By Konrad von Finckenstein and Philip Palmer
THE INTERNET HAS become the dominant facilitator of communications, social exchange and economic activity. Its success has led to an unprecedented concentration of data-driven economic power in the hands of a few giant firms such as Google, Facebook, Apple and Amazon. That concentration has raised concerns about real or potential economic abuses that may harm competitors, consumers and the broader economy. In response, governments in peer economies are re-examining and updating competition law to combat abusive economic behaviour in the digital economy.
Canada, in turn, has begun to respond to the challenges of the digital marketplace. The Competition Bureau has created a team dedicated to monitoring the digital marketplace, and the Government of Canada has now embarked on a review of competition legislation that is specifically intended to address the issues posed by the emergence of the digital economy.
In late October 2021, Senator Howard Wetston, a former Commissioner of Competition (then called the Director of Investigations and Research), launched a private initiative to examine the adequacy of the Competition Act in the digital era. Senator Wetston commissioned a discussion paper authored by Prof. Edward Iacobucci – an expert in capital markets regulation. This consultation, largely by invitation, terminated in mid-December. Senator Wetston has now made those submissions available on his Senatorial website.
The Prime Minister’s mandate letter to the Minister of Innovation Science and Industry, directed Minister Champagne to examine our competition legislation with a view to addressing the structural issues arising from the digital economy and the need to protect consumers. Perhaps in response, ISED recently released a study of competition in data-driven markets that poses some very interesting issues.
It remains our hope that this mandate’s position as 29th of 33 bulleted mandates assigned to the Minister is not a reflection of the priority to be given this initiative.
The challenges to competitive markets posed by digital giants may have provoked an examination of the Competition Act, but any examination has to go beyond the immediate issues and look more fundamentally at the structure of the Competition Act and its place in ensuring effective competition in the Canadian economy.
We believe that it is timely to undertake a fundamental examination of the Competition Act, which, while incrementally amended over the years, has existed in its present form since 1986.
Competition law in Canada has become the sandbox of specialist economists and lawyers. It has often been said that competition law is an inch wide and a mile deep. It is fraught with impenetrable jargon and economic theories that seem – and are – remote from the interests and preoccupations of ordinary Canadians. But competition law, while difficult in application, is a corrective whose basic functions are understandable to laymen: consumers and businessmen alike.
This moment calls for a plain language discussion of the policy and purposes of competition law in Canada. It is contrary to the interests of Canada and Canadians that a thirty-five-year-old legal framework is discussed only within the confines of the competition elite. The issues engaged by competition policy are vital to the interests of Canadians. They must be engaged in a manner that permits a sounding of their views on issues that affect their well-being and the health of the Canadian economy. Given the challenges posed by the digital economy, an examination from first principles of competition law is both timely and indispensable.
A casual review of competition jurisprudence in Canada reveals a pattern of judicial interpretation of competition law that has rendered much anti-competitive behaviour beyond the capacity of the Competition Act to remedy. The answer to the judicialization of competition law does not lie in minor tinkering with the Competition Act. To overcome the entrenched conservatism of our courts, a thorough review of competition legislation and the adoption of clear and unambiguous legislation must remove any doubt that Parliament is serious about marketplace reforms and committed to a culture of competition.
We believe a robust review of the Competition Act would canvass, at a minimum, the following issues:
Objectives
The starting point for the review of the Competition Act lies with its objectives. The current objectives are extraordinarily muddled – to the point of policy incoherence.
We believe that the focus of competition policy should be the interests of consumers. The purpose of markets is to allocate costs and resources. Market distortions that favour any class of economic organization – whether it be small and medium sized businesses or exporter cartels – reduce consumer choice or increase prices to consumers. We believe there is one objective to competition policy: to ensure that consumers benefit from competitive prices and competitive choices of goods and services – all the rest is dross.
Efficiencies
The current act permits an otherwise anti-competitive merger to proceed, so long as the cost-savings envisaged from the merger (largely reduction of work force and closures of business venues) exceeds the estimated impact of the merger on consumer prices. No other major economy has adopted such a rule, and its continued existence in Canadian legislation is one of the most serious departures from our basic principle: that the job of competition law is to protect the consumer interest through rigorous competition.
We believe that the “efficiencies defence” should be eliminated. The efficiencies defence encourages economic concentration of which Canada has far too much. Canada must reduce the concentration of economic power to breathe life into our markets. A merger that significantly prevents or lessens competition should be prohibited. Where a merger raises consumer prices or reduces consumer choices it should not be saved by prospective cost savings. It is illusory to believe that short term cost savings will produce long term benefits for the economy.
Canada erred in adopting the efficiencies defence. It is past time to correct course.
The Digital Economy
Professor Iacobucci has concluded from his review of the Competition Act that amendments are not necessary to deal with the digital economy. We do not believe that his views are conclusive on this issue, and far more public engagement and debate is essential. We prefer the analysis of Vivic Research in this regard, which suggests a number of issues that the current act does not adequately address, and suggests new approaches to dealing with the challenges posed by data-dominant firms.
We note that economic partners such as Germany have already moved to enhance competition law to meet the specific challenges posed by the dominance of digital giants such as Alphabet and Meta.
