Historical Cost of Proceedings Before the Tribunal (4)

TAB E
CANADA (DIRECTOR OF INVESTIGATION & RESEARCH) v. TELE-DIRECT (PUBLICATIONS) INC. AND TELE-DIRECT (SERVICES) INC.

E.1 Background Summary

Tele-Direct provided advertising space in a published directory as well as advertising services. On December 22, 1994, the Director filed an Application under the abuse-of-dominance, tied-selling and refusal-to-deal provisions of the Act against Tele-Direct (Publications) Inc. and Tele-Direct (Services) Inc., two subsidiaries which publish telephone directories for Bell Canada. The Director alleged that the respondents had engaged in tied selling, in that they re-quired or in-duced customers seeking advertising space in telephone directories to acquire another product, viz., telephone directory advertising services.

In this Case, the pre-Hearing proceedings were completed within eight months. The Hearing lasted a total of seventy days. The Tribunal's decision was rendered eleven months later.

The Tribunal ordered Tele-Direct to cease engaging in the practice of discriminatory anti-competitive acts against consultants and Tele-Direct customers choosing to use consultants. With respect to the tied-selling remedy, the Tribunal ordered that, in certain markets, the sale of advertising space not be tied to the purchase of advertising services. The Tribunal offered an explanation for the unusual delay in rendering its decision. It noted that "there is no doubt that this has been the most complex Case presented to the Tribunal since its inception". It consisted of five cases, each involving a multitude of sub-issues. The record tallied almost 15,000 pages of transcripts taken over seventy days; over 600 pages of written argument were submitted and oral argument took eleven days. The Tribunal's decision was not appealed.

E.2 Historical Cost Summary

The Bureau was involved in several issues with respect to this file. The issues were not separately identified by Case number and, consequently, the hours and costs recorded in the Bureau's system do not relate entirely to the investigation and prosecution of violations under Section 75 of the Act. Consequently, we attempted to identify the fiscal period in which the work was being coded to the Tele-Direct matter, as it substantially related to the issue of tied selling. The Officer who conducted the Case provided an estimate of the timing of the work on the tied-selling Case.

The estimated historical costs incurred in investigating and prosecuting the Case are summarized as follows:

E.3 Salaries and Wages of Bureau Staff

As in a number of other Cases, time sheets were not available prior to 1994/1995; consequently, we allocated the recorded time among the categories of employees who worked on the Case, based on estimates provided by the Officer. In subsequent years, our access to time sheets allowed for a more precise allocation of employee time. Based on our review of these time sheets, the Officer's time accounted for over 90% of the recorded time.

E.4 Salaries and Wages of Justice Department Staff

The cost to the Bureau of the Justice Department's involvement in the Case was determined as described in Section 3.2.2. The Case was litigated by Justice Department lawyers, with some involvement from external legal counsel.

E.5 Experts

For costs incurred during and subsequent to the 1994/95 fiscal year, CBS Reports were available and the historical cost of experts retained by the Bureau was extracted therefrom. Within the CBS Reports, dates, fees, travel expenses and other disbursements were categorized by expert and by fiscal year. CBS Reports were not available prior to the 1994/1995 fiscal year; consequently, the expenditures reported in the DSS Reports under the "Professional Services" category were used as an estimate of the cost of these services.

E.6 External Legal Counsel

The Case was litigated by Justice Department lawyers; however, one outside lawyer provided substantial legal services. We obtained the cost of his services from the CBS Reports, which we corroborated by invoices. Expenditures relating to travel and other disbursements incurred by the lawyer were tabulated from the invoices and were classified separately according to the nature of the expenses.

E.7 Travel

The CBS Reports provided a detailed breakdown of travel costs. The reports identified the individual who travelled, the amount of the disbursements, and whether these disbursements related purely to transportation or to other travel expenses. The historical costs in the reports provided the source for the cost estimates for the 1994/1995 and subsequent fiscal years. The costs taken from the DSS Reports were used for fiscal years prior to 1994/1995. Travel costs were high, because there were numerous witnesses in the Case, as well as many interviews.

E.8 Other

The CBS Reports provided a detailed breakdown of miscellaneous costs incurred in conducting the Case. The historical costs in the reports provided the source of the cost estimates for the 1994/1995 and later subsequent years. Prior to 1994/1995, the costs were taken from the DSS Reports. Transcript costs were the most material category included in "Other" costs. In addition, document reproduction costs were estimated and added to the reported "Other" costs.

