Proposed changes to the Competition Act

Backgrounder

November 8, 2004

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The Competition Act

The Competition Act (the Act) is designed to promote competition and efficiency in the Canadian marketplace. Containing both criminal and civil provisions, the Act forms a major part of Canada's economic framework legislation applying, with few exceptions, to all industries and levels of trade. It is administered by the Competition Bureau, an independent law enforcement agency that promotes and maintains fair competition so that all Canadians can benefit from competitive prices, product choice and quality service.

The Act's criminal provisions include conspiracy, bid-rigging, discriminatory and predatory pricing, price maintenance, misleading advertising and deceptive marketing practices. These offences are prosecuted before criminal courts that may impose fines, order imprisonment, issue prohibition orders and interim injunctions, or any combination of these remedies.

Civil provisions include mergers, abuse of dominant position, refusal to deal, consignment selling, exclusive dealing, tied selling market restriction and delivered pricing. These matters are reviewable by the Competition Tribunal, which has powers to issue injunctive and remedial orders with respect to mergers and anti-competitive practices likely to prevent or lessen competition substantially.

The consultation process

In April 2002, the House of Commons Standing Committee on Industry, Science and Technology (the Industry Committee) released a report entitled, A Plan to Modernize Canada's Competition Regime. The Committee proposed a wide range of amendments to the Act, including: strengthening the civil provisions; reforming the treatment of conspiracies; and eliminating the criminal pricing provisions dealing with price discrimination, geographic price discrimination, predatory pricing and promotional allowances. The Committee also recommended that the Act be returned to a law of general application by repealing the airline-specific provisions, provided that a general regime be implemented with sufficient deterrence to achieve adequate compliance.

In responding to the Committee's recommendations, the government recognized that effective competition law enforcement is essential to a fair, efficient and competitive marketplace. It committed to consult widely with stakeholders on a number of specific proposals. It also expressed support for an incremental approach to changing the Act, since it increases the likelihood that proposed amendments will become law and is ideally suited for adapting to a rapidly changing competition law environment.

In June 2003, the government launched a consultation process with Canadians on proposed changes to the Act. Detailed legislative proposals were outlined in a discussion paper, entitled Options for Amending the CompetitionAct: Fostering a Competitive Marketplace.

The proposals included:

• strengthening the civil provisions by empowering the Competition Tribunal to impose administrative monetary penalties (AMPs), enabling the Court to order restitution for consumers affected by false or misleading representations, and allowing parties to sue for damages;
• reforming the criminal conspiracy provisions by proposing a dual-track approach where the most egregious agreements would be dealt with under a criminal regime and all other agreements under a civil regime with a competition analysis;
• reforming the criminal provisions relating to anti-competitive pricing behaviour; and
• allowing for inquiries into industry sectors.

The Competition Bureau hired the Public Policy Forum (PPF), an independent non-profit organization, to conduct national consultations based on the discussion paper. Over 100 written submissions were received and many stakeholders took part in roundtable discussions held across the country. A consultations report was issued by the PPF in April 2004. In response, the Commissioner of Competition said she would review the report and continue the dialogue with stakeholders prior to making recommendations to the Minister of Industry.

On April 27, 2004, after the release of the PPF's final report, the Bureau held an additional roundtable to discuss in greater detail the proposals to strengthen the civil provisions (AMPs and civil cause of action) and the reform of the pricing provisions.

On November 2, 2004, the government introduced a package of amendments to the Act. The proposed changes will strengthen Canada's competition framework in a global economy. This legislation balances the interests of consumers and businesses, both large and small. These proposed amendments are firmly rooted in the Industry Committee's comprehensive 2002 report on modernizing Canada's competition regime.

Providing restitution for consumers affected by false or misleading representations

This proposal would empower the Court to order advertisers who contravene the false or misleading representations provisions of the Act to provide restitution to consumers in an amount that would not exceed the amount paid for the products. The Court would also be empowered to make freezing orders where property is likely to be depleted. Any remaining balance in the fund could be allocated to a non-profit organization designated by the Court to benefit persons in similar circumstances.

Few remedies exist under the Act to address consumer loss resulting from false or misleading representations. Each year, the Competition Bureau receives many complaints from consumers who have lost money buying products that simply do not work, based on advertisers' false or misleading representations. There is a need to increase the range of remedies available to the Courts in order to encourage voluntary compliance with the Act.

Introducing a general AMP provision for abuse of dominance

This proposal would enable the Competition Tribunal to assess an AMP in cases of abuse of dominance, which is the anti-competitive conduct that has the most significant negative impact on the economy under the civil provisions of the Act. The maximum penalty under such cases would be $10 million, and $15 million for each subsequent order. The penalties would be paid to the Consolidated Revenue Fund.

The introduction of AMPs would make Canada's competition regime more similar to its counterparts in other jurisdictions, including those of our major trading partners. Canada's legislation is one of the few that does not allow for financial remedies against certain types of civil anti-competitive conduct.

Removing the airline-specific provisions

With the introduction of a general AMP to deal with cases of abuse of dominance, airline-specific provisions are no longer necessary to ensure competitive conditions in a marketplace that has changed substantially since the merger of Canadian Airlines and Air Canada (AC) in 1999. Substantial changes include the decline of AC's domestic market share, the entry and growth of low-cost carriers, including their development of competing loyalty programs, the growth of the Internet as a means of distributing tickets and the changing role of travel agents.

This proposal would restore the Act to a law of general application, as recommended by the Industry Committee and competition experts.

The following airline-specific provisions would be repealed:

• travel agent exemption from the application of certain provisions of the Act dealing with agreements and arrangements (section 4.1);
• expanded definitions of anti-competitive acts for the purpose of the abuse of dominance provisions contained in section 79 (subsections 78(1)(j) and(k));
• AMPs of up to $15 million for abuse of dominance by an airline (subsection 79(3.1)); and
• ability to issue cease and desist orders against an airline for up to 80 days (section 104.1).

Increasing the level of AMPs for deceptive marketing practices

This proposal would increase the existing level of AMPs for deceptive marketing practices, under Part VII.1 of the Act, to a maximum of:

• $750 000 for individuals and $1 million for each subsequent order; and
• $10 million for corporations and $15 million for each subsequent order.

Current AMP limits may represent only a small fraction of the gains businesses make by these practices, thereby providing little incentive for them to comply with the Act. It is believed that larger AMPs will increase compliance with the Act through helping deter reviewable deceptive marketing practices. These changes would also ensure coherence and consistency across all civil reviewable matters in the Act.

Decriminalizing the pricing provisions

This proposal calls for the repeal of the following sections:

• price discrimination (Section 50(1)(a));
• geographic price discrimination (Section 50(1)(b));
• predatory pricing (Section 50(1)(c));
• promotional allowances (Section 51).

This type of behaviour would continue to be dealt with under the civil abuse of dominance provisions, which would be bolstered with the addition of AMPs.

The criminal pricing provisions have been criticized as being inadequate to deal with the types of anti-competitive practices they were designed to address. Many stakeholders recognize that price discrimination, geographic price discrimination, predatory pricing and promotional allowances are not necessarily harmful to economic welfare and can be beneficial to competition. This type of pricing behaviour would be best suited to a civil provision with a competition test.

The proposal seeks the right balance between the proper level of deterrence and effective enforcement of anti-competitive pricing practices, while, at the same time, encouraging aggressive price competition that benefits consumers.