Strengthening competition: Innovation, collaboration and transparency

Remarks by John Pecman, Commissioner of Competition

Canadian Bar Association’s Competition Law Fall Conference

Ottawa, Ontario

October 6, 2016

(As prepared for delivery)


Introduction

Good afternoon, everyone.

I always look forward to the CBA Fall conference. It is a great opportunity to meet with the Bureau’s partners in compliance promotion, to come together and discuss how we can strengthen competition in Canada. In that vein, I would like to speak to you today about a few developments and areas of focus for the Bureau that reflect our ongoing approach to strengthening competition.

There is a lot I would like to cover, but my three main points are these:

  • Competition drives innovation;
  • Competition can be strengthened through collaboration; and
  • Competition thrives in a climate of enforcement transparency.

Competition drives innovation

Let’s begin with innovation, which is a hot topic right now for several reasons. Disruptive new technologies and business innovations are shaking up many sectors, challenging both traditional businesses and regulators to adapt and keep pace. At the same time, the Government of Canada is working to establish a coordinated strategy on innovation that delivers results for all Canadians.

There is no better time to emphasize the role competition has to play in the innovation equation. Businesses in competitive markets are driven to innovate. They pursue more efficient production techniques and business models. They develop better products and services to attract and retain customers.

As the Competition Law Section said in its submission on the Government of Canada’s Innovation Agenda: “competitive intensity fosters innovation”.

The Bureau does its part to promote “competitive intensity” by increasing compliance with the law and by advocating for pro‑competitive regulation.

Increasing compliance through enforcement

In terms of increasing compliance, we continue to pursue high‑impact enforcement cases. We are targeting anti‑competitive conduct that impedes the entry of innovative new products and services in the digital economy, and cracking down on deceptive marketing practices in e‑commerce.

Let’s look at a couple of examples.

In April, the Competition Tribunal ruled in the Bureau’s favour in the Toronto Real Estate Board case. The Tribunal found that by preventing real estate agents from offering new products and services to consumers over the internet, there was “a considerable adverse impact on innovation, quality, and the range of residential real estate brokerage services”.

In June, we demonstrated how we examine traditional advertising as well as ads on websites, mobile applications and in emails. These new forms of advertising in the digital economy were a focus of our investigation into pricing claims by Avis and Budget. We concluded that certain prices advertised by the two companies were not attainable, because consumers were later charged non‑optional fees on top of the advertised price. We resolved the case with a consent agreement and a 3 million dollar administrative monetary penalty. Businesses should take note that the Bureau is building trust in the digital marketplace by taking action against consumer deception such as drip pricing and hidden fees.

Increasing compliance through bid‑rigging detection and prevention

We’re also increasing compliance by raising awareness about bid‑rigging in the public procurement community.

We know that bid‑rigging can reduce project quality and inflate prices paid by public procurers by more than 30 percent. A compromised public procurement process constrains investment, innovation and economic growth.

So, as the Government of Canada is ramping up investment in public infrastructure, we are ramping up our efforts to detect and prevent bid‑rigging. This a golden opportunity for the Bureau to contribute its expertise to safeguard the government spending that will fuel municipal and provincial infrastructure projects across the country.

Let me give you the highlights:

  • We intend to deliver 30 anti‑bid‑rigging presentations to public procurement officials and industry participants this year. To date, we’ve delivered 10.
  • We are working with the RCMP and Public Services and Procurement Canada to launch a dedicated hotline for tipsters to report fraud, corruption and bid‑rigging related to federal government contracts.
  • We’re also working with Public Services and Procurement Canada to develop data screening mechanisms—algorithms that sift through data from bid submissions for signs of agreements between competitors.
  • As well, we’re advocating that public procurement agencies require bidders to sign Certificates of Independent Bid Determination to acknowledge their awareness and compliance with competition law.
  • And finally, the Bureau is leveraging its networks of domestic and international partners to promote awareness and develop best practices in bid‑rigging detection and prevention.

