Report of the Consultative Panel on Amendments to the Competition Act to the Director of Investigation and Research, Competition Act, Mr. George N. Addy

Reports

March 06, 1996

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Industry Canada

July 1999 Gasoline Price Increases
A Competition Bureau Examination Report

(PDF: 47 KB: 21 Pages)

Letter of the Chairperson - (PDF: 212 KB: 1 Page)

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Table of Contents

Introduction
Consultative Panel Members
List of Recommendations
Mergers: Notifiable Transactions and Interim Orders
Confidentiality and Mutual Assistance in Enforcing Competition Laws
Misleading Advertising and Deceptive Marketing Practices
Regular Price Claims and Section 52(1)(d)
Price Discrimination and Promotional Allowances
Access to the Competition Tribunal
Prohibition Orders
Deceptive Telemarketing Practices
Additional Amendments
Appendix 1 - Panel Members' Biographies
Appendix 2 - Terms of Reference
Appendix 3 - Notifiable Transactions
Appendix 4 - Focus Group on Deceptive Telemarketing Practices
Summary of Discussions - January 15, 1996
Appendix 5 - Deceptive Telemarketing - Draft Proposal

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Introduction

The Discussion Paper

On June 28, 1995, the Minister of Industry, the Honourable John Manley, announced the start of public consultations aimed at updating the Competition Act . His stated objective was to introduce legislative amendments to the Act within one year.

As part of a broad consultation process, the Director of Investigation and Research (the Director) of the Competition Bureau, George N. Addy, released a discussion paper which outlined a number of specific areas that were being considered, together with the rationale for specific amendments. The topics were:

• Notifiable Transactions;
  
  
• Confidentiality and Mutual Assistance;
  
  
• Misleading Advertising and Deceptive Marketing Practices;
  
  
• Regular Price Claims and Section 52(1)( d);
  
  
• Price Discrimination and Promotional Allowances;
  
  
• Access to the Competition Tribunal;
  
  
• Prohibition Orders; and,
  
  
• Deceptive Telemarketing Solicitations.

The Director stated that, for the most part, the Act is working well and the approach it represents is fundamentally sound. However, after nearly a decade of experience in applying the Act in its current form, these are areas where improvements are envisioned to address the current state of the market place.

The Act was last amended in 1986, when a substantial overhaul was completed after many years of research and public debate. The Director has expressed the view that the current amendment proc ess is intended to be the start of periodic amendments every few years, as an ongoing process to fine-tune the legislation to keep pace with emerging business trends and enforcement requirements. Periodic review will also permit changes to be monitored and adjustments to be made where neces sary.

The discussion paper was circulated widely to associations, businesses, and members of the legal, law enforcement and academic communities. Recipients were invited to comment on the proposed changes to the law and make alternative suggestions. The initial deadline for comments was September 15, 1995, but this was extended to October 6, 1995, at the request of stakeholders. Over 80 responses were received. Many of these were detailed and responded to each issue raised for discus sion, reflecting considerable analysis and effort on the parts of the authors.

The Consultative Panel

On September 29, 1995, the Director announced his intention to establish a Consultative Panel to review the responses to the discussion paper and "to advise on the suitability and feasibility of the proposals and alternatives". While the Panel was to be the principal forum for discussion of proposed changes to the law, the Director and his staff would continue to seek the views of other stakeholders. The Panel was established and held its inaugural meeting on October 13, 1995. The members of the Panel are listed inside the cover of this Report, with brief biographies attached as Appendix 1.

The Consultative Panel adopted the Terms of Reference which are attached as Appendix 2 to this Report. In particular, the Panel agreed to provide its advice to the Director "in a fair and balanced manner with regard to the objectives set out in section 1.1 of the Competition Act (Item 4). It was agreed at the outset that all parts of the Report "will not necessarily reflect the views of any particu lar member of the Panel" (Item 2). The goal of the Panel was to provide a Report which reflects, to the greatest extent possible, a consensus among Panel members. In other words, each part of the Report reflects the views of at least a majority of the panellists, but shouldn't necessarily be taken to reflect unanimity. Although the Panel's discussions and debates were often vigorous, and opposing views were frequently expressed, Panel members made every effort to achieve a consensus Report in order to enhance the effectiveness of the Panel's advice to the Director.

The Panel met on the following dates: October 13, 31; November 3, 4, 24, 25; December 4, 5, 15, 16. Considerable work was required by Bureau staff between meetings. Panel members had access to all of the briefs submitted in response to the Bureau's discussion paper. Summaries, including analysis of the briefs, were also provided. Various officials from the Bureau attended portions of the Panel's meetings to relate their experiences with respect to some of the issues discussed. Some Panel members occasionally discussed concepts or proposals with other stakeholders and reported back to the Panel.

In view of the difficulty of some of the issues and the extent of the Panel's discussions, the ten days of meetings scheduled were insufficient to meet the target date of December 22, 1995, for completion of this Report. The Panel met again on January 12 and 13, and February 25, 1996 and, held various telephone conference calls to complete this Report.

General Issues

Two general issues emerged repeatedly during the Panel's deliberations. The first of these issues relates to the jurisdiction of the Competition Tribunal. The Panel, generally, considered it desirable for the adjudicative responsibility for the new reviewable practices under the Act to be directed to the Competition Tribunal where possible. The Panel supported the continued development of further experience and expertise within the Tribunal. The expanded jurisdiction which is proposed in this Report should lead to that result. However, it would result in an increased workload for the Tribunal. The Panel did not have the opportunity to explore the impact which such changes would have for the personnel, administrative and resource requirements of the Tribunal.

Secondly, this Report recommends that the Bureau adopt enforcement guidelines in a number of areas. The Panel was of the view that all such guidelines should be developed in conjunction with the legislative amendments. The Panel strongly recommends that draft enforcement guidelines be published when the legislative amendments are introduced, so as to facilitate a more informed discussion of the proposed changes.

 

Consultative Panel Report

Donald S. Affleck, Q.C.
Senior Partner
Kelly Affleck Greene

Yves Bériault
Partner
McCarthy Tétrault

Harry Chandler
Head, Amendments Unit
Competition Bureau

Calvin S. Goldman, Q.C.
Partner
Davies, Ward & Beck

George Post
Policy Consultant

Norman J. Stewart
Vice President and General Counsel
Ford Motor Company of Canada, Limited

Ed Ratushny, Q.C. (Chair)
Professor
Faculty of Law
University of Ottawa

Robert D. Anderson, Q.C.
General Counsel & Secretary
Procter & Gamble Inc.

Sara Blake
Senior Investigation Counsel
Enforcement Branch
Ontario Securities Commission

Rosalie Daly Todd
Executive Director and Legal Counsel
Consumers' Association of Canada

Lawson A.W. Hunter, Q.C.
Partner
Stikeman Elliott

W.T. Stanbury
UPS Professor of Regulation and Competition Policy
University of British Columbia

Peter Woolford
Senior Vice President, Policy
Retail Council of Canada

List of Recommendations

Mergers: Notifiable Transactions and Interim Orders

1. Parties subject to notification should have a choice between two filings: a short form and a long form filing. The information required for these filings is set out in Appendix 3. These lists should be outlined in regulations, rather than the Act.
   
   
2. The Bureau should continue to have the discretion to require the long form filing if the short form filing is not considered sufficient.
   
   
3. The waiting period applicable to the short form filing should be 14 days and 42 days for the long form filing. In the case of acquisitions of voting shares to be effected through a stock ex change, the waiting period for long form filings should be 21 trading days, or such longer period of time, not exceeding 42 days, as may be allowed by the rules of the stock exchange before shares must be taken up.
   
   
4. The Bureau should have the ability to abridge the short form or long form filing waiting period where the full time allotment is not required. (Of course, advance ruling certificates should continue to be available.) Both these powers should be capable of delegation by the Director to other officials within the Bureau.
   
   
5. If the parties provide information pursuant to an advance ruling certificate request which is substantially similar to that required under prenotification, but the certificate is denied, the Bureau should be able to exempt the notifier from the obligation to supply information and to wait the prescribed time before completing the transaction. Notification requirements should also be capable of being waived, in whole or in part, if the required information, or some of it, has already been provided under other circumstances (e.g. early notice to the Bureau; previous notification).
   
   
6. In any merger case that raises serious concerns (whether the merger has been the subject of prenotification or not), the Bureau should have the ability to seek an interim order from the Competition Tribunal, and should not be required to file an application with the Tribunal subsequently as a condition of obtaining the order.
   
   
7. The Tribunal should be empowered to issue an interim order only where it finds that:
   • there has been a failure to notify, or
   • an inquiry is being conducted pursuant to s. 10(1)(b), and
   • the Director certifies that more time is required to carry out the inquiry, and
   • the Tribunal finds that its ability to remedy the effects of the proposed merger on competition would be substantially impaired because actions might be taken that would be difficult to reverse.
   
