Looking forward to a competitive future

Remarks by John Pecman, Commissioner of Competition

Gowlings

Toronto, Ontario

November 27, 2015

(As prepared for delivery)


Introduction

Thank you, Kelley.

Good afternoon, everyone. I’m pleased to have the opportunity to speak with you today and look forward to our discussion. One of the Bureau’s strategic objectives is to collaborate with our partners, and this includes maintaining an open dialogue with stakeholders in the business and legal communities. Openness is a key part of the Bureau’s approach to compliance, which recognizes that the Bureau, businesses, and the legal community have a shared responsibility in ensuring compliance with the law.

Looking forward

The theme of my remarks today is looking forward.

Just last month, we passed the date famously featured in the second Back to the Future movie—October 21st, 2015. When the movie creators looked to the future in 1989, they imagined that we’d all have flying cars by now, and that our kids would be getting to school on hover boards. (They also predicted that the Chicago Cubs would sweep this year’s World Series, a joke that’s just as funny today. Though as a Toronto Maple Leafs fan, perhaps I shouldn’t make fun.)

But one thing the movie got right was that we’d see major technological advances that would change the world around us. Business is now more globalized and digitized, operating in continuously evolving markets, supported and driven by new technologies and business innovations. At the same time, we are seeing changing consumer attitudes and behaviours that few predicted 25 years ago.

There were no smartphones in Back to the Future. Predicting the future isn’t easy. Policymakers and regulators are only now beginning to recognize some of the marketplace implications of ubiquitous computing. But it’s important to know where we’re headed, to pay attention to the changes happening around us, and to adapt.

So what does that mean for the Bureau? In order to remain relevant and effective, we have to ensure our activities and tools keep up with new business and consumer trends. Competition law has long been at the core of Canada’s marketplace framework. In a rapidly changing world of increased competitive pressures, it’s more important than ever that we maintain and promote competitive markets. This is essential in both traditional and emerging sectors. We need to ensure consumers continue to enjoy access to diverse products and services at competitive prices. We need to ensure policy‑makers have the analytical tools available to consider the impacts on competition when they make their decisions. And we need to ensure businesses who want to compete can do so on a level playing field. That way, we all benefit from the innovation, efficiency and economic growth that go hand‑in‑hand with a competitive marketplace. Competition is fundamental to economic growth and development in Canada, and our ongoing success depends on keeping it as robust as possible.

So let me talk about how the Bureau has been looking forward, with respect to our enforcement and awareness actions in the digital marketplace, our ongoing work in updating the Intellectual Property Enforcement Guidelines, our competition promotion in the rapidly growing sharing economy, and our strategic vision for the coming years.

Competition in the digital marketplace

As we strive to keep pace with evolving markets and ensure competition in Canada remains strong, we are paying close attention to the digital marketplace. As this sector continues to grow, we are enforcing the law, educating consumers, and updating our guidance for the legal and business communities.

Just in the past year, we have taken enforcement action in the area of online reviews, premium text messaging services and marketing by electronic messages. These actions included the Bureau’s first use of the new Competition Act provisions that came into effect with Canada’s Anti‑Spam Legislation. Legal proceedings are ongoing in some of these cases. In others, we have resolved our concerns collaboratively with the parties through consent agreements that secured consumer refunds, administrative monetary penalties and strengthened corporate compliance programs.

In terms of educating consumers, the Bureau first warned Canadians in July 2014 about the use of fake online reviews—or “astroturfing”—to entice consumers into making a purchase. Online reviews have become a major influence on consumer purchasing decisions, and astroturfing hurts both consumers and competitors by giving inferior businesses an unfair advantage.

Continuing our efforts in this area, we launched the Deceptive Marketing Digest in June 2015 to provide businesses and consumers with timely information on emerging issues related to advertising and marketing. The first issue focusses on the digital economy, and includes sections about online advertising, disclaimers and fine print, as well as the use of online reviews.