Increasing compliance through outreach

In addition to our enforcement and bid‑rigging prevention efforts, we’re continuing to expand our compliance promotion and outreach to businesses. I’m proud to note that the Society of Corporate Compliance and Ethics presented the Bureau with a 2016 International Compliance and Ethics Award for our efforts and accomplishments in this area over the past year. These include the creation of the Bureau’s Compliance Unit, the launch of the Bureau’s new Corporate Compliance Programs bulletin, and the development of a compliance promotion strategy.

We are continuing to focus our compliance work on small and medium‑sized businesses, which make up 98% of all businesses in Canada. Since last fall, the Bureau took part in 17 compliance promotion events, 7 of which were dedicated to small and medium‑sized businesses. We are also collaborating with the Canada Business Network and Chambers of Commerce across Canada to share compliance tools and knowledge with as many small and medium‑sized businesses as possible.

Advocating for pro‑competitive regulation

The Bureau also supports innovation by advocating for pro‑competitive regulatory frameworks.

This week, we released two publications to promote regulation that achieves legitimate policy objectives while also allowing competition and innovation to thrive.

Our report on advertising restrictions in Canada’s health care industries found an evidence gap with respect to the effectiveness of the restrictions in achieving their policy goals. The restrictions could also have the unintended consequence of contributing to higher prices, lower quality of service and less innovation. We are calling on governments and self‑regulatory bodies to begin gathering data on the outcomes of their policies in order to support evidence‑based decision‑making.

In a complementary issue of the Bureau’s Competition Advocate, we are also encouraging all Canadian regulators to adopt four internationally accepted best practices that promote competition and innovation.

In a nutshell, our message is this:

  • Regulate only when really necessary;
  • Use the best available evidence to inform decisions;
  • Strike the right balance between policy objectives and minimal intrusion; and
  • Review regulations regularly.

Update on Fintech market study

The Bureau launched its FinTech market study in May with these principles in mind. The rapid emergence of technology‑led innovation in financial service offerings has the potential to disrupt the financial sector and generate benefits for both businesses and consumers. Our goal is to better understand how to support the growth of innovation in this important sector.

To date, we have interviewed more than 50 industry stakeholders, including more than 20 FinTech start‑ups. We are continuing to engage with additional stakeholders, including consumer groups, to obtain their views.

In early 2017, we will be inviting a broad range of industry stakeholders, along with the appropriate federal and provincial regulators, to join us for a one‑day workshop. We will discuss the challenges faced by FinTech companies and identify industry or regulatory approaches that could enhance the efficiency and effectiveness of Canada’s financial services sector. Building on the insights gained from this workshop—and from our broader stakeholder engagement—we will release a report in late 2017 for public comment.

The final report will offer insights and guidance to industry participants, federal and provincial regulators, and the Bureau itself, on how best to support this critical and vibrant industry. The ultimate goal is to create the right incentives in the marketplace to drive innovation for the benefit of consumers, businesses and Canadian economy.

Strengthening competition through collaboration

Consultations and workshops are just some of the many ways that the Bureau collaborates with its partners, which brings me to my next major point today—the importance of collaboration in strengthening competition. Collaborating with our partners is one of our strategic objectives, and we’re focused on strengthening our network of partners both domestically and internationally.

Collaboration in enforcement

Domestically, we recently signed MOUs with the Inspector General of the City of Montreal and with Transport Canada’s Policy Group. We now have MOUs with more than a dozen law enforcement and regulatory agencies across Canada that enhance our efforts in enforcement, outreach and competition promotion.

On the international front, the recent Nishikawa Rubber bid‑rigging case involving auto body sealants is a great example of the increasing importance and impact of agency cooperation in enforcement. Between 2000 and 2012, Nishikawa participated in an international bid‑rigging conspiracy affecting Canada and the United States.

