Annual Report 1995/96 - The Bureau's Year In Review

Industries in Transition - A continuing Bureau priority

In last year's Annual Report, we reported on the considerable changes taking place in sectors moving from a heavily regulated environment to a competitive one. While telecommunications continues to be one of the most visible and active of these sectors, others, notably energy and finance, have not been quiet.

Bureau activity in these markets often consisted of submissions to proceedings of the Canadian Radiotelevision and Telecommunications Commission (CRTC), applications to the Competition Tribunal or participation in hearings by regulatory bodies, for example. Here are some of the highlights of our activities in this area.

Telecommunications

Teleglobe Mandate Review Submission

In December 1995, the Director filed a submission with the CRTC in respect of the Government's review of Teleglobe's monopoly mandate. The Director advocated the removal of TeleGlobe's monopoly status and relaxation of restrictions on traffic by-pass and foreign ownership.

Tele-Direct

An application was made to the Competition Tribunal on December 22, 1994, alleging tied selling and abuse of dominance in the publication of classified telephone directories and involves Tele-Direct (Publications) Inc. and Tele-Direct (Services) Inc., subsidiaries of Bell Canada Enterprises. The Director alleges that the tying of advertising services to advertising space by the Tele-Direct companies has prevented advertising agencies from competing for the advertising services business of advertisers in a substantial part of the market. Other practices are alleged to be anti-competitive acts which have an exclusionary effect on advertising agencies, advertising consultants and competing telephone directory publishers. The hearing commenced on September 5, 1995, and concluded in March 1996. A decision from the Tribunal was pending at year end. ⁽¹⁾

Local Phone Submission (crtc 95-36)

The Director filed a written submission with the Canadian Radiotelevision and Telecommunications Commission (CRTC) on January 26, 1996. This is part of a series of proceedings with respect to opening local telecommunications markets to competition. The Director advocated maximum reliance on market forces for the provision of local telecommunications services, minimized regulation and the adoption of competition policy principles in respect of competitive safeguards.

Rebalancing Local and Long Distance Telephone Rates (CRTC 94-58)

The Director filed a written submission with the Canadian Radio-television and Telecommunications Commission (CRTC) on February 20, 1995, with respect to its request for comments on Telecom Decision CRTC 94-19 (Regulatory Framework Decision). In that decision the CRTC concluded that for meaningful regulatory telecommunications reform to proceed and to ensure competitive markets, a program of rate rebalancing is required. As a first step, it proposed a six dollar per month total increase in local residential telephone rates to be phased in with two dollar monthly increases over a three -year period commencing January 1, 1995. These local rate increases were to be offset by reductions in basic long distance telephone rates targeted at low volume residential and small business customers. The effect would be to raise local residential telephone rates and thereby reduce the subsidy directed from long distance services towards the recovery of the costs of providing residential subscribers with access to the public switched telephone network.

In his submission the Director supported the Commission's decision to embark upon the process of rebalancing local and long distance telephone rates. He stressed the benefits of economically efficient pricing and the importance of moving forward on a timely basis to strengthen competition in long distance markets and to stimulate the introduction of competition into local telecommunications services. He further argued that rate rebalancing is an effective and appropriate step to facilitate the Commission's regulatory reforms designed to adapt the existing regulatory framework to technological change and to the convergence of the telephone, cable television, broadcasting and computer industries.

Stentor

On February 22, 1996 the Director announced that there were insufficient grounds to proceed with an application to the Competition Tribunal under either the merger or abuse of dominance provisions of the Competition Act with respect to Stentor, the alliance of major Canadian telephone companies.

The examination resulted from concerns about the Stentor arrangements and their effect on competition in telecommunications markets. While the Stentor Alliance facilitates a fully interconnected national telecommunications network among its nine member companies and enables them to offer customer services on a national and regional basis, these arrangements also constrain the telephone companies from entering into competition with one another. Ultimately, these concerns were tempered by evidence of competitive entry into long distance markets and significantly declining rates for long distance services since the Canadian Radio-television and Telecommunications Commission opened the door for facilities based competition in 1992.

