Annual Report of the Commissioner of Competition for the year ending March 31, 1999

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Preventing Anti-Competitive Activity

In investigating complaints about possible offences, the Competition Bureau has two courses of action at its disposal.

First, the Bureau works with companies to eliminate anti-competitive behaviour and helps them learn to comply with the law. Based on the conformity continuum, the Bureau engages in a range of activities, including promotional activities, monitoring the marketplace and dealing with non-conformity by individuals or companies. Second, when there is no possibility of cooperation, cases are referred to the Attorney General of Canada for prosecution in the criminal courts or are taken before the Competition Tribunal.

Partly as a result of better detection methods and of granting immunity or favourable treatment to cooperating parties, the Competition Bureau experienced a busy year in 1998-99. More than $42 million was levied in fines. In addition, a number of cases were discontinued for lack of evidence or for other reasons after formal inquiries were conducted (see Appendix I: Discontinued Cases).

The types of anti-competitive behaviour investigated by the Bureau are defined in four separate Acts: the Competition Act, the Consumer Packaging and Labelling Act, the Precious Metals Marking Act, and the Textile Labelling Act. Information on these Acts can be found on the Bureau's Web site.

A representative sample of cases pursued by the Bureau appears in Table 7.

 

Table 7: Ensuring Marketplace Integrity: Highlights 1998-99

Industry Sector And Issue	Competition Bureau Intervention	Outcome And Potential Benefits For Canadians
Prosecution
Deceptive telemarketing and direct mail activities National Clearing House-Nationwide Clearing House and The National Clearing House conducted deceptive telemarketing and direct mail activities in Canada.	After conducting a search of Nationwide premises in March 1997 and completing an investigation of numerous consumer complaints, the Bureau laid charges against these companies and their two principals.	The companies and their president were fined a total of $300 000, the highest fine ever for this type of fraudulent activity.
Deceptive telemarketing American Family Publishers, Publishers Central and First Canadian Publishers bilked hundreds of Canadians out of their savings by promising valuable prizes if they purchased various items at what turned out to be grossly inflated prices. They promised additional purchases would result in even more "valuable" prizes, but none ever materialized.	After following up on numerous complaints, and by working closely with PhoneBusters, the Bureau was able to lay charges against the companies involved.	After pleading guilty, the president of this multi-company (17 in total) scam and 17 telemarketers were fined, sentenced to jail terms and ordered to carry out community work. The jail terms were the first ever imposed by a Canadian court against telemarketers under the Competition Act. Other individuals are still awaiting trial.
Multi-level marketing Charles Barrie Press, co-founder, The Integrity Group (Canada) Inc. This Calgary-based multi-level marketing firm sold telephone services, a satellite dish, training programs and food products, and held meetings to recruit potential salespeople in Quebec, Ontario and Manitoba.	In response to complaints, the Bureau found that the company made false claims about potential compensation to salespeople. This contravened section 55(2) of the Competition Act. The compensation plan was also promoted on the Internet, where no proper disclosure of rewards to be received was made.	In February 1999, Mr. Press was found guilty of seven charges under the Competition Act and fined $50 000 on four charges. The fine was the first imposed under the multi-level marketing provision of the Act. The company was also charged.
Misrepresentation of gold content in jewellery National Jewellery Ltd. in Lower Sackville, Nova Scotia, and Donald Bell Goldsmith of Bedford, Nova Scotia. Jewellery tests revealed a gold content below the declared quantity and below the tolerance set out in the Precious Metals Marking Regulations.	After tests conducted by the Royal Canadian Mint on a custom-ordered pendant revealed a lower gold content than advertised, the Bureau laid charges against the two companies. In this case, the vendor was also the manufacturer and had full control over the gold content of the article.	The company and Mr. Goldsmith were each fined $350. Prosecutions like this help to ensure that jewellery is properly marked, and that Canadians get value for their dollar. They also help to eliminate this type of unfair competition.
Seizure or Removal from Sale
Inadequate clothing labelling Ongoing monitoring under the Competition Bureau's Children and Junior Care Performance textile program. Performance tests carried out by the Bureau demonstrated that labelling on 24 000 units of children's and junior clothing was inadequate.	The Bureau negotiated the voluntary removal from sale of all items in violation of the Textile Labelling Act and Regulations . The estimated retail value of the clothing was $500 000.	All items were returned to the manufacturer for re-labelling. Potential problems relating to care and cleaning were averted.
Domestic jewellery retailer Ongoing monitoring under the Competition Bureau's Surveillance of Quality of Gold Marketed in Canada program. On testing 14K gold jewellery from this retailer during routine surveillance, the Bureau found that it was of a lower quality than advertised.	The Bureau negotiated the voluntary destruction of 800 pieces of jewellery having a retail value of $15 000.	The items were melted down in order that they could not be reintroduced into the market and sold to unsuspecting Canadians.
Consent Prohibition Order
Canadian jewellery manufacturer Complaints regarding the marketing practices of A&A Jewellery manufacturer, Summit Retail Services Inc. and 1012795 Ontario Limited.	Investigations conducted by the Competition Bureau determined that advertised claims and store signage alluding to going out of business and price reductions were misleading to Canadians.	In December 1998, the Federal Court of Canada issued a consent prohibition order where the companies agreed not to make any misleading representations as to a sale being conducted or prices being reduced.
Compliance Meetings and Warning Letters
Domestic manufacturers of paint and related products Ongoing monitoring under the Consumer Packaging and Labelling Act. Inspections conducted across Canada revealed that more than 25 percent of products tested did not contain the net quantity declared on the label.	The Bureau solicited the cooperation of manufacturers to put sustainable controls in place to prevent a recurrence of this problem. The Bureau will conduct inspections to verify ongoing compliance and take additional corrective actions if necessary.	The Bureau's actions ensure that fair competition is restored to the marketplace, and that Canadians will continue to receive fair value.

