increasing costs of merger review.

Guidelines on Internet Representations

A public consultation was held in 2001 to help prepare draft guidelines for online Internet representations. A revised document, based on responses received from the initial consultation as well as from legal and technical advisors, was circulated to the stakeholders in the fall of 2002 for additional feedback and input. The final guidelines were approved by Bureau management in January 2003 and publicly released in February 2003.

Strategic Alliances Bulletin

On September 4, 2002, in response to concerns that the criminal conspiracy provisions of the Competition Act may be discouraging potentially beneficial strategic alliances, the Competition Bureau invited suggestions and comments on how the current bulletin on strategic alliances could be clarified. Submissions can be found on the Competition Bureau web site.

Speeches

During 2002-2003, the Commissioner of Competition and Bureau staff delivered speeches on a wide range of topics related to the Bureau's mandate, including legislative changes, advocacy, enforcement issues such as abuse of dominance and mergers, competition policy and developments on the international scene. A list of speeches for 2002-2003 can be found in Appendix II, and copies are available on the Bureau's Web site.