A Digital Revolution? Highlights of the Competition Bureau’s Submission to Competition Act Reform Consultation Process
On February 8, 2022, the Competition Bureau of Canada (the “Bureau”) released a lengthy and substantive reform submission in response to a consultation process initiated by Senator Howard Wetston regarding the efficacy of the Competition Act (the “Act”) in the digital era, which is intended to inform future parliamentary consideration of the Act.
The Bureau’s submission comes on the heels of an announcement by the Minister of Innovation, Science and Industry (the “Minister”) - whose department has responsibility for the Act - of the federal government’s intention to evaluate potential ways to improve the operation of the Act. Calls for reform are in line with certain other jurisdictions, notably the current U.S. administration’s announced intention to tackle digital and social media giants, as well as legislative developments and proposals in European Union, the United Kingdom and Australia, aimed at adapting competition enforcement tools to online commerce.
Building Momentum for Reform
It has been thirteen years since the last major competition policy debate in Canada led to a significant overhaul of the regime. Since then the rapid evolution of digital market has underpinned both the Bureau’s enforcement focus and advocacy for reform. This has recently resulted in a settlement with Facebook, ongoing investigations into Amazon and Google, and the creation of a new Digital Enforcement and Intelligence Branch of the Bureau.
This is consistent with a current political sentiment towards reform. For instance, the Commissioner of Competition (the “Commissioner”), Matthew Boswell, advocated for wholesale reform, highlighting the need for new policies that put competition at the heart of economic growth in digital markets. Similarly, the Prime Minister’s December 2021 mandate letter to the Minister instructed him to undertake a broad review of the Competition Act in order to identify any areas of the regime in need of modernization, in particular to address anticompetitive conduct in the increasingly digitalized economy. Shortly thereafter, on February 7, 2022, the Minister announced the federal government’s intention to review the Competition Act with a focus on, among other items, adapting the law to today’s digital reality to better tackle emerging forms of harmful behavior in the digital economy.
Key Takeaways from the Bureau’s Submission
The Bureau’s reform recommendations are centered around four key elements: (1) more efficient merger review and remedies, (2) addressing the Bureau’s constraints to administer the Act efficiently, (3) increased prevention of anticompetitive competitor collaborations and (4) expanding the scope of the abuse of dominance provisions of the Act. While not focused specifically on digital markets, protecting competition in an increasingly digitized economy is an overarching theme.
Efficient Merger Review and Remedies
- Elimination of the efficiencies defence: s. 96 of the Act prevents the Competition Tribunal from issuing a remedial order where doing so would eliminate efficiency gains that are likely to be greater than and offset the competitive harm from the merger. Citing the approach of foreign regulators, and referring to the fact that the defence will be increasingly problematic to apply in the digital economy where an efficiencies analysis would likely rely heavily on qualitative as opposed to quantitative methods, the Bureau recommends that the efficiencies defence be removed and that efficiencies be instead included as a factor for consideration in assessing a merger. This would bring the consideration of efficiencies into closer alignment with other jurisdictions.
- Incorporating Structural Presumptions for Concentrative Mergers: To limit the resources invested by the Bureau in concentrative mergers (i.e. significantly increasing competition), the Bureau advocates for the enactment of structural presumptions that would shift the burden onto merging parties to prove why a concentrative merger would not substantially lessen or prevent competition. Currently the Competition Act provides that the Competition Tribunal cannot issue an order only on the basis of market shares or concentration levels alone.
- Review of Injunction Standards: 104 of the Act allows the Competition Tribunal to issue interim orders to protect competition while a merger is being contested. However, the Bureau notes that timing pressures and the high evidentiary burden (stemming from its experiences in Secure/Tervita) have established a high bar for injunctive relief, calling into question the practicality of this provision. As such, the Bureau calls for a more workable standard for obtaining interim relief to protect competition until a merger can be fully litigated.