What happens after a complaint is made?

Each complaint is examined to determine whether a formal inquiry should be opened.

During an inquiry, the Bureau may contact other customers or competitors for more information. In some instances, staff will apply for court authorizations to search premises, examine or seize records, or question witnesses.

The Bureau keeps information confidential, disclosing it only to Canadian law enforcement agencies or for the purposes of the administration or enforcement of the Competition Act.

When a case cannot be resolved through mediation and cooperation, criminal matters may be referred to the Attorney General of Canada for possible prosecution before the criminal courts. Civil law matters may be referred to the Competition Tribunal for a decision.

The following are examples of work related to alternative dispute resolution and enforcement that demonstrate the range of issues brought to the Bureau's attention. Some names have been withheld for enforcement policy considerations.

Domestic Activities

Auto Parts: Information Sessions

After it came to the Bureau's attention that several companies selling auto parts had been collectively setting prices, staff visited the outlets to ensure that they fully understood the legal ramifications of this type of anti-competitive activity.

Following the Bureau's interventions, the industry distributed a circular to its members, outlining the types of pricing arrangements that fell within and outside of competition law. In total, more than 100 outlets received information on penalties for conspiring to destroy the competitive equilibrium of the marketplace.

This case is a classic example of the Bureau's conformity continuum at work. It demonstrates how information activities can be effective in correcting anti-competitive behaviour.

When incidents of alleged infractions to competition law can be handled through mediation and information sessions, the costs of expensive litigation and lengthy court battles can be eliminated, resulting in tangible benefits to Canadians.

Regional Building Contracts: Bid-rigging

In October 1998, the Bureau investigated allegations of bid-rigging among a group of civil engineering firms in a Quebec municipality. In collectively refusing to bid on a small construction job in the area, the engineers effectively forced the bid requesting organization to accept a higher than competitive rate for professional fees.

This case was resolved after a series of information sessions on the Competition Act and its prohibitions against bid-rigging. On learning of the possible consequences, the engineering firms undertook not to engage in this type of activity.

Snow Removal: Conspiracy

In January 1999, eight snow removal companies were fined close to $3 million by the Quebec Superior Court following a guilty plea of conspiracy. The defendants conspired to share the market and unduly lessen competition in snow clearing, removal and transportation in the Québec area.

The offence involved an agreement to share the so-called "private" snow removal contract awarded between November 1994 and October 1995 by metropolitan Québec and towns and municipalities north of the St. Lawrence River. The agreement also encompassed area routes and highways managed by Quebec's provincial Ministry of Transport.

During the period under investigation, the private snow removal service cost the affected towns, municipalities and the Ministry of Transport in excess of $16 million. The moment the investigation began, snow removal contract prices started to decline, resulting in substantial savings to metropolitan Québec taxpayers. For example, in one municipality, once a competitive market had been restored, the cost of snow clearing fell by as much as 20 percent.

International Activities

When international cartels are involved in conspiracy activities abroad, there can be a Canadian link as well. At the end of 1998?99, the Bureau was investigating 11 cases involving alleged price fixing and market sharing in several countries on three continents.

Criminal cartels harm the Canadian economy by forcing Canadians to pay higher prices for products. In such cases, the Bureau aggressively follows up on leads from the United States and other jurisdictions to ensure that the activities of criminal cartels are stopped and stringent penalties are levied as a deterrent. Canada is a leader in promoting coordination and cooperative investigations with international law enforcement agencies.