E.9 Overhead

The overhead costs were estimated as described in Section 3.2.7.

Table of Contents

SCHEDULE E-1

CANADA (DIRECTOR OF INVESTIGATION AND RESEARCH) v. TELE-DIRECT (PUBLICATIONS) INC. AND TELE-DIRECT (SERVICES) INC.
SALARIES AND WAGES OF BUREAU STAFF
Title	Category	Estimated Hours Conducting the Case											Total Hours	Salaries & Wages
		1991/92			1992/93	1993/94	1994/95	1995/96	1996/97		1997/98
Manager	1	137			224	175	218	121	38		24		937	$   44,608
Officer	3	411			1,118	1,049	1,742	1,850	283		262		6,715	267,088
Officer	2	2,194			3,129	2,273	3,041	2,329	289		132		13,387	473,469
Officer	1	-			-	-	1,060	3,777	-		-		4,837	126,441
Economist	6	-			-	-	7	-	-		-		7	301
Economist	4	-			-	-	73	-	-		-		73	2,380
Programme Administrator	1	-			-	-	-	33	-		13		46	928
Administrative Services	1	-			-	-	-	30	-		-		30	630
Printing Operator	2	-			-	-	-	72	-		-		72	1,197
Clerical and Regulatory	3	-			-	-	-	62	-		-		62	931
Student	-	-			-	-	-	-	10		-		10	125
Total		2,742			4,471	3,497	6,141	8,274	620		431		26,176	$918,098

NOTE: This schedule forms part of, and should be read in conjunction with, the accompanying report.

SCHEDULE E-2

CANADA (DIRECTOR OF INVESTIGATION AND RESEARCH) v. TELE-DIRECT (PUBLICATIONS) INC. AND TELE-DIRECT (SERVICES) INC.
SALARIES AND WAGES OF JUSTICE DEPARTMENT STAFF
Title	Category	Estimated Hours Conducting the Case											Total Hours	Salaries & Wages
		1991/92			1992/93	1993/94	1994/95	1995/96	1996/97		1997/98
General Counsel	3A	306			498	390	685	933	67		46		2,925	$   167,945
Counsel	2A	204			332	260	457	622	45		31		1,951	87,795
		510			830	650	1,142	1,555	112		77		4,876	$255,740

NOTE: This schedule forms part of, and should be read in conjunction with, the accompanying report.

SCHEDULE E-3

NOTE: This schedule forms part of, and should be read in conjunction with, the accompanying report.

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TAB F
CANADA (DIRECTOR OF INVESTIGATION & RESEARCH) v. WARNER MUSIC CANADA LIMITED

F.1 Background Summary

On September 30, 1997, an Application under Section 75 of the Act was filed with the Tribunal against Warner and its two U.S. affiliates. It was alleged that the respondents were refusing to supply licences to the complainant, thereby preventing it from marketing Warner recordings in Canada through its mail-order record club. The Application requested the Tribunal to order Warner to supply their music reproduction and sales licences to the complainant.

On October 27, 1997, Warner sought to have the Application dismissed on a jurisdictional challenge. After a two-day Hearing, on December 18, 1997, the Tribunal issued an Order striking down the Application on the basis that the Tribunal lacked the jurisdiction to grant the remedy sought by the Director. The Tribunal concluded that the Copyright Act places no limit on the sole and exclusive right to licence, and that Section 75 of the Act did not grant the Tribunal the jurisdiction to issue the Order sought.

F.2 Historical Cost Summary

The estimated historical costs incurred in investigating and prosecuting the Case are summarized as follows:

F.3 Salaries and Wages of Bureau Staff

As time sheets were available for the entire period during which the Case was conducted, the allocation of the hours among the level of staff who performed the services was based upon actual, rather than estimated, figures.

F.4 Salaries and Wages of Justice Department Staff

A time-reporting system was in place during the years the Case was being conducted. The hours recorded, however, were not segregated by category of lawyer or by year. Four lawyers were involved in the Case. A member of the legal team estimated that approximately 60% to 70% of the time recorded was that of the senior lawyer. The legal time was allocated to the years the Case was conducted in proportion to the time spent by the Officer.

F.5 Experts

The CBS Reports provided us with the details of the historical costs of experts retained to assist with various aspects of this Case. Within the reports, the travel expenses and other disbursements have been segregated from professional fees.