The Competition Bureau will continue to closely follow the future activities of Stentor in respect to long distance services and the emerging market for competitive local telecommunications and broadband services to safeguard the competitive process as telecommunications industries move from a regulated to market competition environment.

Radio Station Intervention (crtc 1995-204)

The CRTC has initiated a proceeding to examine its treatment of cooperative radio station management agreements. The Commission has approved a number of such agreements pursuant to the Broadcasting Act. The Director filed written comments with the CRTC in its proceeding, drawing attention to the competition issues arising out of these arrangements.

Electrical Sector

In the area of regulatory interventions, the electricity sector was an important focus of the Bureau's competition advocacy work during the year. The Bureau participated in two major reviews of the scope for pro-competitive reforms that were conducted at the provincial government level: the British Columbia Utilities Commission Electricity Market Structure Review, mentioned in last year's report; and a subsequent in depth study by an ad hoc Advisory Committee on Competition in Ontario's Electricity System. In its submissions to these review bodies, the Bureau put forward a case for major market-opening reforms as the most effective means for ensuring efficient and low-priced electricity supply in the respective provinces.

The Bureau's submissions incorporated a number of recommendations relating to elements of market structure and regulation in the electricity sector. These pertained to such matters as: (i) the structural requirements for effective competition among generators; (ii) the potential adoption of competition at the retail distribution level; (iii) the appropriate relationship between regulation and competition law disciplines; (iv) ways to ensure competing electricity suppliers of equal access to transmission and distribution facilities; and (v) mechanisms for ensuring the reliable and efficient operation of electricity systems under competition.

The report of the B.C. Utilities Commission, released in September 1995, endorsed key views expressed in the Bureau's submissions. In particular, it supported the adoption of wholesale competition where generators would compete to supply distribution utilities. Under this market structure, a competitive power pool would be created into which generators would bid electricity, generation assets would be transferred to separate corporations from those holding transmission and distribution assets, and B.C. Hydro's generating assets, where feasible, would be divested.

At year end, the report of the Ontario Advisory Committee was pending. (2)



Financial Institutions

Interac

On December 14, 1995, the Director filed an application under section 79 of the Act for a consent order under section 105. The Draft Consent Order filed with the application was designed to restore competition in the Canadian shared electronic network services market. The Director's inquiry had determined that the actions taken by the Interac Association and its Charter members constituted an abuse of a dominant provision contrary to section 79 of the Act. Under the terms of the proposed order, the by-laws of the Interac Association will be changed to allow non-financial institutions to become members in the Association. The Director believes that this will increase the number of direct and indirect participants on the system and provide for greater competition in the provision of these network services. The hearing began on March 4, and continued into April. Four parties have been granted leave to intervene before the Tribunal to provide their views on the effectiveness of the proposed resolution to restore competition. (3)

1997 Financial Markets Legislation Review

In response to the Department of Finance requesting input to the 1997 Financial Markets Legislation Review, the Director provided his views on competition policy related issues in February 1996, and the Bureau expects to continue to participate in the ongoing review.

Other Interventions and Civil Matters

Insurance Corporation of British Columbia (ICBC)

In July 1995, the Director announced that he had received undertakings from the ICBC in which it agreed to change certain policies that had raised questions under the Act. The undertakings, which include changes to ICBC's Autoplan agents commission structure, alleviate concerns under the abuse of dominant position and exclusive dealing provisions of the Act.

During the course of the Bureau's investigations into this matter, ICBC voluntarily adopted a new commission scheme that addressed concerns under the Competition Act. ICBC also discontinued using restrictive agency agreements which the Director viewed as being potentially anti-competitive.

Canada Post Mandate Review

The Government appointed Mr. George Radwanski to consider Canada Post's mandate. The review includes Canada Post's business activities in competitive markets. The Director filed a written submission with the Mandate Review panel on February 15, 1996. The submission suggested removing Canada Post's monopoly over mail delivery and recommended reduced regulation in services provided by Canada Post if its statutory monopoly over first class mail is maintained. The Director also recommended that Canada Post be authorized to take the necessary measures to deter the use of postal services for deceptive marketing solicitations.