   
   
8. The Tribunal should be authorized either to forbid any person named in the application from doing any act or thing that may constitute or be directed toward the completion or implementation of the proposed merger, or to require the parties to hold separate the assets to be acquired in a manner it prescribes. The Tribunal should also be authorized to issue the order on such terms as it considers reasonable and necessary. It should be open to the Tribunal to grant orders upon terms consented to by the parties. Applications for interim orders should be made on notice to the merging parties.
   
   
9. The law should provide that the maximum duration of such an order be 30 days. The Bureau should be obliged to proceed with its inquiry as expeditiously as possible. However, the Bureau should be entitled to apply to the Tribunal for an extension of the order after the expiration of the 30 days in exceptional circumstances, such as where the time allowed by a court for the execution of formal powers extends beyond the original 30 day term. Applications to extend the term of an interim order should also be made on notice to the merging parties.
   
   
10. Asset securitization and related types of transactions should be exempt from the application of the notification requirements pursuant to the authority provided under s. 113(d) to exempt classes of transactions. Precise statutory language delineating these matters should be developed by the Bureau in consultation with interested parties.
    
    
11. The underwriting exemption provided in ss. 111(b) and 5(2) should be expanded to apply to underwritings in respect of which a prospectus is required under either Canadian or foreign securities laws, or which are exempt from a prospectus requirement under such laws.
    
    
12. The Bureau should consult with interested parties to identify and define additional exemptions applicable to types of transactions or types of industries which rarely raise competition issues. It would also be helpful if guidelines were developed by the Bureau to clarify the interpretation of the various exemptions from notification available under the Act.
    
    
13. In the prenotification context, the Act should treat partnership interests as acquisitions of shares, rather than assets. In determining the appropriate threshold for notification of acquisitions of partnerships, the Bureau should have regard to the various forms of partnership arrangements that exist.
    
    
14. The fine for failure to notify should be increased. Imprisonment should no longer be available as a penalty for failure to notify.
    
    
15. As part of the revisions in this area, the Bureau should review the Notifiable Transaction Regulations, update them where required and address any ambiguities or omissions. For example, the regulations should specify the manner in which assets and revenues reported in foreign currency are to be converted into Canadian currency. The valuation should be done as of the date of the financial statements, and the exchange rate that should be applied is the wholesale rate published in newspapers.
    
    
16. The Act should clarify on whom the obligation to notify under these provisions rests.

Confidentiality and Mutual Assistance in Enforcing Competition Laws

General Scope of Protection

1) All information obtained by the Bureau in the administration or enforcement of the Act should be designated confidential. Excluded from this protection would be information which is public or where there is consent of parties directly affected.

2) A specific offence in the Act of willful communication of information contrary to the Act should be created.

Domestic Matters Communication for "Administration or Enforcement" Purposes

3) The Director should further examine which communications should be permitted under the rubric of "administration or enforcement". Recognizing that some members of the Panel would allow broader discretion to the Director, the Panel's consensus was that the Director should be able to engage in the following communications:

• between the Director and his staff, his agents and the Attorney General of Canada;
  
  
• to a court or the Competition Tribunal in the course of enforcement proceedings
  
  
or disclosure to parties to such proceedings;


• to the target of an investigation for the purpose of settlement negotiations; and,
  
  
• where the communication is about a record, to the record's apparent author or its recipient(s) or to persons referred to in the record.

Other Authorized Communications

4) The Bureau should be authorized to communicate information in the following instances:

• redirecting complaint information to agencies that deal with such matters;
  
  
• notifying foreign governments pursuant to international agreements or arrangements, subject to the confidentiality provisions in the Act ; and,
  
  
• giving information to a Canadian law enforcement agency.

5) The Bureau should not be specifically authorized under the Act to communicate information obtained pursuant to the enforcement of the Act during interventions by the Director in proceedings under s. 125 or s. 126

Matters with a Foreign Component
Safeguards and Public Interest Requirements

6) Obtaining and sending information to a foreign jurisdiction, where it is willing to reciprocate, should be authorized pursuant to mutual assistance agreements with foreign governments or compe tition law authorities. Such agreements should be subject to publication and a comment period before coming into force. To ensure that such assistance is in the Canadian public interest, a list of minimum requirements should be set out in the Act :

(i) mutual assistance agreements must only be entered into with countries whose competition laws are substantially similar to Canada's.

(ii) Mutual assistance agreements must require reciprocity regarding the scope of assistance that will be provided by the two governments.

(iii) Mutual assistance agreements must require that the foreign party comply with any conditions imposed on the use to be made of information and its return.

Where the communication of information is proposed in relation to a solely foreign competi tion law matter, mutual assistance agreements must require this to be approved by the Minister of Justice, who could refuse such assistance if it would be contrary to the Canadian public interest.

7) When communicating information to foreign competition law authorities, the Act should also require the following safeguards to apply:

(i) information sent from Canada would be subject to confidentiality protection in the foreign jurisdiction which is substantially similar to that provided by Canada;

(ii) information sent from Canada would only be used for competition law enforcement purposes by the foreign competition law authority;

(iii) applicable rights or privileges would be preserved. For example, Canadian law respecting the use of compelled testimony would be recognized and applied by the receiving country. Another example would be solicitor-client privilege; and,

(iv) if confidentiality obligation violated, information provider to be advised.

8) There should be sanctions for breaching a confidentiality obligation.

Oversight Mechanisms Canadian or Joint Competition Investigations

9) Having regard to the divergent views, the Director should further examine what, if any, over sight mechanisms, over and above the safeguards and public interest requirements (except review by the Minister of Justice), are appropriate when communication is proposed for the purpose of advanc ing a Canadian investigation.

Oversight Mechanisms Solely Foreign Competition Law Matters

10) The Bureau should largely adopt the approach set out in the Mutual Legal Assistance in Criminal Matters Act (MLACMA) and should seek judicial authorization to send confidential information to a foreign competition law authority, with or without a request.

11) Applications for authorization to communicate information to a foreign competition law authority should be on notice to the information provider unless prejudicial to an ongoing investiga tion. In the latter case, the Bureau should give notice as soon as practicable after the investigation would no longer be prejudiced or such sooner period as the court specifies. However, the Bureau should always give notice to a party that has been previously subject to formal powers at the request of a foreign competition law authority.

12) In authorizing the communication of information to a foreign competition law authority, conditions could be imposed at the hearing, including those:

(i) necessary to give effect to any request;

(ii) with respect to the preservation and return to Canada of any record or thing seized;

(iii) with respect to the protection of the interests of third parties; and,

(iv) providing other protections such as limitations on use.

Misleading Advertising and Deceptive Marketing Practices

Criminal Regime

1) Section 52(1)(a) should be changed by adding a subjective mens rea requirement. The provision should address intentional or knowledgeable conduct and recklessness in egregious cases.

2) The maximum fine in respect of summary conviction proceedings should be increased to $200,000 to reflect the seriousness of the new criminal provision.

3) Sections 55 and 55.1 (the multi-level marketing and pyramid selling provisions) should not be amended.

Civil Regime: Introduction

4) A civil regime should be established to address most instances of misleading advertising and deceptive marketing practices currently prosecuted in the criminal courts by the Attorney General of Canada.

5) The misleading advertising offences other than ss. 55 and 55.1 should be replaced by analo gous reviewable practices provisions. (A general provision should continue to exist under both the civil and criminal regimes.)

6) Civil misleading advertising matters should be brought by the Director before a single judicial member of the Competition Tribunal, the Federal Court - Trial Division or a superior court in a province ("the adjudicators"). In choosing between adjudicators, the Director should carefully consider regional accessibility.

Civil Regime: Cease and Desist Orders

7) The presence of intent should not be a consideration regarding whether a cease and desist order should be issued. Once it has been established that reviewable conduct has occurred, a cease and desist order would issue requiring the respondent to cease engaging in such conduct and to not engage in substantially similar conduct in the future.

8) The duration of cease and desist orders should be determined by the adjudicator up to a maxi mum of ten years, subject to the parties' right to apply to rescind, vary or extend them where there has been a material change in circumstances.

Civil Regime: Interim Cease and Desist Orders

9) The adjudicator should also be empowered to issue cease and desist orders on an interim basis where the Director has established a strong prima facie case that the representation has breached one of the reviewable misleading advertising or deceptive marketing practices provisions of the Act; that, unless the order is granted, serious harm is likely to ensue; and, that the balance of convenience favours granting the order.

10) The Bureau should not be required to provide an undertaking as to damages, nor should costs be available against it in interim cease and desist order proceedings.

11) Interim orders should have a maximum duration of 14 days (or longer on consent), or such shorter period as may be ordered. The Bureau should be able to seek extensions for a further speci fied period to a maximum of 14 days (or longer on consent).

Civil Regime: Further Orders
General

12) Additional orders beyond cease and desist orders should be available only if the respondent fails to establish that it exercised due diligence.

13) Restitution orders and orders directed towards improving the general quality of marketplace information should not be authorized.