The digital marketplace is an area of huge importance to consumers, and of many exciting opportunities for businesses. According to Statistics Canada, online sales in Canada hit $136 billion in 2013, a $14 billion jump compared to the year beforeFootnote 1. It’s imperative that we work hard to ensure this growing marketplace remains competitive, innovative and consumer‑friendly, now and into the future.

Updating the Intellectual Property Enforcement Guidelines

Turning to another timely subject, you are likely aware of our ongoing efforts to update the Bureau’s Intellectual Property Enforcement Guidelines, or IPEGs. In June, we issued a draft to consult with stakeholders about the Bureau’s enforcement approach with respect to new and emerging business conduct involving intellectual property.

The draft generated a lot of discussion and we received a total of 16 submissions. These included comments from the private sector, the Canadian and American Bar associations, as well as from other agencies. Those submissions that were not made confidentially are now available on the Bureau’s website.

Let me give you the highlight reel.

Two of the hot topics related to the pharmaceutical industry.

First: patent settlements. These are agreements between brand-name and generic pharmaceutical firms that resolve litigation arising when a generic firm seeks to enter the market before the date that a brand manufacturer’s patent expires. The issue of how the Bureau will apply the Competition Act to such settlements received significant interest. We heard that stakeholders would like additional clarity with respect to the situations in which the Bureau might investigate a patent settlement under section 45, the criminal cartel provision of the Act.

Second: product switching. Stakeholders were interested in how the Bureau might apply the Competition Act in circumstances where a pharmaceutical firm introduces and promotes a new drug in place of an older drug that is coming off patent. We heard a call for more detailed guidance as to when a company might run afoul of the Act in these circumstances. More specifically, stakeholders asked the Bureau to confirm that enforcement action would apply to a case of a “hard switch”, where a firm withdraws the older product from the market, rather than a case of a “soft switch”, where a firm keeps the older product on the market but stops promoting it. As you may know, the Bureau had an enforcement investigation related to product switching involving Alcon that concluded in March 2014, and our position statement on the matter is available on the Bureau’s website.

We also received feedback on other issues that were not specific to the pharmaceutical industry. Two hot topics here concerned the conduct of owners of standard essential patents, as well as the conduct of patent assertion entities, whose business model involves seeking royalties from firms who they allege have infringed their patents.

In terms of standard essential patents, we heard a desire for the Bureau to clearly distinguish between a circumstance in which a standard is set collectively by a standard‑setting organization and the patent holder makes a licensing commitment, as opposed to a circumstance in which a technology becomes a standard through mass‑market adoption but where no licensing commitment had been made by the patent holder. Many stakeholders took the position that competition concerns could arise in the first case, but that competition enforcement should not occur in the second.

With respect to patent assertion entities, the draft IPEGs indicated where the Bureau might view certain conduct as false or misleading representations. For example, where an entity sends demand letters claiming patent infringement to a large number of firms without having any evidence of infringement by the target firms. Some stakeholders indicated that many patent holders issue demand letters legitimately because they are concerned that their patents are being infringed. They asked the Bureau to provide more guidance as to when issuing demand letters might raise an issue under the Act.

We are taking the time to thoroughly review all of the comments we’ve received. We have met with certain stakeholders who wished to discuss some of these issues in more depth, and we will continue to meet with any others who would like to do so as well.

We are very interested in your views, and we want to get this right. The Bureau will ensure the final guidelines respond to the feedback we’ve received and provide as much as transparency and clarity for our stakeholders as possible.

We expect to publish a final version of the IPEGs in the spring. And in our effort to keep pace, whether it is with evolving technologies or expanding international trade, we will continue to revisit the guidelines as often as required as we adapt our enforcement approach to ensure our economy remains competitive.

Advocating for Competition in the sharing economy

In addition to ensuring the Bureau’s enforcement practices and guidelines stay current, the Bureau uses advocacy to promote competition in regulated sectors that are being transformed by new technology and business innovations.