We believe that only a thorough public debate can ensure that Canada choses the correct path in dealing with the challenges to competition that are posed by the emerging digital economy.
Sanctioning Behaviour vs. Consequences
The Competition Act now sanctions only parties whose anti-competitive behaviour results in ascertainable economic impacts. This leads to a largely barren competition between economists, hired as experts, as to whether particular economic consequences have flowed from anticompetitive practices. A rules base approach would establish norms of conduct, the breach of which could be sanctioned independent of the economic consequences of that conduct.
We believe that a rules-based approach should receive serious consideration in any review of competition legislation.
Private Remedies and Statutory Damages
We are concerned that the current Competition Act concentrates too much initiative in the Commissioner of Competition as opposed to private parties.
A business directly harmed by anti-competitive behaviour can, with leave of the Competition Tribunal, seek remedies only under sections 75, 76 and 77 of the Act. The potential relief is restricted to orders issued by the Tribunal (in the nature of injunctive relief). An applicant cannot seek damages – a major disincentive to private enforcement activity.
The worst form of anti-competitive behaviour – abuse of a dominant position – is immune from any private action. Opening abuse of dominance to private action will create a market support for competition: if a business is seriously harmed by anti-competitive behaviour, then giving it the right to pursue damages and injunctive relief incentivizes competition law enforcement.
We believe that private parties injured – directly or indirectly – by any form of anti-competitive behaviour should have access to a full range of judicial remedies for the harms caused to market participants or consumers resulting from anti-competitive conduct, including damages and injunctive relief,
There are no plausible circumstances in which the Competition Bureau will have the resources or the policy interest to pursue all anti-competitive behaviour in all parts of our trillion-dollar economy. Cases that may have little public importance from the viewpoint of the Commissioner of Competition may have life and death consequences for private actors. Those private actors should be empowered to pursue those whose conduct is causing them harm. Indeed, class actions on behalf of consumers might be both a deterrent and a remedy to the abuse of dominance in the marketplace.
The opponents of private remedies fear and rail against the possibility that opening up competition law to private remedies will lead to frivolous and nuisance lawsuits. We believe that the existing Canadian law of costs will sufficiently discipline would-be litigants. The costs that must be borne by unsuccessful litigants is an effective disincentive to frivolous litigation.
Any review of the Competition Act should take a fresh look at statutory damages. It can be the case that anti-competitive behaviour is established but common law damages may be too difficult to ascertain. Competition law could offer new remedies to properly incentivize private enforcement activity.
In general, Canada has to create a competition culture. This cannot be done by leaving competition to a tiny agency with limited resources. The insularity of competition law and policy is an impediment to effective markets and to a broader appreciation of the benefits that can be realized through competition.
Regulated Conduct
There is no reference in the Competition Act to the regulated conduct defence (also known as the regulated industries defence): it is a doctrine of interpretation invented by the courts to avoid conflict between relatively narrow provincial legislation (e.g., the regulation of milk prices) and the broad scope of the Competition Act.
We believe it is time to legislatively circumscribe the regulated conduct defence: it should be limited to instances where specific and clearly defined anti-competitive conduct is mandated or authorized by provincial legislation (e.g., agricultural marketing boards). It should also be made clear that no decision of a federal administrative agency (unless its authorizing legislation provides otherwise) can oust the jurisdiction of the Commissioner of Competition.
Institutional Framework
When considering the functioning of the Competition Act, special regard should be given to the continued role of the Competition Tribunal. Is a specialized tribunal the answer to remediation of competition harms? Has the Tribunal functioned as intended? Do its processes yield timely and predictable results? Has the Tribunal created a coherent body of competition jurisprudence? Does it further competition policy? Could the Federal Court or provincial superior courts serve the function equally well? Would moving competition law into the courts create a broader competition bar and greater judicial awareness of competition law and its importance?
We believe that the Competition Tribunal has been a failed experiment. It is time to both extend to private parties the right to seek relief from anti-competitive conduct and to seek remedies before the ordinary courts of justice. It would seem the proponents of a specialized administrative tribunal would lead to quick decision making and less legalistic decision making. It has failed on both counts. Proceedings are no faster than in the legal system at large, and there is every evidence that the Tribunal is weighed down in a form of legalism that is devoid of inherent merit.
Conclusion
Even a superficial review of the state of competition law in Canada reveals challenges to law and policy that cannot be addressed within the confines of the competition elite.
We call upon the government to embark on a broad and meaningful engagement with Canadians. To accomplish a consultation that can strike out in new directions, the government must appoint a panel representing divergent interests and communities (such as large and small business, legal, economic, unions, high tech, privacy) to both educate and consult with Canadians and recommend to the government changes to the Competition Act that will serve Canadians for the next generation. That review must be broad enough to encompass both the structure of the act, its institutional framework, and the effectiveness of the remedies that can be awarded when anti-competitive behaviour has been made out.
Canada faces a once in a generation opportunity to frame its competition law in a manner that will ensure that we enjoy the benefits flowing from a truly competitive marketplace.
Konrad von Finckenstein is a former Commissioner of Competition. Philip Palmer is a former head of the Competition Law Division of the Department of Justice.