Information Notices

14) Orders requiring the publication of information notices to inform marketplace participants about the impugned practices should be available. Such orders should require respondents to publish notices directed at the class of persons likely to have been reached by the misrepresentation. The notices should include sufficient information to identify the respondent, the specific misrepresentations and products concerned, the time period and geographical area to which the representations related, the media concerned, and the nature of the reviewable practices in question. The current practice in the Bureau's alternative case resolution program with respect to such notices should be replicated in terms of the notices' format, size and duration.

General Issues

Two general issues emerged repeatedly during the Panel's deliberations. The first of these issues relates to the jurisdiction of the Competition Tribunal. The Panel, generally, considered it desirable for the adjudicative responsibility for the new reviewable practices under the Act to be directed to the Competition Tribunal where possible. The Panel supported the continued development of further experience and expertise within the Tribunal. The expanded jurisdiction which is proposed in this Report should lead to that result. However, it would result in an increased workload for the Tribunal. The Panel did not have the opportunity to explore the impact which such changes would have for the personnel, administrative and resource requirements of the Tribunal.

Secondly, this Report recommends that the Bureau adopt enforcement guidelines in a number of areas. The Panel was of the view that all such guidelines should be developed in conjunction with the legislative amendments. The Panel strongly recommends that draft enforcement guidelines be published when the legislative amendments are introduced, so as to facilitate a more informed discussion of the proposed changes.

List of Recommendations

Mergers: Notifiable Transactions and Interim Orders

1) Parties subject to notification should have a choice between two filings: a short form and a long form filing. The information required for these filings is set out in Appendix 3. These lists should be outlined in regulations, rather than the Act.

2) The Bureau should continue to have the discretion to require the long form filing if the short form filing is not considered sufficient.

3) The waiting period applicable to the short form filing should be 14 days and 42 days for the long form filing. In the case of acquisitions of voting shares to be effected through a stock ex change, the waiting period for long form filings should be 21 trading days, or such longer period of time, not exceeding 42 days, as may be allowed by the rules of the stock exchange before shares must be taken up.

4) The Bureau should have the ability to abridge the short form or long form filing waiting period where the full time allotment is not required. (Of course, advance ruling certificates should continue to be available.) Both these powers should be capable of delegation by the Director to other officials within the Bureau.

5) If the parties provide information pursuant to an advance ruling certificate request which is substantially similar to that required under prenotification, but the certificate is denied, the Bureau should be able to exempt the notifier from the obligation to supply information and to wait the prescribed time before completing the transaction. Notification requirements should also be capable of being waived, in whole or in part, if the required information, or some of it, has already been provided under other circumstances (e.g. early notice to the Bureau; previous notification).

6) In any merger case that raises serious concerns (whether the merger has been the subject of prenotification or not), the Bureau should have the ability to seek an interim order from the Competition Tribunal, and should not be required to file an application with the Tribunal subsequently as a condition of obtaining the order.

7) The Tribunal should be empowered to issue an interim order only where it finds that:

• there has been a failure to notify, or
  
  
• an inquiry is being conducted pursuant to s. 10(1)(b), and
  
  
• the Director certifies that more time is required to carry out the inquiry, and
  
  
• the Tribunal finds that its ability to remedy the effects of the proposed merger on competition would be substantially impaired because actions might be taken that would be difficult to reverse.

8) The Tribunal should be authorized either to forbid any person named in the application from doing any act or thing that may constitute or be directed toward the completion or implementation of the proposed merger, or to require the parties to hold separate the assets to be acquired in a manner it prescribes. The Tribunal should also be authorized to issue the order on such terms as it considers reasonable and necessary. It should be open to the Tribunal to grant orders upon terms consented to by the parties. Applications for interim orders should be made on notice to the merging parties.

9) The law should provide that the maximum duration of such an order be 30 days. The Bureau should be obliged to proceed with its inquiry as expeditiously as possible. However, the Bureau should be entitled to apply to the Tribunal for an extension of the order after the expiration of the 30 days in exceptional circumstances, such as where the time allowed by a court for the execution of formal powers extends beyond the original 30 day term. Applications to extend the term of an interim order should also be made on notice to the merging parties.

10) Asset securitization and related types of transactions should be exempt from the application of the notification requirements pursuant to the authority provided under s. 113(d) to exempt classes of transactions. Precise statutory language delineating these matters should be developed by the Bureau in consultation with interested parties.

11) The underwriting exemption provided in ss. 111( b) and 5(2) should be expanded to apply to underwritings in respect of which a prospectus is required under either Canadian or foreign securi ties laws, or which are exempt from a prospectus requirement under such laws.

12) The Bureau should consult with interested parties to identify and define additional exemptions applicable to types of transactions or types of industries which rarely raise competition issues. It would also be helpful if guidelines were developed by the Bureau to clarify the interpretation of the various exemptions from notification available under the Act.

13) In the prenotification context, the Act should treat partnership interests as acquisitions of shares, rather than assets. In determining the appropriate threshold for notification of acquisitions of partnerships, the Bureau should have regard to the various forms of partnership arrangements that exist.

14) The fine for failure to notify should be increased. Imprisonment should no longer be available as a penalty for failure to notify.

15) As part of the revisions in this area, the Bureau should review the Notifiable Transaction Regulations, update them where required and address any ambiguities or omissions. For example, the regulations should specify the manner in which assets and revenues reported in foreign currency are to be converted into Canadian currency. The valuation should be done as of the date of the financial statements, and the exchange rate that should be applied is the wholesale rate published in newspapers.

16) The Act should clarify on whom the obligation to notify under these provisions rests.

Confidentiality and Mutual Assistance in Enforcing Competition Laws

General Scope of Protection

1) All information obtained by the Bureau in the administration or enforcement of the Act should be designated confidential. Excluded from this protection would be information which is public or where there is consent of parties directly affected.

2) A specific offence in the Act of willful communication of information contrary to the Act should be created.

Domestic Matters

Communication for "Administration or Enforcement" Purposes

3) The Director should further examine which communications should be permitted under the rubric of "administration or enforcement". Recognizing that some members of the Panel would allow broader discretion to the Director, the Panel's consensus was that the Director should be able to engage in the following communications:

• between the Director and his staff, his agents and the Attorney General of Canada;
  
  
• to a court or the Competition Tribunal in the course of enforcement proceedings or disclosure to parties to such proceedings;
  
  
• to the target of an investigation for the purpose of settlement negotiations; and,
  
  
• where the communication is about a record, to the record's apparent author or its recipient(s)

or to persons referred to in the record.

Other Authorized Communications

4) The Bureau should be authorized to communicate information in the following instances:

• redirecting complaint information to agencies that deal with such matters;
  
  
• notifying foreign governments pursuant to international agreements or arrangements, subject to the confidentiality provisions in the Act ; and,
  
  
• giving information to a Canadian law enforcement agency.

5) The Bureau should not be specifically authorized under the Act to communicate information obtained pursuant to the enforcement of the Act during interventions by the Director in proceedings under s. 125 or s. 126.

Matters with a Foreign Component

Safeguards and Public Interest Requirements

6) Obtaining and sending information to a foreign jurisdiction, where it is willing to reciprocate, should be authorized pursuant to mutual assistance agreements with foreign governments or compe tition law authorities. Such agreements should be subject to publication and a comment period before coming into force. To ensure that such assistance is in the Canadian public interest, a list of minimum requirements should be set out in the Act :

(i) mutual assistance agreements must only be entered into with countries whose competition laws are substantially similar to Canada's.

(ii) Mutual assistance agreements must require reciprocity regarding the scope of assistance that will be provided by the two governments.

(iii) Mutual assistance agreements must require that the foreign party comply with any conditions imposed on the use to be made of information and its return.

Where the communication of information is proposed in relation to a solely foreign competi tion law matter, mutual assistance agreements must require this to be approved by the Minister of Justice, who could refuse such assistance if it would be contrary to the Canadian public interest.

7) When communicating information to foreign competition law authorities, the Act should also require the following safeguards to apply:

(i) information sent from Canada would be subject to confidentiality protection in the foreign jurisdiction which is substantially similar to that provided by Canada;

(ii) information sent from Canada would only be used for competition law enforcement purposes by the foreign competition law authority;

(iii) applicable rights or privileges would be preserved. For example, Canadian law respecting the use of compelled testimony would be recognized and applied by the receiving country. Another example would be solicitor-client privilege; and,

(iv) if confidentiality obligation violated, information provider to be advised.

8) There should be sanctions for breaching a confidentiality obligation.

Oversight Mechanisms Canadian or Joint Competition Investigations

9) Having regard to the divergent views, the Director should further examine what, if any, over sight mechanisms, over and above the safeguards and public interest requirements (except review by the Minister of Justice), are appropriate when communication is proposed for the purpose of advanc ing a Canadian investigation.

Oversight Mechanisms Solely Foreign Competition Law Matters

10) The Bureau should largely adopt the approach set out in the Mutual Legal Assistance in Criminal Matters Act (MLACMA ) and should seek judicial authorization to send confidential information to a foreign competition law authority, with or without a request.