Public hearings began in Vancouver in March of 1996.

Law Society Of Upper Canada (LSUC)

In November 1994, the Director received a six resident application alleging that the Law Society's compulsory negligence claims insurance scheme for its members precludes them from purchasing insurance in the open market and therefore constitutes an abuse of a dominant position contrary to section 79. In May 1995, the LSUC filed a motion in the Ontario Court of Justice (General Division) for an order preventing the Director from making further inquiries into this matter on the grounds that it was outside the scope of the Competition Act. The motion was heard during November 1995. (4)

Sugar Dumping

During the early part of the year, the Canadian Sugar Institute, on behalf of the Canadian sugar refiners Redpath, Lantic and B.C. Sugar, filed a complaint with Canada Customs and Revenue Agency alleging sugar dumping from the U.S. and subsidization by certain European countries. Canada Customs and Revenue Agency's Preliminary Determination finding dumping and subsidization was issued on July 7, 1995, and on the same day the Canadian International Trade Tribunal (CITT) began a Material Injury inquiry under the Special Import Measures Act.

On November 4, 1995, the CITT found threatened injury. The Director then made a submission under Section 125 of the Competition Act stating that the CITT should conduct a further public interest inquiry, and arguing that the public interest in competition, as expressed in the Competition Act, should be considered.

On January 8, 1996, the Tribunal issued its decision finding that there were grounds to hold a public interest investigation, and referred to factors such as the "limited number of domestic refiners" and "the nature of competition in the Canadian market." Public hearings were held between February 27 and March 1, and included the testimony of a Bureau economist whose paper had been part of the Director's submission.

The decision was expected to be issued on April 4, 1996.

A.C. Nielsen Company of Canada

As reported in last year's Annual Report, an application under the abuse of dominant provisions of the Act was filed with the Competition Tribunal on April 5, 1994. A favourable decision was rendered on August 30, 1995. The Tribunal made an order which, among other things, prohibits Nielsen from enforcing its existing exclusive contracts with retailers and from entering into future contracts which require or induce retailers to provide scanner data only to Nielsen. The order also allows manufacturers more flexibility in terminating their contracts with Nielsen without having to pay a penalty or lose a discount for early termination. Information Resources Inc. (IRI) and Nielsen agreed to accept the clause concerning historical data as proposed by the Tribunal. On September 26, 1995, the Tribunal issued the order regarding historical data, permitting others to have access to it. The 30-day appeal period ended September 29, 1995.

Enforcement of the Act's criminal provisions is one of the keys to its effectiveness

The Competition Bureau has always recognized that the Competition Act is an effective instrument of Canada's economic policies. It strives for a healthy, competitive marketplace not only by ensuring that businesses are aware of its provisions, but also by recommending prosecutions and seeking penalties that will be a deterrent to non-compliance.

A few examples of significant cases dealt with under the criminal provisions of the Act during 1995-95 follow.

Canada Pipe Company

On September 27, 1995, the Federal Court in Toronto convicted and fined Canada Pipe Company Limited $2.5 million for one conspiracy charge under paragraph 45(1)(c) of the Competition Act, the largest fine ever imposed for a single charge under the Act. The Hamilton, Ontario company pleaded guilty to arranging with one of its competitors to prevent or lessen competition unduly in the sale of mid-size range ductile iron pipe in Canada. The offence covered the period from January 1990 to September 1990, and the competing firm was U.S. Pipe and Foundry Company of Birmingham, Alabama. A prohibition order was also imposed against Canada Pipe by Mr. Justice McKeown of the Federal Court. (5)

Freight Forwarders

On January 9, 1995, the Crown proceeded to trial in Toronto before the Ontario Court, General Division, against five pool car freight forwarding companies: Clarke Transport Canada Inc., Consolidated Fastfrate Transport Inc., Cottrell Transport Inc., TNT Canada Inc., and Trans Western Express a division of Northern Pool Express Ltd. One charge had been laid against these companies under the conspiracy provision (s.45) of the Competition Act. It was alleged that the pool car freight forwarders had conspired illegally to fix prices for the provision of pool car freight forwarding services in the Toronto to western Canada market over the period 1976 to 1987.