- Other merger-related recommendations: The Bureau also calls for amendments to:
- Ensure that remedies preserve the pre-merger state of competition (rather than remediate the substantiality of any harm to competition, which is the current legal standard);
- Extend the limitation period on challenges of mergers from one year to three years to allow a more substantial number of non-notifiable mergers to be reviewed (although the extended limitation would apply to notified mergers as well); and
- Close “loopholes” in pre-merger notification such as requiring that all sales made by the target into Canada be included in the calculation of whether the size of the target exceeds the applicable threshold (currently, only the target’s assets in Canada or revenues from sales in and from Canada generated from those assets are taken into account), and requiring notification of related transactions occurring in series and of non-corporate joint ventures (which are currently largely exempt from notification).
Bureau’s Constraints in Administering the Act
- Civil Information Gathering Powers: Citing a difficult and time consuming process for obtaining a subpoena to compel oral testimony, or the production of records or written returns, the Bureau advocates for the ability to compel information in civil matters without judicial authorization.
- Increased Penalties: As they exist, the fixed-amount administrative monetary penalties (“AMPs”) and criminal fines under the Act are, in the Bureau’s view, not high enough to deter anticompetitive conduct by multi-billion dollar businesses. As such, the Bureau advocates for more flexible penalties that can exceed the profits earned from engaging in abusive or anticompetitive conduct.
- Speed and Cost of Litigation: To address constraints faced during litigation, the Bureau calls for simplifying and accelerating the litigation process while maintaining procedural fairness, and for the Commissioner’s immunization against cost awards.
Increased Prevention of Competitor Collaborations
- Criminalize buy-side conspiracies: The Bureau’s submission reiterates the call made in other fora by the Bureau for the explicit ability to criminally prosecute certain buy-side conspiracies, including wage-fixing and no-poaching agreements.
- Limiting the “made-known” defence approach to joint bidding: Where a person requesting a bid or tender is informed about an agreement among bidders at or before the time of submission, there is no violation of the bid rigging offense under the Act. The Bureau proposes limiting the defence to the situation where competitors are submitting a single joint bid (excluding its application to multiple bidders submitting multiple bids subject to an agreement).The Bureau also advocates for shifting the burden to the accused to raise a proposed “made-known” defence, rather than requiring the Crown to demonstrate that the joint bid was not disclosed.
- Civilly-reviewable competitor collaborations: The Bureau advocates for an overall strengthening of the civil competitor collaboration provisions including an expansion of available remedies to include prescriptive remedies and AMPs, the ability to address past agreements and past harm, the elimination of the efficiencies exception, a notification mechanism for pharmaceutical patent litigation settlement agreements, and the introduction of a private access right for competitor collaborations. Taken together, these suggested reforms substantially increase potential liability for non-criminal competitor collaborations in Canada.
Expanding the Scope of Abuse of Dominance Provisions
- Broader Focus: The Bureau’s submission advocates for a broadening of the current definition of abusive conduct, which presently must be directed at a competitor, with the intent to be predatory, exclusionary or disciplinary; in the Bureau’s view the provision should capture conduct that harms the competitive process or competition overall, even if it is not directed at a specific competitor.
- Private Access: Given Bureau resource constraints, the Bureau’s submission proposes the introduction of a right of private access before the Tribunal for abuse of dominance cases to supplement the regulator’s enforcement activity.
- Acquisitions of Emerging Competitors: To prevent “killer acquisitions”, the Bureau advocates for a more workable standard to establish anticompetitive effects under the merger review, abuse of dominance, and competitor collaboration provisions where an emerging competitor is still developing products and, as such, the evidentiary burden of the likelihood, timeliness and materiality of new entry or expansion is difficult to meet.
- Deceptive Marketing: To enhance enforcement of deceptive marketing practices, the Bureau advocates for the explicit recognition within the Act of the harmful effects of drip pricing and a reverse onus on advertisers under the ordinary selling price provisions to demonstrate the authenticity of a sale claim; however, the recommendations are otherwise silent about broader deceptive marketing concerns in digital markets.
The Bureau’s submission reflects the concerns, based notably on recent experiences, previewed by Commissioner Boswell as creating an “urgency to re-examine our laws”, and goes beyond the Act’s ability to address competition in digital markets. While the time may have come for a revamping of the Act, Senator Wetston’s consultation process presents only a starting point for discussion. The potentially significant impact of broad reform on competitive behavior and the Canadian economy more generally must be carefully assessed with the benefit of a thorough consultation process involving Canada’s business community and other key stakeholders.
Competition Bureau Competition Act