11) Applications for authorization to communicate information to a foreign competition law authority should be on notice to the information provider unless prejudicial to an ongoing investigation. In the latter case, the Bureau should give notice as soon as practicable after the investigation would no longer be prejudiced or such sooner period as the court specifies. However, the Bureau should always give notice to a party that has been previously subject to formal powers at the request of a foreign competition law authority.

12) In authorizing the communication of information to a foreign competition law authority, conditions could be imposed at the hearing, including those:

(i) necessary to give effect to any request;

(ii) with respect to the preservation and return to Canada of any record or thing seized;

(iii) with respect to the protection of the interests of third parties; and,

(iv) providing other protections such as limitations on use.

Misleading Advertising and Deceptive Marketing Practices

Criminal Regime

1) Section 52(1)(a) should be changed by adding a subjective mens rea requirement. The provision should address intentional or knowledgeable conduct and recklessness in egregious cases.

2) The maximum fine in respect of summary conviction proceedings should be increased to $200,000 to reflect the seriousness of the new criminal provision.

3) Sections 55 and 55.1 (the multi-level marketing and pyramid selling provisions) should not be amended.

Civil Regime: Introduction

4) A civil regime should be established to address most instances of misleading advertising and deceptive marketing practices currently prosecuted in the criminal courts by the Attorney General of Canada.

5) The misleading advertising offences other than ss. 55 and 55.1 should be replaced by analo gous reviewable practices provisions. (A general provision should continue to exist under both the civil and criminal regimes.)

6) Civil misleading advertising matters should be brought by the Director before a single judicial member of the Competition Tribunal, the Federal Court - Trial Division or a superior court in a province ("the adjudicators"). In choosing between adjudicators, the Director should carefully consider regional accessibility.

Civil Regime: Cease and Desist Orders

7) The presence of intent should not be a consideration regarding whether a cease and desist order should be issued. Once it has been established that reviewable conduct has occurred, a cease and desist order would issue requiring the respondent to cease engaging in such conduct and to not engage in substantially similar conduct in the future.

8) The duration of cease and desist orders should be determined by the adjudicator up to a maximum of ten years, subject to the parties' right to apply to rescind, vary or extend them where there has been a material change in circumstances.

Civil Regime: Interim Cease and Desist Orders

9) The adjudicator should also be empowered to issue cease and desist orders on an interim basis where the Director has established a strong prima facie case that the representation has breached one of the reviewable misleading advertising or deceptive marketing practices provisions of the Act; that, unless the order is granted, serious harm is likely to ensue; and, that the balance of convenience favours granting the order.

10) The Bureau should not be required to provide an undertaking as to damages, nor should costs be available against it in interim cease and desist order proceedings.

11) Interim orders should have a maximum duration of 14 days (or longer on consent), or such shorter period as may be ordered. The Bureau should be able to seek extensions for a further speci fied period to a maximum of 14 days (or longer on consent).

Civil Regime: Further Orders
General

12) Additional orders beyond cease and desist orders should be available only if the respondent fails to establish that it exercised due diligence.

13) Restitution orders and orders directed towards improving the general quality of marketplace information should not be authorized.

Information Notices

14) Orders requiring the publication of information notices to inform marketplace participants about the impugned practices should be available. Such orders should require respondents to pub lish notices directed at the class of persons likely to have been reached by the misrepresentation. The notices should include sufficient information to identify the respondent, the specific misrepre sentations and products concerned, the time period and geographical area to which the representations related, the media concerned, and the nature of the reviewable practices in question. The current practice in the Bureau's alternative case resolution program with respect to such notices should be replicated in terms of the notices' format, size and duration.

Civil Monetary Penalties

15) The adjudicators should have the authority to order the payment of a civil monetary penalty in an amount appropriate in the circumstances giving rise to the breach of the relevant provision.

16) A maximum penalty of $100,000 in respect of a first breach (e.g. a number of separate adver tisements involving the same misrepresentation in various media over a period of months would constitute one "breach") and $200,000 in respect of a second or subsequent breach involving similar conduct should be available.

17) The criteria for establishing an appropriate fine level within the maxima should be: the projected reach of the representation in the relevant market; the vulnerability of the target audience; the number of times that the representation was repeated and the duration of the representation; the materiality of the deception; the likelihood of marketplace self-correction; evidence of harm to the marketplace/competition; and, the advertiser's compliance history. The Bureau should consider whether these criteria should be established by means of guidelines or in the legislation.

Civil Regime: Consent Matters

18) The terms of consent orders should not be reviewable by the adjudicators prior to making them formal orders of the adjudicators for enforcement purposes as long as agreed statements of facts as well as statements why the resolutions are appropriate in the circumstances are made avail able to the public

Civil Regime: Intervenors

19) Intervenors should not be permitted before the adjudicators in respect of reviewable marketing practices matters, whether contested or by consent.

The Bureau's Decision on which Regime to Use

20) The choice of one adjudication route should foreclose the other.

21) Rather than in the legislation, the Bureau should develop, publish and seek public input on guidelines indicating the factors it will take into account in exercising its discretion to make an application under the civil regime or refer evidence to the Attorney General of Canada with a recom mendation for prosecution. Every effort should be made to indicate a decision to parties under inquiry within 90 days of first contact with the target. The following circumstances should influence this decision: repeat offences; a blatant disregard for the truth; the targeting of particularly vulner able members of society; the adverse impact on the marketplace; and, the need for deterrence.

Existing Jurisprudence and the Transfer of Adjudication

22) Where the law is reasonably settled in respect of the current provisions, precedents should not be opened up again for debate simply because of the shift in adjudicative jurisdiction. In addition, the Bureau should, in its enforcement guidelines, indicate that it will be guided by the previous jurisprudence in deciding which cases to bring before the new adjudicators. Finally, the importance of abiding by the existing jurisprudence should be reiterated by the Bureau before the Parliamentary committee when the bill is under review.

Regular Price Claims and Section 52(1)(d)

Civil Monetary Penalties

15) The adjudicators should have the authority to order the payment of a civil monetary penalty in an amount appropriate in the circumstances giving rise to the breach of the relevant provision.

16) A maximum penalty of $100,000 in respect of a first breach (e.g. a number of separate adver tisements involving the same misrepresentation in various media over a period of months would constitute one "breach") and $200,000 in respect of a second or subsequent breach involving similar conduct should be available.

17) The criteria for establishing an appropriate fine level within the m axima should be: the projected reach of the representation in the relevant market; the vulnerability of the target audience; the number of times that the representation was repeated and the duration of the representation; the materiality of the deception; the likelihood of marketplace self-correction; evidence of harm to the marketplace/competition; and, the advertiser's compliance history. The Bureau should consider whether these criteria should be established by means of guidelines or in the legislation.

Civil Regime: Consent Matters

18) The terms of consent orders should not be reviewable by the adjudicators prior to making them formal orders of the adjudicators for enforcement purposes as long as agreed statements of facts as well as statements why the resolutions are appropriate in the circumstances are made avail able to the public

Civil Regime: Intervenors

19) Intervenors should not be permitted before the adjudicators in respect of reviewable marketing practices matters, whether contested or by consent.

The Bureau's Decision on which Regime to Use

20) The choice of one adjudication route should foreclose the other.

21) Rather than in the legislation, the Bureau should develop, publish and seek public input on guidelines indicating the factors it will take into account in exercising its discretion to make an application under the civil regime or refer evidence to the Attorney General of Canada with a recom mendation for prosecution. Every effort should be made to indicate a decision to parties under inquiry within 90 days of first contact with the target. The following circumstances should influence this decision: repeat offences; a blatant disregard for the truth; the targeting of particularly vulner able members of society; the adverse impact on the marketplace; and, the need for deterrence.

Existing Jurisprudence and the Transfer of Adjudication

22) Where the law is reasonably settled in respect of the current provisions, precedents should not be opened up again for debate simply because of the shift in adjudicative jurisdiction. In addition, the Bureau should, in its enforcement guidelines, indicate that it will be guided by the previous jurisprudence in deciding which cases to bring before the new adjudicators. Finally, the importance of abiding by the existing jurisprudence should be reiterated by the Bureau before the Parliamentary committee when the bill is under review.

Regular Price Claims and Section 52(1)(d)

Mergers: Notifiable Transactions and Interim Orders

1. Background

The notifiable transactions provisions of the Competition Act require that parties to certain transac tions which exceed prescribed thresholds notify the Bureau prior to their completion and provide specified information. Notifications are intended to alert the Bureau to potentially problematic transactions, and provide it with the opportunity to assess their competitive impact and take appropriate action, if necessary.