On November 9, 1995, Mr. Justice Moldaver acquitted the five companies. (6)

La Boutique L'Ensemblier Inc./Boutique Le Pentagone Inc./Boutique Vagabond Inc.

On October 16, 1995, La Boutique L'Ensemblier Inc., Boutique Le Pentagone Inc. and, Boutique Vagabond Inc. pleaded guilty to several charges under subsection 61(6), the price maintenance provision of the Act. These firms are involved in the retail clothing industry in Rimouski in the province of Quebec. A fine of $20,000 was imposed on each company for a total fine of $60,000. In addition, the court issued a prohibition order under subsection 34(1) against each company.

Mr. Gas Limited

On August 11, 1995, Mr. Justice David Dempsey of the Ontario Court (Provincial Division) found Mr. Gas Limited guilty of having influenced upward, by threat, the prices charged by one of its competitors, Caltex Petroleum Inc., in September 1992, in the Ottawa area. Mr. Gas Limited was acquitted of nine other charges.

On January 26, 1996, Mr. Gas Limited was fined $50,000. Mr. Gas Limited filed a notice of appeal against its conviction and the fine on February 23, 1996.

Rittenhouse Ribbons & Rolls Ltd.

On December 18, 1995, Rittenhouse Ribbons & Rolls Ltd. was convicted and fined $98,000 in the Federal Court, Trial Division, in Toronto for attempting to induce a supplier of thermal facsimile paper to cut off supplies to a Vancouver distributor, because of the latter's low pricing policy.

The company pleaded guilty to one charge under subsection 61(6) of the Act. The illegal conduct involved pressure placed on a supplier by Rittenhouse Inc., a large American converter of fax paper which is also the parent company of Rittenhouse Ribbons & Rolls Ltd. The offense involved firms in Canada, the United States, Japan and Hong Kong.

This is the third conviction and fine obtained in the thermal fax paper inquiry, which is part of an ongoing joint investigative effort undertaken by the Competition Bureau and the U.S. Department of Justice (Antitrust Division).

Association Québecoise des Pharmaciens Propriétaires (AQPP)

On May 12, 1995, l'Association Québécoise des Pharmaciens Propriétaires, le Groupe Jean Coutu (PJC) Inc., McMahon Essaim Inc., les Magasins Koffler de l'Est Inc.(Pharmaprix), Famili-Prix Inc., Pharmacentres Cumberland (Merivale) Ltée and Uniprix Inc. pleaded guilty to a charge of conspiracy under paragraph 45(1)(c) of the Competition Act. The case involved cash sales of birth control pills and prescription narcotics, including the dispensing fees, in the province of Quebec in 1988.

At the same time, the Court imposed an order under subsection 34(2) of the Act against Messrs. Jean-Guy Prud'Homme, Guy Lanoue, François-Jean Coutu, Pierre M. Bossé, Guy- Marie Papillon, Michel Lesieur and Claude Gagnon who held senior management positions in the AQPP or one of the convicted corporations at the time of the offence. The order specifically prohibits them from doing anything directed toward the repetition of the acts mentioned in the information filed by the Attorney-General.

On May 19, 1995, Madame Justice Ginette Piché of the Superior Court of Quebec imposed a fine of $2 million, as follows: AQPP, $1,107,500; Le Groupe Jean Coutu (PJC) Inc., $289,500; McMahon Essaim Inc., $75,000; Les Magasins Koffler de l'Est Inc., $97,500; Famili-Prix Inc., $135,000; Pharmacentres Cumberland (Merivale) Ltd., $76,500; and Uniprix, $219,000.