The Bureau worked closely with the U.S. Department of Justice Antitrust Division during the investigation. Given that Nishikawa’s conduct primarily targeted U.S. consumers, it was determined that the matter would be addressed by the Antitrust Division, in consultation with the Bureau. The resolution includes a guilty plea by Nishikawa and a hefty fine of 130 million dollars U.S. to address the harm the activity caused in both Canada and the U.S. This shows how international coordination can lead to effective outcomes while avoiding costly duplication of efforts.

And that is only the most recent success in our ongoing crackdown on the international auto parts cartel. Our investigation has involved cooperation with a number of our international counterparts, and has so far led to nine guilty pleas in Canada and more than 70 million dollars in fines imposed by Canadian courts.

The auto parts case is a perfect example of how collaboration can strengthen competition. That is why the Bureau has formal cooperation instruments in place with 13 jurisdictions, with more in negotiation.

Notably, we are currently working toward an MOU with the Hong Kong Competition Commission. That effort is part of our focus on strengthening ties with our counterparts in the Asia‑Pacific region, given the region’s growing economic importance to Canada. Hong Kong is actually Canada’s 6th largest export market.

I had the pleasure of meeting with officials from the Hong Kong Competition Commission in June. The Commission is an energetic new agency, and benefits from a highly‑engaged competition law community. As they build their investigative capacity, the Bureau is planning a staff exchange with the Commission to enable one of our experienced case handlers to share knowledge on investigations and case development.

Collaboration through staff exchanges

In fact, the Bureau is increasing the number of our staff exchanges with many of our key partners—both inbound and outbound. We know from experience that these exchanges are an effective way to develop strong, collaborative relationships with both our domestic and international partners.

Currently, one of our managers is working jointly with the U.S. FTC and the OECD to provide enforcement advice to the Anti‑Monopoly Commission of Ukraine. We also have an officer who is en route to join the European Commission’s Directorate General for Competition for a six‑month term. We recently welcomed a director from the Korea Fair Trade Commission (KFTC) for a one‑year term, and we hope to send one of our own to Korea in 2017. We are continuing to advance a number of other international exchanges in the coming year.

At home, Competition Bureau Legal Services leverages the Interchange Canada Program to benefit from the skills and experience of lawyers in private practice, increase understanding of the Bureau’s work and strengthen our collaboration with the Bar. If that sounds interesting to anyone here, don’t hesitate to put your name forward.

Tony Di Domenico, partner at Fasken Martineau, concluded his two‑year interchange with CBLS this week. Tony brought a valuable private practice point of view and considerable expertise in civil litigation to CBLS. He acted as litigation counsel in a number of important cases, including the Parkland/Pioneer merger, the Avis/Budget investigation and consent agreement, the Direct Energy motion before the Competition Tribunal, and our application against the Vancouver Airport Authority, which was announced just last week.

While we are losing Tony, I am pleased to announce that Kenneth Jull joined us this week for his own two‑year term with CBLS. Coming to us from Gardiner Roberts, Ken has an impressive set of skills and knowledge as both an academic and a litigator, and his wealth of experience in corporate compliance and investigations will be a tremendous asset to the Bureau’s work.

Our Chief Economist, Dr. Paul Johnson, also recently joined the Bureau for a two‑year term. Paul holds a PhD in Economics from the University of Montreal. He has returned to Canada from Washington DC, where he is a partner at Bates White Economic Consulting. Paul has considerable expertise in antitrust analysis and applied econometrics, including 15 years’ experience in economic consulting on civil antitrust litigation and high profile mergers before United States and European antitrust agencies. As the T.D. MacDonald Chair, he will be advising me on economic matters relating to the Bureau’s high profile cases, including litigation and advocacy. Paul is here today and, if you haven’t already, I hope you’ll take the chance to meet him in person.

Continued multilateral collaboration

In addition to strengthening our bilateral relationships, we continue to take a leadership role in multilateral networks like the OECD and the International Competition Network.

We’ll be participating in the OECD’s upcoming Global Forum on Competition and will be contributing to discussions on issues like decision‑making in merger cases, market studies, and the independence of competition authorities.