Most transactions subject to notification do not raise competitive issues. However, in circumstances where potential competition concerns are raised, three main and interrelated problems with the merger provisions of the Act, and the merger review process in general, have been identified by the Bureau. First, the information currently required under the pre-merger notification provisions of the Act is not adequate. Second, the waiting periods prescribed under the Act are sometimes too short to be able to complete the assessment of a transaction. Finally, there is no effective mechanism under the Act to prevent the closing of a transaction unless the Bureau has decided to challenge it before the Competition Tribunal.

In addition to these main issues, some questions have been raised with regard to the need for further exemptions from notification. It has also been suggested that the application of the Act and the regulations could be clarified in certain respects.

2. The Public Consultations

The discussion paper issued by the Bureau proposed to modify the approach by which transaction notification is provided. Instead of the current system where parties have the choice between a short and a long form filing, it was proposed that an initial filing would be required for all notifiable transactions and that a second, much more detailed, filing could be requested by the Bureau for problematic transactions. The proposed initial waiting period was 30 days and the second period was 20 days.

It was proposed to create a new exemption for asset securitization transactions, pursuant to the authority provided under s. 113(d) to exempt classes of transactions. The proposal also suggested that the Bureau could have the discretion to waive the notification requirements on a case-by-case basis.

In order to clarify the application of the notifiable transactions provisions to the acquisition of partnership and joint venture interests, it was proposed to adopt the thresholds applicable to the acquisition of shares and define control as "a voting interest in a partnership or joint venture greater than 50%".

Comments received on the approach proposed in the discussion paper on the information to be filed were rather negative. The opponents were of the view that the current system works well. Accordingly, it was inappropriate to change the entire system for only a few problematic transactions.

Many responses argued that the proposed approach was modeled on the United States Hart-Scott-Rodino Act, which they characterized as being more adversarial, burdensome and time-consuming. A majority also expressed a desire to keep the option of filing the information required for both filings at the outset, instead of waiting for the Bureau's request, to expedite the review process.

It was generally recognized that current statutory filing requirements do not provide the Bureau with the necessary information to assess the impact of a transaction, but that this information typically can be obtained on a voluntary basis. In those few cases where the information required by the Bureau is not provided voluntarily, it can be obtained through the use of formal powers. Many responses observed that it was inappropriate to require subjective information in a filing under oath, and suggested that the requirements should be limited to readily available data. The proposed second filing was considered too voluminous and subject to delay and uncertainty in verifying compliance. There was considerable support for the proposal to set out the information require ments in regulations rather than in the Act. However, some commentators felt that it would be preferable to retain these requirements in the legislation.

Most responses to the discussion paper disagreed with the proposed waiting periods, which were considered too long. The Bureau can rely on the cooperation of the parties if more time is needed or can seek an order from the Tribunal. It was also suggested that the parties and the Bureau have the flexibility to extend the initial waiting period on consent.

The majority of comments were in favour of an exemption for asset securitizations and similar types of transactions, but had concerns about the definition. Suggestions were also made to add other exemptions.

As to the acquisition of partnership and joint venture interests, there was general agreement to treat these as share acquisitions, rather than asset acquisitions. However, a divergence of views were expressed regarding how to define the control of such entities.

Finally, other amendments were proposed, such as the removal of criminal sanctions for failure to comply with an obligation to notify, and an increase in the thresholds for notification.

3. The Consultative Panel

In light of these comments, the Panel concluded that, rather than dramatically changing the prenotification model in Canada, it would be preferable to retain the positive features of the current system, while addressing those areas that had proven to be problematic.

As is the case under the current law, the Panel felt that it would be desirable to continue to make available a short and a long form filing, enabling the parties to choose which they would file, de pending on the nature of the transaction. The Bureau would continue to have the option to require a long form filing where a short form has been filed but additional information is required. The Panel reviewed detailed lists of the information that should be required under each type of filing. These appear in Appendix 3 to this Report. Much of the discussion focused on tailoring the information requirements applicable to the short and long form filings in a manner that would yield more useful information to the Bureau, without requiring subjective conclusions (as opposed to factual informa tion) to be provided or creating an undue burden for businesses. This latter concern was addressed in part by specifying that some of the information need only be supplied in respect of categories of products produced by both the merging parties.

The new short form filing is based on information currently required under s. 121, with some changes to make it shorter and more relevant. The long form filing requires essentially all of the information currently required to be provided under s. 122, plus other basic information to address the competitive elements of the transaction. The Panel remains concerned that some of the elements are not relevant to all types of transactions . However, it recognizes that the notifier would continue to have the option not to supply information that it considers to be irrelevant, unless the Bureau specifically requests this information. The Panel also discussed whether or not it was necessary to include a specific provision indicating that documents for which solicitor-client privilege was claimed need not be supplied. However, on balance, it concluded that this was not necessary, as the common law protection would apply to such information without specific statutory mention.

Concerning the waiting periods, the Panel recognized that the existing ones could be inadequate in certain cases, but was concerned that they not be unduly long, particularly in situations involving the use of a short form filing. It concluded that a waiting period of 14 days (i.e. 10 waiting days, which is double the current period) for the short form filing and 42 days (30 working days) for the long form filing should be sufficient. However, it would be desirable if the obligation to supply information and/or to wait the prescribed time before completing a transaction could be waived on request under certain circumstances. To expedite such requests, the Panel suggested that the Director be statutorily authorized to delegate the authority to waive the waiting period or information require ments to other officials within the Bureau.

Currently, s. 100(6) requires the Director to proceed as expeditiously as possible to commence and complete proceedings under s. 92 following the issuance of an interim order. The Panel considered that it would be necessary to amend the interim order provision (s. 100) to allow such orders to be obtained in circumstances where serious concerns might exist, but it has not yet become clear whether or not the Bureau has, or will have, grounds to challenge the transaction. The object of such an amendment would be to give the Bureau sufficient time to pursue an inquiry under s. 10. Such orders should be obtainable either to prevent the closing of a transaction or to require the parties to hold separate their assets.

The Panel concluded that these interim orders should only be granted by the Tribunal where the Bureau has serious concerns. The Panel also considered it important that such orders be related to the need to prevent the closing of the transaction. Ultimately, the Panel suggested the following conditions for obtaining an interim order:

• where there has been a failure to notify; or
• where an inquiry is being conducted pursuant to s. 10(1)(b); and
• the Director certifies that more time is required to carry out the inquiry; and
• the Tribunal finds that its ability to remedy the effects of the proposed merger on competition would be substantially impaired because actions might be taken that would be difficult to reverse.

Applications for interim orders should be made on notice to the party(ies).

The Panel discussed the appropriate duration for such orders and concluded that the maximum should be 30 days, although the Bureau should be able to seek an extension in cases where it can demonstrate the existence of exceptional circumstances, such as where the time allowed by a court for the execution of formal powers extends beyond the original 30 day term. The Panel felt that an application to extend an interim order should be made on notice to the parties.

One of the questions raised by the discussion paper related to expanding the categories of exemp tions from the prenotification requirements. The Panel noted that asset securitizations and similar types of transactions are two areas where there seems to be considerable agreement that notification is not required and concluded that such transactions should be exempted. However, these types of transactions can take different forms. Accordingly, the Panel suggested that the Bureau work with interested parties to develop appropriate language. The Panel also agreed with a suggestion in one of the responses to the discussion paper that the underwriting exemption provided in ss 111( b) and 5(2) also apply to underwritings in respect of which prospectuses are required under either Canadian or foreign securities laws, or in respect of which prospectuses would be required but for an express exemption from such laws. Currently, only those requiring a prospectus under Canadian securities laws qualify for an exemption under the Act . Finally, the Panel recommended that the Bureau clearly signal that it is prepared to consider other types of exemptions and invite interested parties to bring forward additional suggestions for consideration.

The Panel discussed the thresholds for notification and the fact that these had not been revised since the legislation was introduced. It acknowledged the desire of some stakeholders for higher thresh olds, and recommended that the Director should periodically review these under the existing statu tory provisions. It also suggested that the Bureau review its case screening criteria to determine if the number of matters being reviewed could be reduced.

The Panel also considered how acquisitions of interests in partnerships and joint ventures should be treated under the prenotification requirements. The Panel agreed that these matters should generally be treated as share acquisitions, rather than asset acquisitions. However, the Panel was concerned that the identification of the threshold at which control is deemed to be acquired should capture the various types of partnership arrangements that exist, and recommended that the Bureau seek further legal advice on this point.

The Panel noted that the existing fine for failure to notify, as specified in s. 65(2), is inadequate to provide an incentive to comply, and discussed whether a civil monetary penalty would be appropriate. The Panel preferred maintaining a criminal approach, but recommended the removal of imprisonment as a possible penalty for failure to notify. It recommended that the amount of the penalty be increased to a level that would better reflect the significance of the obligation to notify.

Finally, the Panel noted that changes to the Notifiable Transaction Regulations would be required as a result of its recommendations. It was of the view that this would be a timely juncture for the Bureau to review the existing regulations and address any ambiguities or omissions. For example, it noted that it would be useful to specify in the regulations the basis for converting assets and rev enues reported in foreign currency into Canadian currency. The valuation should be done as of the date of the financial statements and the exchange rate should be the wholesale rate published in newspapers. The Panel also concluded that it would be helpful to clarify either in the Act or in the regulations on whom the obligation to notify rests.