Compressed Gas

Mr. T. John Tindale, the former President of Canadian Oxygen, was committed to stand trial in December, 1994, on one count under paragraph 45(1)(c) of the Act, for his involvement in a conspiracy relating to the supply of bulk compressed gas in Canada. A trial date was set for October 7, 1996.

In addition to the various criminal prosecutions in this case, on May 21, 1995, a Notice of Motion returnable in the Supreme Court of British Columbia was served on the Director by certain parties pursuing private actions under section 36 of the Act against various companies and individuals. The Motion asks for access to the seized documents in the Director's possession which relate to the issues in the private actions.

Wainwright Bus Transportation

On July 23, 1995, Bison Bus (1985) Ltd. was convicted on two counts of bid-rigging under subsection 47(2) of the Act. The charges relate to two tenders called by Supply and Services Canada for the provision of charter bus services to transport military personnel in Wainwright, Alberta. Bison Bus was fined $2,500 for each count.

Restructured Marketing Practices operation demonstrates success

In keeping with its initiative of reorienting the activities of the Marketing Practices Branch towards cases of higher economic impact, the Bureau obtained fines of $200,000 in the K-Mart case, $100,000 in the Dalfens case, and $300,000 against Suzy Shier. (7)

Marketing Practices Branch also completed several inquiries under the new section 55, and referred four to the Attorney General of Canada for prosecution.

During the next fiscal year, Marketing Practices will be focussing on complaints involving telemarketing, direct mail and the telecommunications industry.

Hudson's Bay Company

On June 16, 1994, charges under paragraph 52(1)(a) and 52(1)(d) (misleading representations and ordinary price claims) were laid against the Hudson's Bay Company, its President, N.R. (Bob) Peter and its Vice-president Merchandising, Robert Norris. The charges relate to advertising practices that occurred between April 1, 1989, and February 28, 1991. The preliminary inquiry was scheduled to be held from May 27 to June 28, 1996.

Mary Kay Cosmetics Ltd.

On February 5, 1996, a total of six charges were laid against Mary Kay Cosmetics Ltd. under section 55 of the Act (multi-level marketing schemes). The charges involve representations relating to compensation made by the company with no accompanying disclosure of income earned by a typical participant in the plan, as required by section 55. On February 26, 1996, the company appeared in Ottawa provincial court and pleaded not guilty. The matter was put over to August 8, 1996, for a preliminary inquiry.

Merger activity continues to grow

Merger activity on both a Canadian and North American scale, both in terms of the number and economic value of transactions, is greater now than in the so called "merger boom" of the late 1980s and early 1990s. The total number of merger examinations commenced during the fiscal year increased by 18 percent over the 1994-95 fiscal year, from 193 to 228. The first application under section 92 of the Act in almost six years was filed with the Competition Tribunal in respect of the Seaspan International Ltd. and Norsk Pacific Steamship Company, Limited matter.

Dennis Washington and K&K Enterprises / Seaspan International Ltd. and
Dennis Washington / Norsk Pacific Steamship Company, Limited

On March 1, 1996, the Director filed an application with the Competition Tribunal with respect to two mergers. The application opposes both the October 1994 merger whereby Mr. Dennis Washington, the owner of C.H. Cates & Sons Ltd., indirectly acquired a significant interest in Seaspan International Ltd. and the June 1995 merger whereby Mr. Washington purchased Norsk Pacific Steamship Company, Limited.

The application alleges that the mergers prevent or lessen, or are likely to prevent or lessen, competition substantially in the provision of tug boat services used to berth ships in the Port of Vancouver, and in the provision of barging services in and around British Columbia's coastal waters.

Southam Inc./Lower Mainland Publishing Inc.

On August 8, 1995, the Federal Court of Appeal released two judgments relating to Competition Tribunal decisions in the Southam/Lower Mainland Publishing matter. In the first, the Federal Court of Appeal granted the Director's appeal, concluded that community newspapers and daily newspapers were in the same product market, and remitted the matter back to the Tribunal to determine whether these acquisitions substantially lessened competition within the relevant markets.