The following cases are the result of extensive criminal investigations conducted by the Bureau into international arrangements to fix prices and allocate market shares of suppliers of various products in Canada and abroad.

UCAR Inc.: Price Fixing

On March 18, 1999, UCAR Inc. of Welland, Ontario, pleaded guilty to implementing pricing directives from its foreign parent company. In Canada this was effectively a scheme to coordinate worldwide prices for graphite electrodes.

Graphite electrodes are used primarily in the production of steel in electric arc furnaces, the steelmaking technology used by all "mini-mills," and for steel refining in ladle furnaces. Since the onset of the conspiracy in 1992, prices for this commodity in Canada had almost doubled.

UCAR, which is a subsidiary of Nashville, Tennessee-based UCAR International Inc. was fined $11 million, the largest financial penalty ever imposed under the Competition Act for a single offence. Separately, UCAR also agreed to provide in excess of $19 million in restitution to the Canadian victims of this scheme.

This case is yet another example of the Bureau's conformity continuum at work. The Bureau would have sought even greater penalties if UCAR had not cooperated in the investigation or participated in the restitution plan. The Bureau's investigation into the graphite electrode market continues.

Archer Daniels Midland Company: A Record $16 Million in Fines

After pleading guilty in May 1998 to participating in price-fixing and market-sharing conspiracies, Archer Daniels Midland Company (ADM) of Decatur, Illinois, was fined a total of $16 million for three offences under the conspiracy provisions of the Competition Act, the largest total penalty ever imposed against a single firm under the Competition Act.

The charges were the result of extensive criminal investigations into a scheme to fix and allocate market shares among producers of lysine and citric acid between 1992 and 1995. Lysine is one of nine essential amino acids used in the production of feed for hogs and poultry. It promotes the growth of lean tissue. ADM agreed to cooperate with the Bureau in ongoing investigations into these and other food and feed additives.

High penalties like this send a clear message that conspiracy offences will not be tolerated in Canada, and that Canada is not a safe haven for those who would try to exploit Canadian consumers or businesses.

Two additional international lysine price-fixing convictions rounded out the restoration of competition in this part of the feed additives sector.

Ajinomoto Co. Inc. of Japan was convicted on one count of conspiracy under section 45 of the Competition Act and fined $3.5 million in July 1998. Sewon America Inc., a subsidiary of Sewon Company Ltd. of Seoul, South Korea, also pleaded guilty to conspiracy charges and was fined $70 000. Prohibition orders were also imposed on both companies.

The charges related to the conspiracy period between 1992 and 1995, when Canadian sales of lysine were approximately $89 million.

Prohibition orders

Prohibition orders issued by the courts do what their name implies: they order companies or individuals to desist from engaging in the activity in question. Usually this information is required to be circulated among officers of an organization. Some prohibition orders also warn company directors and senior managers that they may become personally liable in the event of a repeat offence.

Several Price-fixing Cartels: $7 Million in Fines

Following an October 1998 guilty plea on conspiring to fix prices and allocate market shares, two foreign-owned corporations, Swiss-based Jungbunzlauer International A.G. and Haarmann & Reimer Corp., a U.S. subsidiary of Bayer Corporation, were fined a total of $6.7 million.

The charges followed extensive investigations by the Bureau into conspiracies relating to citric acid and sodium gluconate.

Citric acid is a flavour additive and preservative produced from various sugars. It is found in soft drinks, processed foods, detergents, pharmaceuticals and cosmetic products.

It was found that a number of non-Canadian firms participated in fixing prices and allocating market shares among major producers of citric acid for sales in Canada. The parties met in Canada and abroad on a continuing basis between 1991 and 1995. The amount of the fine reflected the fact that the companies accepted responsibility for their activities, and that they provided assistance to the Bureau in its investigation.

In Canada, sodium gluconate is used mainly as a cleansing and metal treatment agent in industry, and as a means of controlling the setting of concrete.

In February 1999, a further $360 000 in fines were levied in a related case of price fixing and market sharing, involving Fujisawa Pharmaceutical Co. Ltd., a Japanese corporation based in Osaka and Tokyo. The above-mentioned conspirators met numerous times in Canada and abroad between 1987 and 1995. At these meetings, the parties entered into illegal agreements on the amount of each company's sales and pricing. Based on evidence obtained by the Bureau, Fujisawa's sales of sodium gluconate in Canada during the entire period of the offence totalled approximately $1.8 million.