Confidentiality and Mutual Assistance in Enforcing Competition Laws

1. Background

Currently, s. 29 of the Act addresses the confidentiality of information obtained under the Act. It prohibits the communication of certain specified categories of information "except to a Canadian law enforcement agency or for the purposes of the administration and enforcement" of the Act. This prohibition does not apply to any information that has been made public. In addition, s. 10(3) requires that all inquiries by the Director be conducted in private.

Stakeholders have a number of concerns about the confidentiality protections afforded information obtained by the Director in the administration or enforcement of the Act. First, the protection accorded confidential information under the Act is not comprehensive. For example, s. 29 does not protect information that is provided voluntarily to the Bureau.

Second, there are differing views on the extent to which s. 29 permits the Bureau to communicate confidential information. On the one hand, it is customary and often necessary for effective law enforcement for law enforcement agencies to communicate confidential information selectively to third parties and other law enforcement agencies to advance their investigations. On the other hand, the type of information relevant to investigations under the Act is often commercially sensitive. If this information came into the hands of competitors or other parties indiscriminately, it might be harmful to the business interests of the information provider.

Third, communicating information to a foreign competition law authority has the potential to result in private antitrust litigation outside of Canada, particularly in the case of the United States. There is also a concern about the potential harm to Canada's national interests if the information is given to other agencies of a foreign government.

Finally, there is the question of the place and scope of international antitrust cooperation in light of the enactment of blocking statutes in Canada to protect against the extraterritorial application of foreign laws. There has been a more recent countervailing trend involving joint investigations between the Bureau and the Antitrust Division of the U.S. Department of Justice, where confidential information was exchanged which resulted in enforcement action that would not otherwise have occurred absent such cooperation. This new spirit of cooperation is also reflected in the August 1995 agreement between Canada and the United States regarding the application of their competi tion and deceptive marketing practices laws.

Accordingly, an appropriate balance between effective law enforcement and the concerns of infor mation providers needs to be struck.

2. The Public Consultations

The Bureau's discussion paper sought comments on a number of issues in relation to confidentiality and mutual assistance. In the domestic context, these were:

• whether all information in the Bureau's possession, including that voluntarily provided, should be subject to the same general level of statutory protection;
  
  
• how the Act should be amended to clarify the Director's authority to communicate confidential information for the purposes of:
  
  
• advancing an investigation or assisting in the administration of the Act;
  
  
• negotiating an alternative case resolution;

• assessing the value of evidence or the credibility of witnesses by communicating confidential information to industry participants; and,
  
  
• correcting the record in the event a party misleads a tribunal in the course of the Director's intervention under ss. 125 or 126.
  
  
• how the Act should be amended to clarify the Director's authority to refer complaints to other government agencies involving matters which fall within their jurisdictions; and,
  
  
• how the Act should be amended to clarify the Director's authority to communicate information in his possession to assist Canadian law enforcement agencies in carrying out their duties.

The discussion paper also solicited views on a mutual assistance regime involving communicating confidential information to foreign competition law authorities in relation to a Bureau or joint inves tigation or to assist in a foreign competition law authority's investigation. Mutual assistance could include authorizing the Director to:

• use compulsory powers to obtain information for the enforcement of another country's competition laws; and,
  
  
• provide a foreign authority with information relevant to the enforcement of the Act or foreign competition law.

The Bureau asked recipients of the discussion paper:

• whether such mutual assistance is generally in the public interest;
  
  
• what safeguards would be appropriate to ensure that assistance would not occur in specific cases where it would be contrary to the public interest;
  
  
• whether the full range of compulsory powers available under the Act should be available to assist foreign authorities;
  
  
• whether certain categories of information should be exempted from communication under a mutual assistance regime and how exempt information should be defined without unduly hindering effective cooperation;
  
  
• what safeguards are appropriate to ensure that information communicated to a foreign author ity is not used, or communicated to third parties, for purposes unrelated to the enforcement of the foreign competition law; and,
  
  
• in deciding whether to enter into a particular mutual assistance agreement under the proposed regime, what factors should be considered.

Commentators overwhelmingly agreed that all information in the Bureau's possession should fall within the Act's confidentiality protections.

However, opposition outweighed support for giving the Bureau broad discretion to communicate confidential information domestically. Commentators preferred a narrowly defined set of circumstances absent which it would be prohibited from such communications. Views on the Bureau's authority to refer complaints were mixed. Those who were opposed questioned the necessity for such authority.

Responses were also mixed on whether communicating information in the Bureau's possession to assist Canadian law enforcement agencies in carrying out their duties is in the public interest. In deed, some felt the Bureau's authority to communicate to Canadian law enforcement agencies should be curtailed, since the Bureau's expertise is in competition law matters, not other law en forcement areas.

A strong majority of respondents held the view that mutual assistance with foreign competition law authorities is generally in the public interest. However, support from legal and business interests was generally predicated on the mutual assistance regime having significant safeguards and limita tions. Judicial and Attorney General of Canada review was identified by some as desirable, as was consent.

There was general agreement that the full range of compulsory powers under the Act should be available to assist foreign authorities. However, a significant minority felt civil matters should be excluded from a mutual assistance regime.

Generally, commentators felt that, where a foreign competition law authority is prohibited by its legislation from providing certain categories of information, such categories of information should be also exempted from communication by the Bureau. Reciprocity was generally viewed as a sine qua non in this regard.

A number of safeguards were suggested to ensure that information communicated to a foreign authority is not used, or communicated to third parties, for purposes unrelated to the enforcement of the foreign competition law, or to private plaintiffs in competition law proceedings. Commentators also addressed themselves in some detail to other factors that should be considered in deciding whether to enter into a mutual assistance agreement with a particular foreign jurisdiction.

3. The Consultative Panel

The Panel addressed three main issues in its deliberations:

1. the general scope of confidentiality for information provided to the Director;
   
   
2. the appropriate confidentiality regime as it relates to domestic matters without an international component; and,
   
   
3. confidentiality in relation to matters involving assistance between jurisdictions.

General Scope of Protection

Currently, s. 29 of the Act imbues specified categories of information with confidentiality protection. Its protection does not, for example, cover information provided to the Bureau on a voluntary basis. Given the commercial sensitivity of information obtained by the Bureau in the administration or enforcement of the Act as well as personal privacy interests, the Panel concluded that the Act should ensure the confidentiality of all such information. Excluded from this protection would be informa tion which is public or where there is consent of parties directly affected.

The Panel found it important that compliance with the new confidentiality regime be ensured. Accordingly, it urged that a specific offence in the Act of willful communication of information con trary to the Act be created.

Domestic Matters Communication for "Administration or Enforcement" Purposes

Section 29 of the current Act excludes from confidentiality protection communications "for the purposes of the administration or enforcement" of the Act. Some members of the Panel agreed with the Bureau's assertion that the Director required some latitude within this rubric to communicate information to Canadian marketplace participants to advance an investigation under the Act. Others, however, believed that the Act should specify which communications should be permitted under "administration or enforcement". Recognizing that some members of the Panel would allow broader discretion to the Director, the Panel's consensus was that the Director should be able to engage in the following communications:

• between the Director and his staff, his agents and the Attorney General of Canada;
  
  
• to a court or the Competition Tribunal in the course of enforcement proceedings or disclosure to parties to such proceedings;
  
  
• to the target of an investigation for the purpose of settlement negotiations; and,
  
  
• where the communication is about a record, to the record's apparent author or its recipient(s) or to persons referred to in the record.

Other Authorized Communications

Section 29 of the current Act also excludes from confidentiality protection communications to Canadian law enforcement agencies. The Panel reached consensus that the Bureau should be authorized to communicate information in the following instances:

• redirecting complaint information to agencies that deal with such matters;

• notifying foreign governments pursuant to international agreements or arrangements 1; and,
  
  
• giving information to a Canadian law enforcement agency.

  The Panel's consensus is also that the Bureau should not be specifically authorized under the Act to communicate information obtained pursuant to the enforcement of the Act during interventions by the Director in proceedings under s. 125 or s. 126.

Matters with a Foreign Component

Safeguards and Public Interest Requirements

The Panel discussed the place of international cooperation in competition law enforcement and concluded that the controlled exchange of information is justified in today's interdependent world. The Panel endorsed engaging in mutual legal assistance with foreign competition law authorities on a reciprocal basis. Specifically, obtaining and sending information to a foreign jurisdiction should be authorized pursuant to mutual assistance agreements with foreign governments or competition law authorities. Such agreements should be subject to publication and a comment period before coming into force to permit public input on their provisions. To ensure that such assistance is in the Canadian public interest, a list of minimum requirements should be set out in the Act:

(i) Mutual assistance agreements must only be entered into with countries whose competition laws are substantially similar to Canada's.