The second Federal Court of Appeal judgment dealt with Southam's appeal from the Competition Tribunal's December 10, 1992 remedies decision. The Tribunal had ordered Southam to divest itself of either the North Shore News or the Real Estate Weekly in order to address a substantial lessening of competition in the print real estate advertising market in the North Shore of Vancouver. The Federal Court of Appeal dismissed Southam's appeal and concluded that the Competition Tribunal's judgment as to the effectiveness of the alternative remedies proposed by the parties was "unassailable".

Southam sought leave to appeal these decisions to the Supreme Court of Canada, and on February 8, 1996, Southam was granted such leave. The matter is scheduled to be heard by the Supreme Court of Canada on November 25, 1996.

Ultramar Canada Inc.

In February 1990, the Competition Tribunal issued a Consent Order requiring Imperial Oil Limited to divest the Atlantic assets of Texaco Canada Inc. acquired in 1989. In September 1990, Ultramar Canada Inc. acquired the Atlantic assets of Texaco Canada Inc., subject to an undertaking to the Director that it would continue operation of the Dartmouth refinery for a minimum of seven years, barring a material adverse change. In the event of a material adverse change, Ultramar was obliged to provide the Director with 90 days' notice before taking any action affecting the continued operation of the refinery.

On October 25, 1993, Ultramar provided a second undertaking to the Director requiring that, in the event that it provided the required notice of material adverse change, it would "provide to the Director evidence establishing whether there is any reasonable, legitimate continuing interest on the part of a viable party in maintaining the refinery as an operating business in Canada."

Pursuant to the undertaking of September 24, 1990, Ultramar provided notice of material adverse change to the Director on May 10, 1994. The Director commenced an examination of the circumstances surrounding this decision and on July 19, 1994, issued a memorandum and supporting material setting out his initial views on the issue of material adverse change and seeking the views of interested parties on the issue.

On September 2, 1994, the Attorney General of Nova Scotia initiated an action in the Federal Court of Canada seeking an order of prohibition against the Director on grounds of reasonable apprehension of bias. A subsequent action by the Attorney General of Nova Scotia, commenced in October 1994 sought mandamus against the Director for allegedly failing to enforce the undertakings provided by Ultramar. These two actions were heard jointly by the Court and a decision was issued on August 31, 1995. The decision found there were no grounds to make either an order of prohibition or mandamus against the Director. In the view of the Court, the process used by the Director and the actions taken were reasonable and within the discretion available to the Director under the Act.

After an extensive examination of the matter and after resolution of litigation pursued by the Attorney-General of Nova Scotia, the Director determined that there had been a material adverse change and that continued operation of the refinery pursuant to the undertaking was not required. The Director also concluded in December 1995 that Ultramar had satisfied its undertakings of October 1993 to establish that there was no continuing interest in purchasing the Dartmouth, N.S. refinery as an ongoing operation.

The Atlantic Oil Workers Union sought leave from the Federal Court of Canada to file a motion for judicial review of the Director's decision, notwithstanding the expiry of the time period allowed by the Federal Court Rules within which such motions must be filed. The hearing for the application for extension was heard in the Federal Court (Trial Division) in February 1996, and further written submissions were made by both Ultramar and the union in early March 1996. At the end of the fiscal year, the Court's decision was pending.

^1. A Decision on this matter was issued by the Competition Tribunal on February 26, 1997.

^2. The Final Report of the Ontario Advisory Committee was released in May 1966. Please see CompAct Issue 3 for details.

^3. The decision of the Tribunal in this matter was rendered in June 1996, and is discussed in detail in CompAct, Issue 2/April-June 1996.

^4. The Court's decision and a discussion of this case may be found in CompAct, Issue 2/April-June 1996.

^5. A more detailed discussion of this case may be found in CompAct, Issue 1/1996.

^6. A more detailed discussion of this case may be found in CompAct, Issue 1/1996.

^7. Details on the K-Mart and Dalfens cases may be found in the Misleading Advertising Bulletin, 1/2 - 1995, and on the Suzy Shier case in 3 - 1995.