F.6 External Legal Counsel

All legal services were provided by Justice Department lawyers; no outside legal counsel rendered services.

F.7 Travel

Travel costs incurred throughout the Case were tracked by the CBS Reports, which were used as an estimate of total travel costs. The reports segregated transportation from other travel-related expenditures and identified the individual who submitted the expenses. Travel included several return trips to Toronto and to the United States, among other travel costs.

F.8 Other

The CBS Reports provided the details of other miscellaneous expenditures incurred in conducting the Case. These included the costs of transcripts,³⁵ couriers and other miscellaneous items. Document reproduction costs were estimated and added to the "Other" cost category as described in Section 3.2.6.

F.9 Overhead

The overhead costs were estimated as described in Section 3.2.7.

Table of Contents

SCHEDULE F-1

NOTE: This schedule forms part of, and should be read in conjunction with, the accompanying report.

SCHEDULE F-2

NOTE: This schedule forms part of, and should be read in conjunction with, the accompanying report.

SCHEDULE F-3

NOTE: This schedule forms part of, and should be read in conjunction with, the accompanying report.

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APPENDIX I
EXCERPTS OF PROVISIONS OF THE COMPETITION ACT

REFUSAL TO DEAL

          "75. (1) Where, on application by the Director, the Tribunal finds that

(a) a person is substantially affected in his business or is precluded from carrying on business due to his inability to obtain adequate supplies of a product anywhere in a market on usual trade terms,

(b) the person referred to in paragraph (a) is unable to obtain adequate supplies of the product because of insufficient competition among suppliers of the product in the market,

(c) the person referred to in paragraph (a) is willing and able to meet the usual trade terms of the supplier or suppliers of the product, and

(d) the product is in ample supply,

the Tribunal may order that one or more suppliers of the product in the market accept the person as a customer within a specified time on usual trade terms unless, within the specified time, in the case of an article, any customs duties on the article are removed, reduced or remitted and the effect of the removal, reduction or remission is to place the person on an equal footing with other persons who are able to obtain adequate supplies of the article in Canada."

TIED SELLING

          "77. (2) Where, on application by the Director, the Tribunal finds that exclusive dealing or tied selling, because it is engaged in by a major supplier of a product in a market or because it is widespread in a market, is likely to

(a) impede entry into or expansion of a firm in the market,

(b) impede introduction of a product into or expansion of sales of a product in the market, or

(c) have any other exclusionary effect in the market,

with the result that competition is or is likely to be lessened substantially, the Tribunal may make an order directed to all or any of the suppliers against whom an order is sought prohibiting them from continuing to engage in that exclusive dealing or tied sell-ing and containing any other requirement that, in its opinion, is necessary to overcome the effects thereof in the market or to restore or stimulate competition in the market."

...

          "(4) The Tribunal shall not make an order under this section where, in its opinion,

(a) exclusive dealing or market restriction is or will be engaged in only for a rea-sonable period of time to facilitate entry of a new supplier of a product into a market or of a new product into a market,

(b) tied selling that is engaged in is reasonable having regard to the technological relationship between or among the products to which it applies, or

(c) tied selling that is engaged in by a person in the business of lending money is for the purpose of better securing loans made by that person and is reasonably necessary for that purpose,

and no order made under this section applies in respect of exclusive dealing, market re-striction or tied selling between or among companies, partnerships and sole proprietorships that are affiliated."

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NOTES

¹ Prior to the creation of the Tribunal in 1986, the Restrictive Trade Practices Commission ("RTPC") heard cases under the relevant provisions of the Combines Investigation Act, R.S.C. 1970, c. C-123.

² Refusal to deal. See Appendix I.

³ Tied selling. All further references herein to Section 77 relate only to the tied-selling provisions of this section within the meaning of subsection 77(1) of the Competition Act (the "Act"). See Appendix I.

⁴ R.S.C. 1985, c. C-34, as amended.

⁵ Where it was possible to estimate the historical costs associated with monitoring and enforcement activities conducted by the Bureau, these costs were excluded as they were not considered relevant for purposes of our Study.

⁶ For example, during the entire period covered by the Study, document reproduction costs were not allocated by Case.

⁷ Under the accrual basis, expenditures are recognized in the accounting period in which the liability is incurred, if measurable, regardless of whether the expenditure has actually been paid.