(ii) Mutual assistance agreements must require reciprocity regarding the scope of assistance that will be provided by the two governments.

(iii) Mutual assistance agreements must require that the foreign party comply with any conditions imposed on the use to be made of information and its return.

Also, where the communication of information is proposed in relation to a solely foreign competition law matter, mutual assistance agreements must require this to be approved by the Minister of Justice, who could refuse such assistance if it would be contrary to the Canadian public interest.

When communicating information to foreign competition law authorities, the Panel concluded that the Act should also require that the following safeguards apply:

(i) information sent from Canada would be subject to confidentiality protection in the foreign jurisdiction which is substantially similar to that provided by Canada;

(ii) information sent from Canada would only be used for competition law enforcement purposes by the foreign competition law authority;

(iii) applicable rights or privileges would be preserved. For example, Canadian law respecting the use of compelled testimony would be recognized and applied by the receiving country. Another example would be solicitor-client privilege; and,

(iv) if a confidentiality obligation is violated, the information provider will be advised.

The Panel also concluded that there should be sanctions for breaching a confidentiality obligation. Depending on the nature of the breach, these sanctions could include the withdrawal of authority to use the information in the foreign jurisdiction and the return of the information.

Oversight Mechanisms Canadian Competition Investigations

The Panel considered at length what, if any, oversight mechanisms beyond the safeguards set out above are appropriate to ensure accountability when reliance is placed on mutual assistance agree ments for the purpose of advancing a Canadian investigation.

Some members felt that it was crucial that information obtained by the Bureau in respect of its own investigation should not be sent to a foreign jurisdiction, even where the above-noted safeguards and public interest requirements have been satisfied, without the approval of a court following a hearing on notice to the information provider and target(s) of the investigation. The basic features of such an oversight hearing would be designed so as not to be overly costly and cumbersome. This would ensure accountability of the government. Notice could be delayed until the Bureau determines the investigation would no longer be prejudiced. One suggestion in this regard would be that any hear ing before a judge would take place within 30 days of notice with no right of appeal. At the hearing, the judge could order the return of information or limitations on its use. The purpose of the judicial hearing would to be ensure that the safeguards in the law have been complied with.

On the other hand, other members felt that even this was too cumbersome a process which could result in unnecessary costs and delays with little gain in terms of protection. These members be lieved the safeguards and public interest requirements set out above, but not including review by the Minister of Justice, should be sufficient to address adequately the interests of the information provider. Review by the Minister of Justice would not be in keeping with similar practices of other Canadian law enforcement agencies.

In the end, the Panel was unable to reach a consensus on whether third party oversight, over and above the safeguards and public interest requirements, was necessary in situations where the Bureau wishes to use a mutual assistance agreement to further a Canadian investigation.

Oversight Mechanisms Solely Foreign Competition Law Matters

One final circumstance covers the treatment of information sharing relating to a foreign competition law matter, whether the information was obtained as a result of a foreign request or an investigation under the Act. It was the Panel's consensus that the Bureau should largely adopt the approach set out in the Mutual Legal Assistance in Criminal Matters Act (MLACMA ) and should seek judicial authorization to send such information to a foreign competition law authority. The notice and judi cial review regime described in "Oversight Mechanisms Canadian Competition Investigations" should be applicable for these purposes, mutatis mutandis . However, in addition, the Bureau should always give notice that it is seeking such authorization to a party that has been subject to previous formal powers at the request of a foreign competition law authority. Some members of the Panel asserted that notice should also be provided to the target(s) of the investigation, while others felt the process set out in MLACMA (notice to providers of information only) was adequate.

In addition, it was the Panel's consensus that, even in the absence of a request for information, the Bureau should nevertheless be able to seek authorization to send information in its possession to a foreign competition law authority. However, this should only be permitted if the foreign jurisdiction is prepared to reciprocate and only if the information is to be communicated to assist in respect of an ongoing foreign investigation. The Bureau should not be permitted to provide information which triggers a new foreign investigation.

In authorizing the communication of information to a foreign competition law authority, conditions could be imposed at the hearing, including those:

(i) necessary to give effect to any request;

(ii) with respect to the preservation and return to Canada of any record or thing seized; and,

(iii) with respect to the protection of the interests of third parties;

(iv) providing other protections such as limitations on use.

4. Recommendations

General Scope of Protection

1) All information obtained by the Bureau in the administration or enforcement of the Actshould be designated confidential. Excluded from this protection would be information which is public or where there is consent of parties directly affected.

2) A specific offence in the Act of willful communication of information contrary to the Act should be created.

Domestic Matters
Communication for "Administration or Enforcement" Purposes

3) The Director should further examine which communications should be permitted under the rubric of "administration or enforcement". Recognizing that some members of the Panel would allow broader discretion to the Director, the Panel's consensus was that the Director should be able to engage in the following communications:

• between the Director and his staff, his agents and the Attorney General of Canada;
  
  
• to a court or the Competition Tribunal in the course of enforcement proceedings or disclosure to parties to such proceedings;
  
  
• to the target of an investigation for the purpose of settlement negotiations; and,
  
  
• where the communication is about a record, to the record's apparent author or its recipient(s) or to persons referred to in the record.

  Other Authorized Communications

  4) The Bureau should be authorized to communicate information in the following instances:
  
  

• redirecting complaint information to agencies that deal with such matters;
  
  
• notifying foreign governments pursuant to international agreements or arrangements, subject to the confidentiality provisions in the Act ; and,
  
  
• giving information to a Canadian law enforcement agency.

  5) The Bureau should not be specifically authorized under the Act to communicate information obtained pursuant to the enforcement of the Act during interventions by the Director in proceedings under s. 125 or s. 126.

Matters with a Foreign Component

Safeguards and Public Interest Requirements

6) Obtaining and sending information to a foreign jurisdiction, where it is willing to reciprocate, should be authorized pursuant to mutual assistance agreements with foreign governments or compe tition law authorities. Such agreements should be subject to publication and a comment period before coming into force. To ensure that such assistance is in the Canadian public interest, a list of minimum requirements should be set out in the Act :

(i) mutual assistance agreements must only be entered into with countries whose competition laws are substantially similar to Canada's.

(ii) Mutual assistance agreements must require reciprocity regarding the scope of assistance that will be provided by the two governments.

(iii) Mutual assistance agreements must require that the foreign party comply with any conditions imposed on the use to be made of information and its return.

Where the communication of information is proposed in relation to a solely foreign competi tion law matter, mutual assistance agreements must require this to be approved by the Minister of Justice, who could refuse such assistance if it would be contrary to the Canadian public interest.

7) When communicating information to foreign competition law authorities, the Act should also require the following safeguards to apply:

(i) information sent from Canada would be subject to confidentiality protection in the foreign jurisdiction which is substantially similar to that provided by Canada;

(ii) information sent from Canada would only be used for competition law enforcement purposes by the foreign competition law authority;

(iii) applicable rights or privileges would be preserved. For example, Canadian law respecting the use of compelled testimony would be recognized and applied by the receiving country. Another example would be solicitor-client privilege; and,

(iv) if confidentiality obligation violated, information provider to be advised.

8) There should be sanctions for breaching a confidentiality obligation.

Oversight Mechanisms Canadian or Joint Competition Investigations

9) Having regard to the divergent views, the Director should further examine what, if any, over sight mechanisms, over and above the safeguards and public interest requirements (except review by the Minister of Justice), are appropriate when communication is proposed for the purpose of advanc ing a Canadian investigation.

Oversight Mechanisms Solely Foreign Competition Law Matters

10) The Bureau should largely adopt the approach set out in the Mutual Legal Assistance in Criminal Matters Act (MLACMA ) and should seek judicial authorization to send confidential information to a foreign competition law authority, with or without a request.

11) Applications for authorization to communicate information to a foreign competition law authority should be on notice to the information provider unless prejudicial to an ongoing investigation. In the latter case, the Bureau should give notice as soon as practicable after the investigation would no longer be prejudiced or such sooner period as the court specifies. However, the Bureau should always give notice to a party that has been previously subject to formal powers at the request of a foreign competition law authority.

12) In authorizing the communication of information to a foreign competition law authority, conditions could be imposed at the hearing, including those:

(i) necessary to give effect to any request;

(ii) with respect to the preservation and return to Canada of any record or thing seized;

(iii) with respect to the protection of the interests of third parties; and,

(iv) providing other protections such as limitations on use.

Misleading Advertising and Deceptive Marketing Practices

1. Background

The prohibitions against misleading or deceptive advertising in the Act, generally, have been effective in dealing with many aspects of this problem. However, the provisions are criminal offences. There are a number of reasons why a wider range of enforcement mechanisms would allow more appropriate and effective responses to the variety of such conduct in the marketplace:

• the criminal law process can be inappropriate to some instances of misleading advertising;
  
  
• the stigma of the criminal process may encourage an adversarial response and preclude the informal resolution of many of the cases;
  
  
• the offensive conduct can continue throughout the course of the lengthy criminal process (even where there is no undue delay);
  
  
• the evidentiary requirements of the criminal process can unnecessarily increase the costs of preparing for trial; and,
  
  
• the criminal burden of proof can be inappropriate in some circumstances of misleading advertising.