The purpose of competition advocacy is to promote an efficient, vibrant and innovative marketplace at pivotal moments—like when regulators are designing, renewing, or revising regulation.

The recent upheaval in the taxi cab industry is just such a moment. What has traditionally been a tightly controlled market is now threatened by new ride services operating outside existing regulations. Companies like Uber and Lyft are making use of innovative online platforms to offer convenient transportation at lower prices for Canadians who want to get from point A to point B. (While 2015 didn’t bring the flying cars envisioned in Back to the Future, technology is changing how we get around.) However, these innovative ride services are highly disruptive to the traditional industry, which is bound by strict regulations. In response, taxi drivers are calling for cities to take action against these competing new services.

So what are regulators to do? How do they balance between the traditional regulatory regime, which restricts competition but provides more oversight and public safety, and the demands of consumers, who are attracted to the lower prices and high service levels of new providers?

The Bureau published a white paper yesterday with some advice on that front. We are recommending that regulators allow the forces of competition to shape how the industry moves forward. This will require a re‑think of existing regulations to provide a single, even playing field upon which all the players can compete. Where possible, regulators should relax restrictions on traditional taxis, and regulations on new providers should be no more intrusive than needed to meet legitimate policy objectives, such as public safety. Allowing competitive forces to shape the market will benefit both consumers and operators by encouraging low prices, quality services, greater efficiency and continuing innovation.

Ride services like Uber are just one example of how sharing economy platforms offer exciting opportunities for both businesses and consumers, while simultaneously giving rise to a range of new policy issues that will impact the future state of competition in Canada. The Bureau has been active in advocating for competition in the sharing economy, and it will continue to do so. It is in this dynamic and rapidly changing environment that advocacy is needed the most—before regulations are finalized that may stifle competition. The Bureau’s role in helping public policy makers reach their goals—while allowing competition and innovation to flourish—has never been more important.

The Bureau’s 2015-2018 strategic vision

My final topic deals with how we are looking forward internally at the Bureau. In June, the Bureau released its 2015‑2018 Strategic Vision, which sets out the Bureau’s strategic objectives for the next three years. In broad strokes, we’ve set our focus on increasing compliance, empowering Canadians, promoting competition, collaborating with our partners, and pursuing organizational excellence. This three‑year plan is designed to improve the effectiveness and efficiency of all the enforcement, advocacy, and compliance promotion activities that we undertake with regulators and policymakers, as well as market participants and stakeholders like you.

The plan underscores the Bureau’s commitment to moving forward with a balanced approach of enforcement and competition promotion. In line with that vision, we released our Competition and Compliance Framework bulletin earlier this month. The Framework describes the various outreach, enforcement and advocacy instruments used by the Bureau in a comprehensive, integrated approach to increasing compliance. This is another way for the Bureau to provide Canadians with transparency and insight on how we promote compliance, today and going forward.

Competitive present, competitive future

It’s hard to predict where we might be in 25 years. (Though for long-suffering fans, I am confident that the Leafs will win the Cup before 2040.)  At the Bureau, we will continue to take a forward-looking approach based on the changes we are starting to see around us. We will continue to update our enforcement approach. We will continue to inform and empower Canadian consumers. We will continue to advocate for increased competition in key sectors of the economy, emphasizing the importance of competitive markets to Canada’s ongoing economic growth. And we will continue to collaborate with partners and stakeholders like you as we address emerging competition issues.

In fact, the Bureau is hosting a workshop entitled “Emerging Competition Issues—Keeping Pace in a Changing World” in Ottawa on January 19th. The event will focus on the analysis of disruptive business models and the industries they impact, as well as the incorporation of non‑price effects into competition analysis. The workshop will provide an excellent opportunity for academics, legal and business leaders, and policymakers to engage on these topics, and contribute to the evolution of competition policy in Canada.

I hope that some of you here will join us as we look forward to a competitive future. And with that, let’s move on to today’s discussion.

Thank you.

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