⁸ For one of the earlier Cases, the hours coded to the Case were not allocated by fiscal year. The Bureau's fiscal year end is March 31.

⁹ Tele-Direct and Warner were the only Cases that were conducted in 1994/1995 and subsequent fiscal years. Summarized time sheets were not available prior to this period.

¹⁰ In one Case, the Manager provided the estimate.

¹¹ Each employee is assigned a title, category and level (e.g., Officer, Category # and Level #). The category and level of the employee determines his or her salary range.

¹² This is because promotions from one level to another within a given employee category are generally granted annually at the early levels, but not necessarily at the higher levels within a category. Furthermore, promotions from one employee category to another are relatively difficult to obtain. The result is a disproportionate number of employees being at the higher levels within a category.

¹³ Employer-paid benefits vary by employee based upon their respective employee category, seniority and the particular benefits package. A rate of 14% of gross salary was used as an approximation of employer-paid benefits.

¹⁴ For example, there was a salary increase for Officers effective December 22, 1987 and December 22, 1988. For Officers' hours recorded during the 1988/1989 fiscal year, the rates in force on December 22, 1987 were used to cost all of the hours recorded by such category in 1988/1989.

¹⁵ Each lawyer is assigned a title, category and level. The category and level of the lawyer determines his or her salary.

¹⁶ A lawyer from the Competition Law Division of Industry Canada provided schedules detailing, by Case, the estimated number of hours worked, by category of lawyer and the applicable salary ranges (as provided by the Treasury Board of Canada).

¹⁷ In several instances, one lawyer provided the time estimates for the entire legal team which litigated the Case. In the NutraSweet Case, the Bureau Manager provided a time estimate for the lawyers, as his estimates were considered more reliable.

¹⁸ In this Case (the Chrysler Case), the senior lawyer provided a breakdown of his time by the above-noted phases of activity (see Section 4 above), viz., prior to the filing of the Application, time spent between the acceptance of the Application and the Hearing, and hours worked during the Hearing

¹⁹ In Chrysler, the senior lawyer's hours were allocated to the fiscal years when the above-noted phases took place. The junior lawyer's time was then allocated to the years the Case was litigated on a pro-rata basis with the senior lawyer.

²⁰ Employer-paid benefits vary by lawyer based on their category, seniority and particular benefits package. A rate of 13.5% of gross salary was used as an approximation of employer-paid benefits.

²¹ In the DSS Reports, the financial data were classified into the following categories: (a) Professional Services, (b) Legal, (c) Travel and (d) Other.

²² The transfer of the estimated external legal counsel fees from "Professional Services" to "External Legal Counsel" was based on the assumption that these costs were included in the DSS Reports under "Professional Services".

²³ The Bureau also pays travel expenses for its own witnesses.

²⁴ In the CBS Reports, travel costs incurred by professionals were separately identified.

²⁵ The Project Manager, Fee Service Standards, Compliance and Operations Branch of the Competition Bureau, informed us that a cost of 5¢ per copy was reasonable for the years encompassed by the Study.

²⁶ The cost objects for the purpose of this Study are the respective Cases.

²⁷ A "cost driver" is defined as any factor whose change causes a change in total cost of a related cost object (cost of conducting Cases). The number of hours conducting Cases has been identified as the cost driver of the quantum of overhead costs incurred.

²⁸ The Civil Branch is responsible for conducting Cases before the Tribunal.

²⁹ Based upon information provided by the Bureau, there are 260.88 working days per annum, with 7.5 hours per day.

³⁰ Estimated cost of a return flight was $325. This amount was based on the assumption that the majority of the witnesses were from the Toronto region, and that $325 is a reasonable approximation of the cost of an economy-fare round trip.

³¹ It was estimated that one day's expenses, including meals and accommodations, would be approximately $175.

³² No costs were classified as "Legal" costs in the DSS Reports; consequently, it was assumed that the cost of the external legal counsel's service was included in the "Professional Services" category in the DSS Reports.

³³ Various categories of employees worked on this Case. The net effect of their hourly salaries was best approximated by a category 2 Officer salary.

³⁴ The Officer estimated that the Bureau had nine or ten witnesses in this Case.

³⁵ Transcript costs were minimal because there was no Hearing. The costs included transcripts of the pre-Hearing before the Tribunal.