The stigma of a criminal conviction can also be too harsh a response in the case of an advertiser who has simply failed to exercise due diligence. In general, the principle of restraint should be followed in avoiding recourse to the criminal law where other, less severe, processes can be effective.

Since the 1970s, studies have suggested that criminal sanctions are an incomplete response to mis leading advertising. In June, 1988, the Parliamentary Standing Committee on Consumer and Corporate Affairs issued a unanimous report (the "Collins Report"), which recommended a series of non-criminal responses to misleading advertising. As a result, the Bureau engaged in extensive consultations culminating in the formation of a working group to develop reform proposals. On January 31, 1991, the working group submitted a unanimous report to the Director, recommending revisions to the criminal law provisions and the adoption of a non-criminal adjudication alternative before the Competition Tribunal.

2. The Public Consultations

The Bureau's discussion paper solicited comments on a number of issues on the subject of misleading advertising and deceptive marketing practices. It proposed as follows:

• a general criminal provision similar to s. 52(1)( a) and the criminal provision in s. 55.1 related to pyramid sales would continue to exist. The absence of due diligence would continue to be sufficient to support a criminal conviction.
  
  
• a single member of the Competition Tribunal would be empowered to order advertisers engag ing in misleading or deceptive practices to "cease and desist" if it were established that the advertising was materially misleading or deceptive on a balance of probabilities. Interim cease and desist orders would also be available.
  
  
• in conjunction with cease and desist orders, the Tribunal would be authorized to issue addi tional remedial orders, namely:
  
  
• restitution orders where the Bureau established that a clearly identifiable person had suf fered a readily determinable financial loss caused by the misleading advertising and that such losses were significant on an individual basis;
  
  
• orders respecting marketplace information where a restitution order would not be available but the misleading advertiser should repay the gains from such advertising by improving the quality of marketplace information; and,
  
  
• orders requiring the publication of information notices where the relevant market should be informed of the misleading nature of the earlier advertisements.

The public responses to these proposals were divided. Although most were supportive, some fa voured the status quo while others favoured complete decriminalization. Some criticized a "hybrid" (criminal/civil) regime because of concerns that the Bureau could choose the civil track but still use the threat of criminal prosecution to induce civil settlement. Other commentators felt that there would be nothing to prevent the Bureau from proceeding civilly at first, only to switch to a criminal prosecution after cooperation and information had been obtained.

Several written comments proposed safeguards in relation to these potential problems, such as specific criteria for determining when a matter would proceed by criminal prosecution; an election by the Bureau at an early stage as to which avenue would be pursued; and protection against the use of information provided civilly in a subsequent criminal prosecution.

While there was general support for the concept of "cease and desist" orders as well as interim "cease and desist" orders, many concerns were expressed about the availability of additional reme dial orders. The potential misapplication of these orders was seen as highly threatening to the reputation and goodwill of businesses. Moreover, some believed that such orders had the potential to be at least as punitive as existing criminal sanctions. Many of the submissions stressed that, if such orders were available, specific conditions should be established for their use which would encourage restraint and reduce the risk of unduly harsh consequences to advertisers.

3. The Consultative Panel

Overview

The Panel concluded that misleading advertising should be addressed through two adjudicative regimes: (1) a criminal regime for egregious cases; and (2) a civil regime. A more detailed discus sion of these regimes follows this overview. In point form, the two regimes can be summarized as follows:

Criminal Regime

• a general criminal prohibition, similar to s. 52(1)(a);
  
  
• require subjective mens rea or recklessness in egregious cases; and,
  
  
• increase in maximum fine on summary conviction to $200,000.
  
  
• ss. 55 and 55.1 would remain as current;

Civil Regime

• all of the existing misleading advertising provisions except s. 55 and 55.1 would be enacted as reviewable matters under Part VIII of the Act ;
  
  
• reviewable by a single judicial member of the Competition Tribunal, the Federal Court - Trial Division, or a superior court in a province;
  
  
• available orders would be: (1) cease and desist orders; (2) interim cease and desist orders in urgent situations involving serious harm; (3) orders requiring the publication of information notices; and, (4) civil monetary penalties the latter two only available in the absence of due diligence;
  
  
• consent matters registered with the adjudicator but not reviewed;
  
  
• intervenors not permitted; and,
  
  
• public consultations resulting in published guidelines to indicate the basis on which the decision will be made to proceed criminally or civilly.

In designing the two regimes, the Panel concluded that the onus on the government for the general criminal prohibition should be raised from strict liability to subjective mens rea(i.e. that the accused intended to act contrary to the law). The Panel viewed this as a proper balance for the lower burden of proof, the balance of probabilities, that would exist under the new civil regime.

Criminal Regime

The Panel proposed that s. 52(1)(a) be maintained as a criminal provision to deal with most egre gious cases but that it be changed by adding a subjective mens rea requirement. In the Panel's view, subjective mens rea includes intentional or knowledgeable conduct or recklessness in egregious cases. Because of the increase in seriousness which such a change from the current strict liability regime would signal, the severity of penalties upon conviction should be increased. This would be achieved by raising the maximum fine in respect of summary conviction proceedings to $200,000, in addition to the existing term of imprisonment. The new criminal regime would be available for the relatively small number of egregious cases involving misleading advertising or deceptive mar keting practices. The Panel concluded that the Bureau should publish guidelines indicating how it would exercise its discretion in deciding when a particular case warrants being referred to the Attor ney General for criminal prosecution. (See further discussion below.)

Sections 55 and 55.1 (the multi-level marketing and pyramid selling provisions) should remain unchanged as criminal offences.

The Panel observed that orders under ss. 33 (interim injunctions) and 34 (prohibition orders) would continue to be available under the criminal regime.

Civil Regime

A) Introduction

The Panel concluded that, when misleading advertising occurs, it is essential that it be stopped quickly to minimize any harm to the competitive process, including consumers, competitors and others. If an effective remedy is available to achieve this, it will also, in most cases, eliminate the need for further remedial action. These principles guided the Panel in its deliberations in this area.

The Panel had a wide-ranging discussion of various models including modifications to the current, exclusively criminal approach. In the end, it concluded that a civil regime should be established to address most instances of misleading advertising and deceptive marketing practices currently pros ecuted in the criminal courts by the Attorney General of Canada. Specifically, the misleading adver tising and deceptive marketing practices offences other than ss. 55 and 55.1 (the multi-level marketing and pyramid selling provisions) should be replaced by analogous reviewable practices provi sions. (A general provision should continue to exist under the criminal regime, as outlined above, but also be enacted under the civil regime.)

Civil misleading advertising matters should be brought before a single judicial member of the Competition Tribunal, the Federal Court - Trial Division or a superior court in a province [hereafter referred to as "the adjudicator"]. While the Panel felt that having the Competition Tribunal handle all such cases would allow it to develop a specialized expertise, it decided that enabling the Bureau to apply to the civil courts in some areas of the country where access to the Tribunal might other wise be difficult would ensure adequate regional accessibility. Recourse to an adjudicator other than the criminal courts would have a number of advantages over the current system, including: a lower evidentiary burden for the Bureau; avoidance of the harsh stigma attached to advertisers becoming involved in the criminal justice system even though they had broken the law inadvertently; faster and more efficient remedial action; and, in the case of the Competition Tribunal, an ability to de velop expertise in adjudicating such matters.

Following an inquiry into any of the misleading advertising and deceptive marketing practices reviewable matters, the Bureau would initiate proceedings in the civil regime by filing an applica tion with one of the adjudicators if grounds exist to obtain an order.

B) Cease and Desist Orders

The Panel felt that most instances of misleading advertising can be appropriately dealt with by cease and desist orders. Proof of intent should not be required to obtain such orders. The purpose here is to stop the impugned practices in the marketplace. Accordingly, once it has been established that a materially misleading representation has been made (or that another of the reviewable misleading advertising or deceptive marketing practices provisions has been breached), the advertiser should be required to cease doing so and not make substantially similar representations (or engage in substan tially similar prohibited conduct) in the future. The duration of such orders should be determined by the adjudicator up to a maximum of ten years, subject to a party's right to apply to rescind, vary or extend them where there has been a material change in circumstances.

C) Interim Cease and Desist Orders

The Panel decided that the adjudicator should also be empowered to issue cease and desist orders on an interim basis. Akin to interim injunctions, such orders should be available on notice in urgent situations involving serious harm.

The Panel shared the concerns of some of those who had made submissions regarding the availabil ity of interim cease and desist orders. While necessary, their application should be limited to the most serious cases. To obtain such an extraordinary order, the Director should be required to estab lish a strong prima facie case that the representation has breached one of the reviewable misleadi