At a recent conference, senior Competition Bureau officials announced the forthcoming release of a discussion paper outlining the Government’s proposals on the next round of amendments to the Competition Act. The paper, which is expected to be released in late June 2003, would affect four areas of the Competition Act by:

Strengthening Enforcement of the Civil Provisions of the Act

Gaston Jorré, Deputy Commissioner of Competition, stated that a key priority for the Bureau in the next round of amendments is to strengthen the civilly reviewable matters section of the Competition Act, especially the abuse of dominance provision. (Other civilly reviewable matters are refusal to deal, tied selling and exclusive dealing.) According to Mr. Jorré, the present regime is deficient because it provides only for remedial orders, thereby allowing parties a "free bite of the apple" in that they can carry on anticompetitive conduct for a considerable period of time with impunity. Given the Bureau’s extensive efforts to educate the business community about these provisions, including through the publication of various guidelines, Mr. Jorré believes there is sufficient justification for imposing "serious consequences" for engaging in anticompetitive conduct that falls within the reviewable practices provisions of the Competition Act.

Among the "serious consequences" expected to be included in the discussion paper are the following:

Section 45 Reform

The Bureau is concerned that the Competition Act’s core criminal prohibition against conspiracies in section 45 is both under-inclusive and over-inclusive. Since there is no efficiency exception, section 45 is seen to have a chilling effect on pro-competitive arrangements between competitors. Conversely, the Bureau’s view is that the requirement to prove beyond a reasonable doubt that competition has been unduly lessened makes it difficult to prosecute naked, hard-core cartels.

Jorré noted that two options were "on the table" to amend section 45. The first option is to establish separate criminal and civil tracks for review of agreements between competitors. The criminal track would apply for hard-core cartel conduct, such as price fixing, market sharing and output restrictions, and would be subject to a per se prohibition. The civil track would apply for agreements such as strategic alliances and would be subject to a competition effects test, including consideration of efficiencies and other potentially pro-competitive effects. The second option would be to amend section 45 to clarify its application to potentially beneficial forms of cooperative arrangements involving competitors such as strategic alliances, perhaps by implementing a form of pre-clearance process and removing the present cap on fines.

The discussion paper is likely to focus on the dual track treatment of agreements among competitors. Issues for discussion will include: types of agreements covered by the criminal/civil provisions; whether a pre-clearance system should apply to existing as well as proposed agreements; and how efficiencies should be treated in a civil provision.

Criminal Pricing Provisions

The effectiveness of the Competition Act’s criminal provisions in relation to price discrimination, predatory pricing and promotional allowances has long been the subject of criticism, for example because they do not take into account the benefits of aggressive pricing practices. The proposal would recommend replacing these provisions with a civil provision that includes a competition effects test.

Inquiries into State of Competition (CITT Proposal)

The Commissioner currently cannot conduct research inquiries on an industry basis. The proposal for consultation would be that the Commissioner be allowed to ask the CITT (with the approval of the Minister of Industry) to inquire into the state of competition and the functioning of markets in any sector of the Canadian economy.

Call for Comments

The discussion paper is expected to be issued in June 2003, following which there will be 90 days to submit written submissions. Roundtables working with draft legislation will be held in December and January. The Public Policy Forum, a not-for-profit organization based in Ottawa that conducted the consultations for the last round of amendments to the Competition Act, will also lead these consultations.

For further information on the amendments process, please contact a member of the Stikeman Elliott LLP Competition Group.

As reported in the March 2003 issue of The Competitor, the Federal Court of Appeal, in a January 31, 2003 decision, upheld the Competition Tribunal’s determination that efficiencies to be generated by the merger of Superior Propane Inc. with ICG Propane Inc. would outweigh its  anticompetitive effects, thereby “saving” the merger pursuant to section 96(1) of the Competition Act, the so-called “efficiencies defence.”  On March 31, 2003, the Commissioner announced that he would not seek leave to appeal the decision from the Supreme Court of Canada.

While Superior Propane apparently carried the day in that case, the Commissioner may still have the last word.  In a speech before the Standing Committee on Industry, Science and Technology, the Commissioner stated that:

[a]fter extensive litigation, it is clear that further litigation would not have clarified the efficiency defence.  Only a legislative solution is workable.[1]

The result is Bill C-249, which would narrow the application of the “efficiencies defence” by providing that efficiencies be considered as just one part of the overall assessment of the merger, along with the other factors set out in section 93 of the Competition Act.  The amended section 96(1) would allow the Tribunal to examine whether the merger is likely to bring about gains in efficiency that “will provide benefits to consumers, including competitive prices or product choices, and that would not likely be attained in the absence of the merger or proposed merger.”

The current language of Bill C-249 incorporates amendments proposed by Dan McTeague, the Bill’s sponsoring Member of Parliament.[2]   The original Bill C-249 would not have replaced section 96(1), but rather would have qualified its application in two respects by stipulating that: (i) gains in efficiency could not offset the effects of a lessening or prevention of competition unless the majority of the benefits to be derived from such gains in efficiency were likely to be passed on to customers within a reasonable time in the form of lower prices; and (ii) if, after the transaction was completed, the merger or proposed merger would be likely to result in the creation or strengthening of a dominant market position, the “efficiencies defence” would not apply.

Bill C-249 would rectify what the Commissioner sees as two fundamental problems with the current “trade-off” between efficiencies and anticompetitive effects.  First, Bill C-249 would eliminate the potential result that an anticompetitive merger might survive on the basis of efficiencies, notwithstanding harm to consumers.  It would also remove the possibility that section 96 could be applied so as to condone, in certain instances, mergers that create a monopoly, which, according to the Commissioner, is a “perverse result”.   Such changes, in the Commissioner’s view, would be consistent with the approach taken in other jurisdictions with respect to efficiencies.

Bill C-249 was passed by the House of Commons and had First Reading in the Senate on May 13, 2003.