We very recently co‑hosted the first ICN Chief Economist Workshop with the University of British Colombia. Special thanks to UBC’s Tom Ross for helping us bring together chief economists from ICN Member Agencies to discuss best practices in a number of important areas of competition law enforcement.

We also continue to act as co‑chair of the ICN Merger Working Group, and will play a major role in preparing the ICN workshop on investigative techniques set for this February in Washington, D.C.

And finally, I am pleased to announce that the Bureau will be hosting the 2017 ICN Cartel Workshop in Ottawa.

Competition thrives in a climate of enforcement transparency

That brings me to my final point—that competition and innovation thrive in a climate of enforcement transparency.

We know that most businesses want to comply with the law, and to compete on a level playing field where the rules are clear to everyone. In order to enhance clarity and predictability for all marketplace participants, we strive to provide up‑to‑date guidance for the legal and business community on the Bureau’s enforcement approaches.

Leniency and Immunity Programs

The Bureau is working to update our Leniency and Immunity Programs. We’ve been consulting with our partners in the Public Prosecution Service of Canada as well as the Bar Associations in Canada and the U.S. We anticipate releasing our proposed changes for public consultation this winter.

Efficiencies claims in merger review

We’re also updating our guidance on the Bureau’s approach to efficiencies claims in merger reviews. Last year, the Supreme Court of Canada’s decision in the Tervita case clarified the application of Canada’s statutory “efficiencies defence” to otherwise anticompetitive mergers.

In response, we have carefully considered our approach to efficiencies and continue to refine how we assess efficiency claims by merging parties and balance them against anticompetitive effects. We will provide updated guidance in the near future.

For now, let me say this:

  • Parties should come to the Bureau early with a detailed efficiencies submission that includes the supporting documents and data.
  • A claim of efficiencies is not a free pass for receiving merger clearance from the Bureau. We will carefully assess all efficiency claims made by merging parties and balance them against the relevant anti‑competitive effects of the merger.
  • We will try to be as transparent as we can regarding the types of quantitative work we intend to perform, which will depend on the stage of the review. If needed, we will seek information from third parties and/or the merging parties using section 11 orders so that we can properly assess efficiencies.
  • Where it is not clearly the case that claimed efficiencies significantly outweigh relevant anti‑competitive effects, we will likely look to the Tribunal to decide the case.

Harmonizing approaches with our trading partners

Efficiencies were an important consideration in our recent review of the Superior/Canexus case. The proposed merger of the two global industrial chemical suppliers was subject to review in both Canada and the United States.

We collaborated closely with our U.S. counterparts during the course of the review. We both concluded that the merger would likely have anti‑competitive effects; namely, higher prices and less choice for customers.

However, the Bureau did not challenge the merger due to the Competition Act’s efficiencies defense.

In contrast, the U.S. FTC could and did challenge the merger under their law. Like that of many of our major trading partners, U.S. law requires claimed efficiencies to be passed through to consumers, making consumer welfare a primary concern. In Canada, this is not the case.

Businesses and consumers benefit from a uniform application of legal and economic principles across jurisdictions. We’ve come a long way in this respect. For example, our 2009 amendments brought the Competition Act more closely in line with our country’s major trading partners. I have also witnessed first‑hand many younger competition law agencies recognizing the benefits of convergence by developing competition regimes that are aligned with international consensus.

Yet, recent developments, like our decision in Superior/Canexus, show that Canada’s approach to efficiencies is increasingly misaligned with other jurisdictions. My view is that this is bad for businesses and bad for consumers.

Conclusion

I began by saying that the Fall Conference is a great opportunity to dialogue with the Bureau’s partners in compliance promotion, and I want to end there as well.

As we leverage collaboration and transparency to strengthen competition, support innovation and increase compliance, you are a key part of that effort. Compliance is a shared responsibility. The Bureau, the legal community and businesses each have a role to play in increasing compliance with the law.

And now I am happy to take any questions you may have.

Date modified: