INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, April 2, 1998

• 0908

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.): I shall call this meeting to order pursuant to order of reference of the House dated Tuesday, March 17, 1998, consideration of Bill C-20, an act to amend the Competition Act and to make consequential and related amendments to other acts.

We will continue our meeting from Tuesday, when we had the Minister of Industry with us, Mr. Manley, and the director of investigation and research from the Competition Bureau, Mr. von Finckenstein. Mr. von Finckenstein is going to begin today with an opening statement.

We welcome you back and we thank you for coming back to join us.

Mr. Konrad von Finckenstein (Director, Investigation and Research, Competition Bureau): Thank you, Madam Chair. I am pleased to appear before you.

I listened with great interest to the questions you posed to the minister on Tuesday and I would like to take this opportunity to say a few words about mergers, misleading advertising, and wiretapping, which was the principal focus of your questions.

[Translation]

Before dealing with these specifics, I would like to reiterate what the Minister said on Tuesday: the Competition Act has served Canadians well. There are probably few countries in the world where consumers enjoy more freedom of choice over the products they buy and the prices they pay. Or where Canadian and foreign businesses can count on a more stable and equitable marketplace.

However, the face of the Canadian economy has changed and the Act needs to be updated to deal with the new realities including deceptive telemarketing, the exponential use of advertising and the mega merger wave. These amendments will continue to allow us to have one of the most effective competition law regimes into the twenty-first century.

• 0910

Our system combines criminal and civil law provisions in what is called a "framework" Act. In other words, it can be fairly applied to all sectors of the economy—except where industry-specific legislation and regulations apply.

[English]

As I mentioned, we are now in the merger wave, which has catapulted the issue to the front pages of the country. We feel that the proposed amendments will strengthen the director's ability to assess whether or not proposed mergers are anti-competitive. It will also allow him to protect Canadians.

Currently we have to rely largely on the goodwill of those who wish to merge to work with us, provide us with relevant information, and wait until our examination is finished before merging. The proposed amendments and subsequent regulations will ensure that information provided to the bureau is more relevant and that the waiting periods are more realistic.

The amendments will make it easier for the director to obtain interim orders from the competition tribunal to delay proposed mergers. This will enable the bureau to continue its examination when companies refuse to cooperate.

While the proposals strengthen the merger review process, they'll also reduce the number of transactions that we will become involved with by about 15%.

We're also convinced that Bill C-20 will reduce the paper burden on the business community, especially for straightforward cases.

[Translation]

The second concern raised on Tuesday is the proposed changes to the provisions dealing with misleading advertising. The creation of two tracks, criminal and civil, will give the Bureau flexibility to deal with cases in the most expeditious manner. Under the civil regime we will be able to stop misleading advertising quickly without embarking on lengthy criminal court proceedings. However, we will not hesitate to use the criminal track for the most serious cases.

The reasons for these changes are that the civil remedy does not have the high criminal standard of proof and is cheaper as well as faster. It will also make it easier for the Bureau to obtain temporary Court Orders to stop particularly harmful advertising.

These amendments will not weaken our ability to deal with misleading advertising. Rather, they will continue to ensure the distribution of more accurate information in the marketplace. They will give us the necessary tools to react immediately and make us more effective by giving the court a wider range of remedial orders.

Administrative monetary penalties may be imposed under Bill C-20 with escalating amounts for repeat offenders. Criminal penalties in the Act are retained and potential violations will be fully investigated. We will not hesitate to refer cases to the Attorney General should the facts warrant criminal prosecution.

[English]

On Tuesday, when the minister spoke, he also spoke about the proposed changes that will be made to the telemarketing provisions to deal with telemarketing scam artists. We need to improve our tools to gather evidence of this activity, which has robbed some of the most vulnerable members of our society of their savings, to the tune of $4 billion per year. There are simply some situations that the present act and provisions do not cover; therefore, we need a tool to deal with these telemarketing scams.

Bill C-20 would give the bureau the ability to use wiretapping to gather critical information in cases of deceptive marketing and other serious criminal offences, such as conspiracy and bid-rigging.

In order to use this method of evidence gathering, we will have to convince a judge that it's absolutely necessary that the other powers under the act are insufficient to obtain such evidence. We will not be able to wiretap without judicial consent, and you can rest assured that we will not be able to wiretap on a whim.

More detail on the strict limitation of wiretapping is contained in the draft, which was distributed to you and is in front of you, and which we will discuss with you later on.

• 0915

[Translation]

In summary, the amendments contained in Bill C-20 will ensure that we enter the 21st century with sound competition legislation. With laws that encourage compliance, open the way for negotiation, and yet still allow for justice to be served on those who flaunt the Act.

[English]

The changes the minister and I have described are as a result of extensive consultations. The recommendations came from managers of large corporations, small-business owners, purchasing agents, consumer groups, and interested individuals across the whole country. If they were here today, they would also tell you that the modernization of the Competition Act is long overdue.

Thank you, Madam Chairperson. That's all I want to say. We're ready to answer your questions.

The Chair: Thank you very much for your opening comments, because they're responding to some of the concerns that were raised on Tuesday.

We will begin with Mr. Schmidt, who I stopped abruptly on Tuesday.

Mr. Werner Schmidt (Kelowna, Ref.): Thank you very much, Madam Chair, and thank you very much, Mr. von Finckenstein, and also to your officials who are here with you this morning.

I have a number of questions. Madam Chair, I think we'll have to go around several times to get them all before the officials.

I'd like to start with the wiretap provision at this point. Since yesterday or the last time we met, it was drawn to my attention that all of the other aspects of Bill C-20 had been consulted widely, with the exception of the wiretap one. That apparently hit some people as a surprise. They didn't expect this particular provision in the bill. Is that a warranted observation? What was your consultation process with regard to the wiretapping provision, in particular?

Mr. Konrad von Finckenstein: We had an extensive consultation process. First of all, we had a white paper. Then we sent out a consultative panel. We met and worked with them through all the propositions that were set out in the white paper. As a result, the panel issued a report to the government on what changes should be made. The government, by and large, adopted those recommendations, and they are in Bill C-20 before you.

The subject of wiretapping was not part of that first round of consultation. However, as you know, wiretapping has become more and more prevalent, and this binational task force was set up between the two countries to look at it. They issued a report that came out actually the same date they introduced the bill. During those discussions, it became very clear that wiretapping is necessary and should be introduced. The Americans do it right now. Whenever there's a mail fraud or wire fraud they can wiretap. We have no equivalent provision.

So we decided at that point in time to reintroduce the bill. The first bill didn't have the wiretapping provision. We had consultations with members of the consultative panel and with members of the bar—very quick ones, given the time period, and so on. But we did want to hear their views and wanted to find out what their concerns were. As a result of this consultation, we decided that with this bill we would present to you the draft guidelines, which I distributed this morning.

Draft guideline 4 deals with the interception of wiretapping in order to address some of the concern and make it clear that these.... As to how the process works, this is a last resort where the powers under the act are not sufficient for us to get the evidence otherwise, and it is strictly limited to three instances: deceptive telemarketing; bid-rigging; or conspiracy, but only conspiracy for price-fixing or market-sharing.

Mr. Werner Schmidt: So wiretapping is restricted to those kinds of things, and I think the precautions you have indicated in your remarks this morning would give some comfort to this.

I think there will be witnesses coming before us who might suggest that perhaps the consultation wasn't as wide as it might have been. But I think the point you're making is that there's no provision where you can actually get the evidence, if necessary, in order to discover what has been going on. Of course the argument is that this is an intrusion of privacy and into the confidentiality of certain kinds of business arrangements. I think that's where the criticism will come. So as to the kinds of safeguards—and of course we haven't had time to read this this morning—could you perhaps explain in more detail what some of the safeguards are so that the criticism that will be coming, I'm sure, can be met?

Mr. Konrad von Finckenstein: Yes, I'd gladly do that.

• 0920

Yes, I'd gladly do that. As you know, the Criminal Code now contains a provision which allows you to wiretap, and it names specific offences for which wiretapping is allowed. Among them are an awful lot of economic crimes such as fraudulent bankruptcies, like fraudulent export-import permits and this sort of thing. We are dealing here with another form of economic crime which is added to that list in the Criminal Code.

The Criminal Code has a specific provision providing that you cannot wiretap except with judicial consent. You have to make out the case to a judge that this is the only way in which you can get the evidence, that you cannot get the evidence through other powers that we let you have. As I mentioned to you on Tuesday, we have a lot of powers under the Competition Act. And especially if we go to a formal inquiry, we can do searches, we can have mandatory document requests, we can put people under oath and have them testify and so on and so forth.

We have this array of powers, so we'd have to prove that this array of powers is not sufficient, that in this specific case wiretapping is the only way to give the evidence, that there's a likelihood that we will obtain it and make a case.

I believe the main concern is with section 45. The telemarketing and bid-rigging is relatively generally accepted. Those are criminal activities that people are going out deliberately and doing. Section 45 in the act deals with conspiracy to unduly lessen competition. That covers a whole host of activities and it's clearly not our intention at all to cover all that host of activities. It's the way the act is written; section 45 is not segregated into various types of conspiracy. It just says it generally like that.

The ones we mean to target, and the only ones we mean to target, are price-fixing and market-sharing, where people get together and say “Let's all charge 50¢ on the dollar for this” or “We'll let you service B and C and we'll service the other ones, so we won't compete against each other”. It's that sort of activity.

Therefore, in these guidelines which you have, I think the key provision is shown in our paragraph 2(c), which makes it quite clear that it's our decision: we will only use “the conspiracy provisions found in s. 45, insofar as they relate to price fixing and market sharing”. That is the only activity we mean to focus on.

Mr. Werner Schmidt: Should that be specified in the act?

Mr. Konrad von Finckenstein: As I mentioned to you, you run into somewhat of a drafting problem because of the way section 45 is worded. It covers unduly lessening competition, which includes price-fixing and market-sharing but includes all sorts of other things.

And in all prosecutorial activities there's usually a fair amount of discretion vested in the prosecutor and then you expect the prosecutor to use his discretion to enforce the law in an efficient and fair way. Technically, jaywalking is a crime, but you don't charge people with jaywalking. But you do charge them if they run through a red light. So it's the same here.

I published these guidelines in the anticipation that this committee and Parliament will enact these changes. This is what we then intend to be guided by. But they will be extensively consulted and, if need be, further refined.

Mr. Werner Schmidt: I was going to change subjects, but that's a whole other.... Should we go this far then: if not in legislation, then in regulation? Should it be specified there?

Mr. Konrad von Finckenstein: There is no power right now in the act to make regulations. You would have to put—

Mr. Werner Schmidt: Perhaps the amendment ought to be made, then, to the effect that with regard to those two things, there ought to be a regulatory power given to the Privy Council to do that. Would that satisfy the concern you have?

Mr. Konrad von Finckenstein: It certainly would be one way one could deal with the issue and I would have no objection to it. My point is that we don't intend to use it for anything other than market-sharing or price-fixing. Obviously it's up to the committee to decide what amendments to put forward.

Mr. Werner Schmidt: I understand that and I want to commend you for the openness. But by the same token, laws are made not just for you and for me. They're made for subsequent generations and subsequent Parliaments and it has to be clear what the intent and the spirit is that we wish to pursue. It's in that context.

Thank you, Madam Chair.

The Chair: Thank you, Mr. Schmidt.

Mr. Peric.

Mr. Janko Peric (Cambridge, Lib.): Madam Chair, my question is for Mr. von Finckenstein.

• 0925

After this bill is passed, you're going to have the tools you're asking for. When you are going to act? Are you going to act only after you receive complaints or is there any provision in this bill for you to act on your own?

Mr. Konrad von Finckenstein: The Competition Act allows us to investigate on our own initiative or on the basis of complaints. For a practical matter, we essentially deal only on complaints because of workloads, resources, restrictions, etc.

Mr. Janko Peric: How many Canadians would be aware that the Competition Bureau has this power to act?

Mr. Konrad von Finckenstein: We have a very extensive public education compaign by which we make it known that the Competition Act is there and what it provides for and what we can and can't do. We have issued a lot of pamphlets and information brochures in the past. We have a system of speakers who speak to umbrella associations to make them familiar with it.

And so far, we have covered other areas of the act. We haven't dealt with telemarketing, essentially because we don't have the tools. Once we have the tools, we will make it known to the community, to the umbrella groups, to associations, to our partners on the provincial level and to the police forces, of course, etc., that this power is there. They will let us know where the complaints are.

There is a system in place right now called “Operation Phonebuster”, which is a joint operation by the Ontario Provincial Police, us, the RCMP and a host of other organizations. People can phone in and complain about the fraudulent activity of being bilked of their savings, etc. They will pass the information on to us—they do it now—and we will look at it with the limited powers we have now. And if we have these new powers we will of course apply them.

Mr. Janko Peric: In your opening statement, on page 5, paragraph 2, which continues with “and other serious criminal offences of conspiracy”.... Could you be a little bit more specific?

Mr. Konrad von Finckenstein: That's what I just spoke to Mr. Schmidt about. It is the—

Mr. Janko Peric: Can you explain that?

Mr. Konrad von Finckenstein: The conspiracies we are concerned with are only two: conspiracy to fix prices or conspiracy to share markets. The people get together and systematically decide to fix the market. That's the basis.

For instance, we have had cases in the past where we knew there was a conspiracy going on. For example, one of the persons comes and tells us that he doesn't want to be part of the cartel, but says that if he wants to stay in business he has no choice because he's being forced to become a member of the cartel. So he “gives us the goods”, so to speak, gives us the information about it, and then he tells us, for instance, that there is going to be another meeting in Calgary in two months. It would be wonderful if we could get the evidence of what's actually happening at that meeting where they are deciding to reassign market shares.

However, unless that person consents and is willing to wear a body pack, we have no ability to wiretap and record the actual planning. Quite often, the person says, “Look, I've given you the evidence, but don't ask me to be a stool pigeon. I don't want to go in there with a wire, with a body pack, and sit there and entice others to commit a crime.”

So we know this is going on, but we can't get the evidence. In such a situation, we would be making an application to the court, saying to the judge, “This is going on. Here are our powers. They are not sufficient. Here is the evidence we have which leads us to believe, with great reasonableness, that this conspiracy will take place, and we want to wiretap.” Hopefully we would get permission in such a case.

Mr. Janko Peric: Would you include gas pricing in conspiracy as well?

Mr. Konrad von Finckenstein: If there is a meeting by gas retailers, let's say, or wholesalers or producers, in order to fix the price of gas, I would say yes.

Mr. Janko Peric: Thank you.

[Translation]

The Chair: Ms. Lalonde, please.

Ms. Francine Lalonde (Mercier, BQ): Thank you for coming. I would have liked to have consulted your most recent final report, but I must begin by stating that I have been told that this report was late.

Since the minister is not here, I will have to ask you my question, which perhaps deal with the general application of this legislation. Why isn't the Bureau an independent agency, one that is at arms length even from the minister? I read the Competition Act carefully and realized that, in the final analysis, you are an all powerful senior official. You alone decide to conduct investigations. No one else has the right to take such an initiative. And when you decide not to pursue an issue, you report directly to the minister, and only the minister can tell you to continue, for example.

• 0930

In today's world, with the transformation and globalization of the marketplace and the type of multi-faceted revolution that is taking place in the business world, everything is concentrated in your hands and no one even has an opportunity to question you, unless you so choose. Is this not excessive power? Is it not dangerous to have such a concentration of power in the hands of one person alone? This is my question to you. This concerns me.

[English]

Mr. Konrad von Finckenstein: It's not quite as concentrated as you would believe.

Let me explain to you how it works. I'm an independent official insofar as the enforcement of the act is concerned, as you quite rightly pointed out. The minister can tell me to start an inquiry, or if I have discontinued one he can ask me to have a second look. He cannot tell me what to find and how to deal with it, and as you quite rightly point out, it is by statute that this judgment is vested in me. But whatever I decide, then, in terms of whether we prosecute somebody criminally or whether we decide to proceed civilly.... For example, if it's a merger and we decide there have to be certain divestitures, etc., my decisions are subject to approval by a court.

In terms of a criminal prosecution, we will go to a court and the court will actually to have to find the criminality. It's a normal prosecution. We have to prove that there was conspiracy, etc.

In terms of civil prosecution, if we say that this merger is anti-competitive and leads to a substantial lessening of competition and therefore this company should divest this factory in Quebec or that factory in Alberta or whatever happens to be the issue, then the tribunal has to approve it, if it's a consent order. If it's a contested order, we have to make our case before the tribunal, and the other side obviously makes a counter case, and the tribunal has to decide whether we are right or wrong and whether the remedy that we are asking is excessive or appropriate.

So while there is this power vested in me to prosecute or to initiate proceedings, it is subject to judicial oversight, be it by a court or by the competition tribunal. We have chosen this form primarily because this kind of action that we bring, especially on the civil side, can also be used for strategic reasons, by one company against another one in order to cause them economic harm, in order to gain a competitive advantage. Therefore, this near-monopoly to start investigations or to start civil or criminal proceedings is vested in me so that it cannot be used by competitors for strategic reasons.

And I should point out that on the criminal proceedings there is a double provision. We make the decision to prosecute, but we then refer to the Attorney General and the Attorney General is actually the one who starts the criminal proceedings. And the Attorney General may disagree with me and not proceed. So first you have to convince me, and then the Attorney General.

[Translation]

Ms. Francine Lalonde: Yes, but you have exclusive power in deciding whether or not to prosecute, and this is excessive power. This is why concerns were raised. People wanted this power to exist elsewhere.

[English]

Mr. Konrad von Finckenstein: But this is no different from any other crown attorney. Under the Criminal Code, for instance, it is up to the crown attorney to start the prosecution—or not. This is how our system of criminal prosecution essentially rests. We have officials vested to administer the act, to look at it and to determine on the evidence whether these cases warrant prosecution or not.

Don't forget that there are two sorts of provisions in the act which take away from what you feel are exorbitant powers. One is that six citizens can make a formal complaint and then I have to start an investigation, whether I want to or not. For instance, I just received one, signed by all members of the NDP, asking me to look into the bank merger.

• 0935

Secondly, section 36 of the act allows for civil proceedings by other people. If someone finds that his enterprise has been subject to anti-competitive behaviour by somebody else, which is in violation of the criminal provision of the act, then he can bring an action for similar damages on that basis, even if it's a case we have chosen not to prosecute.

So there's a conspiracy here to fix prices, just hypothetically, and for some reason we decide not to prosecute because we don't think there is sufficient evidence. If one of the competitors feels he has been hurt and he disagrees and thinks there's sufficient evidence, he can bring a civil suit for damages on the basis of the same facts.

[Translation]

Ms. Francine Lalonde: I hope that you'll be able to stay here for quite a while because we have a lot of questions. We cannot interpret the amendments to the legislation without interpreting, at the same time, the application of the Competition Act. This is an important act.

When you amend the act significantly by giving yourself the option of prosecuting under the civil regime as opposed to the criminal regime, you are defending your role as an attorney, but you're also giving yourself another role, that of choosing whether or not you will deal with the case under the criminal system or the civil regime. I admit that this poses no problem with respect to the administrative monetary penalties. I too have done my tests and several lawyers have told me that this would be immediately challenged constitutionally. But what will determine whether or not you're going to deal with a case on the civil or criminal track? If you decide to deal with the matter under the civil regime, the individual will be notified 48 hours before the order is issued and everything could be settled in your office.

It seems to me that you are the one who will decide whether or not the case should be tried under the civil or criminal regime, whereas, in the final analysis, this could be all settled by an agreed to order.

[English]

Mr. Konrad von Finckenstein: First of all, the option to go criminal or civil already exists under the act. There are a lot of activities that can be dealt with either under section 45, with the conspiracy provisions, or under one of the civil provisions, such as abuse of dominance, etc. Depending on what the facts are, we can decide to go one way or another.

Secondly, philosophically I can't follow the point of view that when you talk about misleading advertising.... Most of the time you're not talking about criminal activity; you're talking about business practices that may be a touch sharp, that may be excessive, that may be over the line, but you don't talk about a criminal activity. What we are trying to do here is have a civil remedy so that we can get an injunction to stop that kind of behaviour. I don't think it is the type of behaviour that requires a criminal sanction and that should give somebody a criminal record.

Thirdly, this issue is clearly a hot one. We realize that guideline number two, which you have before you, deals exactly with that issue of when do we go criminal, because we want to go out front so everybody knows this is where we're coming from. We will use the criminal one for egregious cases, where there's clearly a case where somebody is deliberately breaching the law.

The civil cases, which we deal with 90% of the time, are where we deal with behaviour that has been excessive in terms of business practices but you're not talking about criminal behaviour.

My colleague, Mr. Tom Wright, will be administering this section and perhaps he can walk you through the guidelines if you would like him to.

Tom.

[Translation]

Mr. Tom Wright (Deputy Director, Investigation and Research, Department of Industry): It is important to point out that our objective is to have an impact on the marketplace. By having the option of dealing with the matter under the civil regime, we will be able to have a very effective and rapid impact on the marketplace, instead of being held up in the criminal courts. As far as effectiveness is concerned, we feel that this is very important.

As our director said, we will try to begin by proceeding in this fashion. We will be using the criminal court option only in the really unique cases,

[English]

where someone has knowingly or recklessly made a false or misleading representation. We would then choose to go the criminal route.

• 0940

In the guidelines we've tried to point out, frankly, some of the considerations we would use in trying to make that sort of decision, yet once again there's also the role of the Attorney General in actually following through on that criminal front.

[Translation]

Having these two options will allow us to be very effective. We will still be able to deal with the most serious cases, however, we will be able to deal with the marketplace effectively, something that is missing right now. This is why we are proposing these two options. Despite the problems that we've had to deal with, we are proposing to implement these rules.

[English]

The Chair: Thank you, Madam Lalonde.

I should remind committee members that we are going to try to go through the act with all the officials who are here today. At about 10 o'clock I'm going to interrupt the questioning and turn it back over to the Competition Bureau to take us through different sections of the act and then continue on with questions.

Mr. Bellemare.

[Translation]

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Does the bill deal with Internet related problems?

[English]

Mr. Konrad von Finckenstein: No. The act deals with live-voice telemarketing, where you have somebody on the line, you're talking to him and you're trying to convince him, you're trying to establish a personal relationship, and then you exploit that personal relationship.

On Internet problems, I presume you're talking about telemarketing via the Internet on a chat line with messages going back and forth. It's a different kind of situation, first of all. You're not trying to exploit a personal relationship and the loneliness of some person who wants to talk to somebody. It is where somebody actually goes to the computer, turns it on and hooks in. He doesn't have to. So I can't call you if you haven't turned your computer on. There's no way for me to reach you.

Secondly, when we do use the Internet you have a track record. There will be the messages on your disk and on the person's disk back and forth with representations you made, what you held out, whether it was misleading, whether you promised something, etc. So we can prosecute Internet abuses right now with the powers that we have, because the evidence will be there.

With telemarketing the problem is you don't have the evidence. Most of the evidence is oral. Most of the people who are being exploited are elderly, and they have poor memories. You're going to have difficulty, because they may not want to testify, and even if they testify they won't be able to recall the exact detail of what they said, plus they may very well not be able to stand up to cross-examination. We're talking about quite a different situation.

Mr. Eugène Bellemare: Let's go back to telemarketing, and you talked about the elderly. Also, the very young could be affected; it could be the mentally deficient.... There could be a variety of reasons why people say yes to things that they wouldn't do if they were of sound mind. For example, a relative says “My grandmother purchased this, and I've just discovered it and I think she should cancel out from that thing, the reason being she is elderly, she has Alzheimer's disease”. There are all the cases that we know that are very popular where people take advantage of the weak. Is there a clause that could trigger this cancellation of a contract if a a responsible third party says this is awful?

Mr. Konrad von Finckenstein: Mr. Bellemare, I'm not in the consumer protection business. That is basically what it boils down to. My job is to make sure there is adequate and accurate marketplace information, that the consumer has the information before him to make an intelligent choice. Now whether or not he wants to buy, that's up to him. He may want to make a foolish buy; I'm not there to protect him. I just want to make sure that he does it on the basis of all the facts before him, so that it's an informed consumer who makes the choice. If the information is given to him or her, then he or she can make an informed decision. I'm not trying to protect consumers against their foolishness or against their greed or whatever it happens to be. That's not the role of the Competition Bureau.

• 0945

Mr. Eugène Bellemare: My last question would be on usage of telephone systems from one province to the other, one jurisdiction to the other. In North America we have this business where people could be telemarketing from anywhere in the United States or even offshore. Do you address this question, and what is our twinning with the United States like? What I mean by this is are the rules going to be different whereby if you get caught doing it in the U.S. you get say a year in jail, but if you get caught in Canada you get one month? Do we get into this kind of involvement?

Mr. Konrad von Finckenstein: Let's go step by step.

First of all, you will be prosecuted from the jurisdiction where the call originates, where you do your business. So if you're in Canada and you're telemarketing into the United States or into other provinces, the prosecution will take place where your business is. If you're sitting in Winnipeg and you're phoning to Minneapolis, we will prosecute you. If somebody sits in Minneapolis and phones to Winnipeg, then the Americans will look after him.

We exchange information. We exchange complaints. We exchange evidence to the extent we can so that they can prosecute. In each country it's up to the judicial process to deal with the issue and they will apply the penalties their law provides and that they consider appropriate.

Obviously we don't have identical legal problems or legal norms, so you will have varying treatment. But roughly, grosso modo, we both look at these serious concerns as something that should be punished and should be punished in such a way as to deter others. And we will see how Canadian judges will use these provisions should Parliament pass them, whether the sentence they hand out will be harsher than in the United States or not. By and large so far we have no experience. On other issues, such as price conspiracy, the Americans give out slightly larger sentences, but also they have bigger players and they have the bigger market, etc., and therefore the action of their players has affected more people than it has in Canada.

The Chair: Thank you, Mr. Bellemare. Mr. Schmidt.

Mr. Werner Schmidt: Thank you, Madam Chair.

I have two sets of questions, Madam Chair. The first one has to do with tied selling and the other one has to do with mergers.

In the finance committee at the moment they're talking about tied selling in financial institutions. In your brief you mention the task force on the future of the Canadian financial services sector, and in appendix 1 of the brief you define tied selling and you talk about pro-competitive tied selling and anti-competitive tied selling and you explain them here. Yet I wonder if it could be made a little clearer, because I think that in the brief you use words like “foreclose” . For example, you say that tied selling can be either anti-competitive or pro-competitive—tying may be anti-competitive and this forecloses competitors.

It's the word “foreclosure” that causes me some concern here, because foreclosure has a certain definiteness. It's a termination almost. It excludes in the sense that it avoids any further entry into that particular market, if you will. That's one way of looking at foreclosure. Certainly in the business of foreclosing on a mortgage that's in default this is what it means. It means your relationship is over and that's the end of it.

Do you use “foreclose” in the same sense here? Because if you do, then I have some difficulty with the rest of it. If you could clarify that, it would help.

Mr. Konrad von Finckenstein: We're saying foreclose with respect to a specific sale in question. You're going and you're buying one product and you're being told you can only have this product if you buy the other product.

Let's take your example of mortgage and mortgage insurance. One is tied to the other, and you say you can't have the mortgage unless you also buy more house insurance from me or something like that. Then somebody else who is offering house insurance is essentially foreclosed, because he cannot sell his insurance to that customer, because the bank is saying that for the mortgage you have to buy the whole thing. So he is foreclosed. He is unable or does not have a chance to serve that market. That's the meaning of the word “foreclosed” in that context.

• 0950

Mr. Werner Schmidt: Thank you. That is a term and kind of a definition as well. It is the conditional sale that really makes it a foreclosing action. Okay. Thank you very much.

My other question has to do with mergers, and it has to do with mega-mergers, and of course there are smaller mergers and things of that kind. The mergers, too, can be competitive, pro-competitive or anti-competitive, so we have a similar difficulty here as we do with tied selling. How would you define a merger that is pro-competitive and distinguish it clearly from one that is anti-competitive?

Mr. Konrad von Finckenstein: The act makes it clear that we have to look at mergers, too, and determine whether they lead to a substantial lessening of competition. That is the acid test. You look at what's happening in that market after the merger has taken place. Is the result of that merger a substantial lessening of the competition and a market that isn't as competitive as before? Then we step in. If it is not, then we don't step in.

Obviously an anti-competitive merger is one that leads to substantial lessening of competition. A pro-competitive merger is one that doesn't lead to that, and presumably leads to greater efficiency. This is why the people merge, in order to be able to do their business better, to increase their profits.

Mr. Werner Schmidt: There are two aspects to this. The first one is will it lessen or increase competition today, or as of the effective date of the merger. That's one criterion. The other one is anticipated intrusion into reduction of competition, or expanding competition. Which measure are you taking—the current measure, or the anticipated measure?

Mr. Konrad von Finckenstein: All merger review is prospective; you are really focusing.... That's what makes it so tricky. You have to look at what will be the result of the merger in the future. What will be the market? How does it develop? Who else will come in, or not come in? What will be the effect of that new combined entity in the market, as it is today and as it develops? It is prospective. You must, by definition, make assumptions and predictions.

My colleague Raymond Pierce is the head of one of our merger groups. Ray, do you want to add something to that?

Mr. Raymond Pierce (Assistant Deputy Director, Mergers Branch, Department of Industry): The act does allow us to challenge transactions that either prevent or lessen competition substantially.

As Konrad mentioned, our work is very difficult, because it is predictive in nature. We're doing that on a forward-looking basis, in terms of how the transaction will impact on competition in the market over the next two or three years.

It may be obvious in some cases that a transaction lessens competition at the point in time when we receive the file, or it may be the case that because of other developments in the market—other consolidation that's happening, for example, or competitors that are either exiting or entering the market—those conclusions could be altered.

Mr. Werner Schmidt: That's true.

The other question I have is you have given us a very good set of guidelines with regard to how you are going to deal with conspiracy and how you'd initiate wiretapping or refrain from initiating that action. Wouldn't it be as essential for us to know what the assumptions are and what the prospects are that you are considering in deciding a merger? It seems to me that unless that is pretty clear, the assumptions may in fact be in question and the prospects may be in question.

I will use three examples. The first one was the merger or the allowance of the Royal Bank to purchase Royal Trust. There is one really, really big question. Then there was another example dealing with the merger of certain life insurance companies. The third one, of course, is the proposed merger of the Royal Bank and the Bank of Montreal. These are mega-mergers. Of course there are some going on in the retail industry as well.

The assumptions underlying this are pretty significant. Let me just refer back to the Bank of Montreal and the proposed merger with the Royal Bank. The legislation might be changed to allow all kinds of financial institutions to enter that particular market, but I think the assumption you then have to make—and I would ask you to clarify this—is that there will in fact be many more players coming in. Whether they are Canadian or whether they are foreign is perhaps a moot question, but the points remaining are what the likelihood of the assumptions being realized are, and what the prospects projected for it actually materializing are.

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Mr. Konrad von Finckenstein: Let me start from the beginning. We have something called merger enforcement guidelines, which we issued several years ago. Those are the guidelines by which we spell out the assumptions and methodologies that we use in order to assess mergers.

A task force on financial institutions was set up last year. We made a submission, the one you have in front of you. We attached to it an appendix outlining the merger enforcement guidelines as applied to banks. You see, if you take our existing ones and apply them to banks, this is the result. We think they're sound, and experience in other industries has shown that they're sound. But this is very crucial. The banking sector is key to this economy. We want to make sure we get it right, so we have said that we are putting this out for consultation. As of now, that's where we stand.

We had started the consultation process, but one month after we filed this, in came the Royal Bank and Bank of Montreal merger. We are still doing those consultations. We will continue them. We've written to about six other people. We published the draft in the Canada Gazette. We are going to hold several fora with people who are outside, and by about July we will say either that the draft in there is what we're going to apply to the Royal Bank, or that it's the draft as amended. We want to make sure we have all the input possible in order to have the best conceptual framework to apply to a banking merger, especially one as big and as crucial as the one that's before us.

In the meantime, of course, the act requires that we do look at mergers about which we have been pre-notified. We are in the so-called information gathering stage. We're getting huge amounts of data that are very difficult to absorb. We may have to reformat some of them because they're not in the format that we need, etc. Once we have our conceptual framework in place—I expect that to be around July of this year—we will apply it to the Royal Bank merger and we will look at it.

If the issue you alluded to—what is the regulatory framework we have to look at—comes up, the task force may come up with a set of recommendations that completely change the landscape or certainly change the competitive dynamics of the banking market. We will wait to see what the task force reports, and our recommendations will then have to be essentially on a twofold basis. We have to look at how likely they are, and if these changes are made to the framework, what their impact on this merger is. If they're not, what is the impact of the merger in the absence of such regulatory reform as the task force suggests?

As you know, the final decision is up to the Minister of Finance, because he has to give another approval. We will look at it purely from the competitive aspect, but he has to look at it from the national interest aspect. He will obviously take our views into account, but he may also say that if there is a problem here, it should be taken to the tribunal. We don't know, though. All of this will come out in the wash.

At this point in time, all I know is that we have to get our conceptual framework in place, we have to analyse this merger, and we then have to analyse it on the market as we see what will develop under the existing regulatory framework and under alternative B, frameworks that would be changed by taking into account whatever the task force recommends.

The Chair: Mr. Bryden.

Mr. John Bryden (Wentworth—Burlington, Lib.): I have two questions. I'm very concerned about the plethora of organizations that are calling up the vulnerable in society and are raising funds allegedly for charitable and non-profit activities when in fact a very small amount of the funds actually get there. My question to you is whether you agree that obtaining funds or donations through misrepresentation is, in principle, the same as obtaining money for product through misrepresentation. As Bill C-20 sits now, does it address that problem?

Mr. Konrad von Finckenstein: I believe you spoke to my colleague about this issue.

Mr. John Bryden: That's correct.

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Mr. Konrad von Finckenstein: First of all, yes, if you solicit funds for a purpose, whether this purpose is a profit-making one or non-profit one, it makes no difference: you are making a misrepresentation; you're representing facts in a way they are not and leading people to make a decision on the basis of those wrong facts.

As I mentioned before in answer to Mr. Bellemare, I'm in the business of making sure that there's an informed choice being made, that proper information is before the consumer. So if somebody is in the business of collecting money for whatever purpose and he misrepresents, then the provisions of telemarketing as found in this act would apply.

Mr. John Bryden: They would apply.

Do you think it's sufficiently clear as it stands now, or would it be useful to move an amendment that might specify very clearly that the intention of the act is to cover misrepresentation in the case of fund-raising?

Mr. Konrad von Finckenstein: In our view, it is clear. But if you feel there is left any doubt, then I would suggest you move an amendment, because that's the purpose there.

Mr. John Bryden: That's your intention, so I'd be in sync with your intention.

I have one other question. My own studies have disclosed, much to my amazement, that a lot of fund-raising and solicitation of donations in this country is done actually out of the United States, through telemarketers and direct-mail advertisers in the United States. My concern there is I'm afraid that as I see Bill C-20 now and the Competition Act itself, there seems to be no real way of getting at these misrepresentations if they do emanate from the United States.

So can I ask you with respect to proposed section 52.1—you will be familiar with that, that's the section about general misrepresentation—whether it might help us get at organizations that hire offshore telemarketers or direct-mail advertisers to misrepresent for them, if we made a change where we said “any business interest, by any means whatever, knowingly or recklessly make or sanction representation to the public that is false or misleading in a material respect”?

What I'm after here is if we add the two words “or sanction”, then we put a certain onus or responsibility on the organization buying the service in the United States to not order that organization in the United States to misrepresent into Canada. I don't know whether you can actually give me a real reply to that on such short notice, but it is—

Mr. Konrad von Finckenstein: If I did, my counsel would be very upset.

Mr John Bryden: I'm sure he would. Well, could I ask you to explore the idea?

Mr. Konrad von Finckenstein: I could certainly do that, but I would also point out that when you have cross-border issues, the only way to effectively get this is through cooperation with the other jurisdictions.

My colleague Nicole Ladouceur, who's here, actually does most of the cooperation with the Americans on this subject. Maybe Nicole could tell you what we have done and what we plan to do, so that you get a sense of how we're trying to address this issue.

Ms. Nicole Ladouceur (Chief, Division B, Marketing Practices Branch, Department of Industry): Thank you, Mr. von Finckenstein.

Effectively, we have certainly over the past year, but for several years now, increased our cooperation with the Americans. The Americans also have some concerns with respect to Canadian companies or Canadian organizations, as you indicate. I think the misrepresentations unfortunately seem to be going both ways, in terms of the border.

Some of those concerns were highlighted as a result of the Canada-U.S. task force that met in June of last year, and again in September. A report was published in November and there has been follow-up, and we continuously meet within Canada, across Canada, to ensure, of course, we're taking a national approach with respect to those misrepresentations. They are sometimes regional in nature, and we want to make sure that with respect to the Americans we're looking at it from a broad, comprehensive point of view.

So we meet on a regular basis within Canada. We also share information to the extent that our provisions allow us to do so with the Americans. We will share lists in terms of the top ten companies, for instance, on which we have complaints and look at taking a joint cooperative approach in terms of enforcing our respective legislation while respecting each other's borders and sovereignty.

Mr. John Bryden: Can I then simply ask, Madam Chairman, that perhaps the officials ask their legal counsel to look at my suggestion about adding the words “or sanction” to that particular clause?

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Certainly if it comes back that it is a difficulty—I wouldn't be a be a bit surprised if that were your conclusion—I would ask that you at least examine it.

Thank you.

Mr. Konrad von Finckenstein: We'll gladly look at it, and we'll be in touch with you once we have.

The Chair: Thank you.

I'd like to turn it back to you, Mr. von Finckenstein, and your officials to take us through the clause-by-clause and then continue on with questions.

[Translation]

Ms. Francine Lalonde: I'd like to ask a second set of questions.

[English]

The Chair: No, Madame Lalonde, I explained that we would stop at 10 o'clock approximately and go into clause-by-clause. Then we'll come back. We'll start the questioning when we start again.

Ms. Francine Lalonde: Okay.

The Chair: We'll continue the same order.

Mr. Konrad von Finckenstein: Okay, we have agreed to do this in three groupings dealing with the main issues. The first one is the provisions regarding telemarketing.

Don, do you want to walk through this? Are you doing it, or is Tom? Okay, Tom, why don't you walk the committee through the provisions on telemarketing and what they are doing?

The Chair: They should have in front of them a clause-by-clause index just to make it a little easier to follow what the officials are doing.

Mr. Tom Wright: Thank you, Madam Chairman.

The clauses I would propose to review—given the time, I'm going to try to do this at a global level and at a certain speed so you can ask questions—are clauses 13, 10, 21, and 47, all of which deal in one manner or another with the topic of deceptive telemarketing.

I'd remind you of course that there is quite a legitimate telemarketing industry in this country. In fact, we have had positive comments back from that industry on what it is that we're proposing here today.

One of the central features of course is that we have a specific reference to deceptive telemarketing being a criminal offence. Essential to that of course is the follow-on change that we would propose to the Criminal Code to achieve wiretap without consent. That's in clause 47. I think the director has discussed that in some detail with you. That's viewed as being essential on our part to achieve the required evidence to actually move effectively on this front.

To be effective in dealing with deceptive telemarketing as well and to ensure consumers can protect themselves and can identify early on a potentially deceptive call, we require a certain number of disclosures be made during the call. At the outset, we expect the identity of the promoter, the nature of the product, and the purpose of the call to come out. This is covered off in clause 13.

We also require through clause 13 that any additional information regarding the price of the product, any material restrictions, or any general terms or conditions applicable to its delivery should come out in the course of that phone call. Again, this is all to assist the consumer in being able to identify a potentially deceptive call. It also will assist us in our evidentiary requirements should it be necessary for us to be taking action.

Inasmuch as we do understand a fair amount about deceptive telemarketing today, we've gone to the point of actually setting out some specific prohibitions. Again, this is still in clause 13. There's a general prohibition against making misleading representation, but we also have specific reference in there to contests and the fact it would be not acceptable for there to be prior payment before the delivery of prizes.

You heard the minister give some descriptions of what is currently a widespread practice in deceptive telemarketing regarding contests and various prize schemes.

We also have two other areas that are designed to deal with those circumstances where corporations and the officers of corporations seek to insulate themselves from prosecution. We'll be holding corporations responsible for their employees and agents, and we would also be holding officers and directors who in a position to influence a corporation responsible for the activities. I think this should go some way to accomplish some of the concerns.

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To ensure that all of this is not lost as we pursue particular cases, we even go so far as to set out some of the aggravating factors that should be taken into consideration for sentencing purposes. Again, this relates back to our current knowledge of what's going on in the deceptive telemarketing end of things. There are organizations that use lists of vulnerable citizens. There are those who have had previous convictions. The recommendation is of course that this be part and parcel of what would go into sentencing consideration.

Moving down to clause 10 then, having set up in clause 13 the specific offence, having set out what it is that we want to see in place to deal with it, we're seeking an additional tool in terms of an interim injunction. The current act has injunctive powers, but you will see there that section 33 of the current act would be amended to make a specific ability to seek interim injunction power in the case of telemarketing. Further, there would be an opportunity to seek injunctive action against a third party in the case of a repeat offence. So in those most egregious situations where there's a repeat offender, we would have the ability to go to the court and move swiftly.

Bear in mind that these are operations that are fly-by-night; they set up, they operate for a few weeks, a few months, they shut down and they move on. Our ability to move effectively is our ability to move swiftly. In certain cases it may well be necessary to seek these kinds of authorities.

Clause 21 deals with the jurisdictions of the court. I've covered clause 47; we've had a fulsome discussion of the role of wiretap.

Madam Chairman, I would stop there on the section of telemarketing and Nicole Ladouceur and I could take questions if you wish.

The Chair: What I prefer actually is if everyone could take us through the act and then we could open it up for questions. Otherwise it's going to—

Mr. Konrad von Finckenstein: Tom, you're on again dealing with misleading advertising and deceptive marketing practices.

Mr. Tom Wright: Madam Chairman, I assume everybody has the list to which you referred. I'm going to go through a whole series of clauses. Perhaps rather than going through each of them specifically and enumerating them I could address the broad concepts we're trying to deal with here; otherwise we're going to run short of time.

It seems to me that it's essential to recognize at the outset that what we're trying to do is to hone our tools with dealing with this particular area. We've talked about the need to have a civil track and we view that as being the way we have to sharpen our tools to deal with the current challenge. Our effect in the marketplace is not what it could be, is not what it should be, and our hope is that we can actually move in to a rather efficient way of dealing with cases. It should give us an added degree of clarity and certainty in the application of the law.

Under the civil approach misleading advertisement can be stopped with cease and desist orders, or in certain urgent cases with temporary orders. Where the civil courts find that misleading advertising has occurred and the advertiser is unable to demonstrate that he has diligently attempted to prevent the deception, then further orders are available to the courts to require the advertiser to publish information notices or even to pay an administrative monetary penalty. We've had some experience in dealing with a number of voluntary arrangements and through our consultations we've received support for this kind of approach.

The amendments would also clarify the law in respect to the representations about regular selling prices of products. This was viewed by a number of people as a deficiency; there was a lack of clarity in our existing law. Both retailers and consumer groups agreed that the law should permit retailers to compare their prices to ordinary prices of products if substantial volumes of the products had sold at the ordinary price or if the products had been offered for sale at the ordinary price for substantial periods of time. In other words, we're talking about providing two separate tests that a retailer could use as reference points for setting up ordinary prices.

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The criminal option, as we've already discussed, would remain available for the truly egregious situations. For advertisers who had not merely made inadvertent mistakes but who had actually knowingly, recklessly violated these provisions, we would then have the full force of criminal course to pursue these activities. As a package they provide us with something of a flexible set of tools to deal with the situation, and they should enable us to be far more effective in the marketplace, frankly, than we currently are.

[Translation]

I'll stop there.

[English]

Mr. Konrad von Finckenstein: Ray, would you walk the committee through the provisions on mergers? And also don't forget to make reference to the regulations.

Mr. Ray Pierce: Yes, certainly.

Rather than going through this clause by clause, I'd like to give members of the committee a broad overview of the heart of these amendments. Some of these particular clauses relate to housekeeping amendments, as I would call it, and therefore some are more important than others.

As we mentioned earlier, merger review is difficult because it's predictive in nature. And that job has become more difficult in recent years as the pace of consolidation has increased. The number of notifications to the bureau, for example, has increased by almost 100% in the last four years, and there's no sign of that process abating at this point in time.

When we do get into a very detailed review of a transaction, and that doesn't happen all that frequently in terms of the number of transactions we're notified about, it becomes a very fact-intensive economic analysis of the industry and the markets in question. Our ability to come to the right conclusion on those transactions is dependent, fundamentally, on two things: time and information, particularly relevant information. And that's where the pre-notification process comes in and where it's so important.

The purpose of pre-notification is to allow the bureau the opportunity to form some opinion about what the impact of the transaction will be before it proceeds, because after a transaction closes it's very difficult to remedy the situation. It's very difficult to unravel an entity once it begins to integrate.

The current pre-notification provisions are simply inadequate to allow us to do that job as effectively as we would like to do it. The maximum waiting period that parties are required to wait, by law, under the present system is three weeks. That's not sufficient time to do a detailed review of a transaction like the banking transaction, for example, or a transaction in a difficult and complicated industry.

In addition, parties to pre-notification at this point in time are not really required to provide, under compulsion, under the law, any information that allows us to begin our competitive analysis of the industry in any kind of detail. So we're captive, essentially, to the goodwill of the parties in terms of supplying that information at this point in time. And there have been circumstances in very large transactions that raise concerns under the act, where the parties have either refused to provide that information or where we found later that the information provided voluntarily has not been sufficient. There wasn't full compliance in terms of the information we asked for.

There's both a short form and long form of the waiting period under our act. The parties can elect to file either a long form or a short form, but typically it's a short form, which at this point in time obligates them to wait seven days. The long form, as I mentioned earlier, is a 21-day wait. We propose to double both of those periods to bring a greater sense of balance to the management of the process and to make those waiting periods more realistic.

The other major change is that relating to interim orders. The purpose of the interim order procedure is to allow us to prevent the closing of a transaction before we've had an opportunity to form an opinion about that transaction. That's not a power that we expect to exercise in very many cases, because voluntary compliance is going to remain a key element and a key cornerstone of the merger review process. In those areas where we have to flex our muscles, we need the legislative backing to be able to do it, which we don't have at this point in time.

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So the amendments before you would change the circumstances and the test under which we would be allowed to go to the competition tribunal and seek that kind of order to prevent the closing of a transaction where we feel it's potentially problematic. Essentially what it does is it provides that once the director certifies to the tribunal that he's initiated an inquiry and he needs more time to complete his inquiry, and that the merger may lead to irreparable harm if it proceeds, then the tribunal may issue an order that stops this transaction from closing or that delays the closing of the transaction.

The other important amendment we have here is that the information requirements currently required under both the long-form and short-form notification would be moved into the regulations. As I alluded to earlier, those information requirements, particularly for the long form, where we're identified a serious issue that we need to investigate and look at, would become more detailed in terms of the kinds of information we're looking for.

Key to those information requirements is information in the particular documents that we'd be looking for from the companies. In particular, how do the companies view the transaction? What's the rationale for the transaction? What do they think the impact of the transaction will be on the market? That sort of information is key to allowing us to form some conclusion at least at an early stage about what the impact of the transaction would be on competition and consumers.

Mr. Konrad von Finckenstein: Madam Chairperson, one of the provisions in the mergers deals with the power to make regulations regarding what information is to be furnished or not.

You will hear other witnesses who will suggest that we are excessive in some of our information demands and these are unreal. We have actually drafted the regulation in anticipation that if this act should pass, this is what we want. With your permission, I would like to distribute them to the members so that when you hear other witnesses in the future they can refer to those regulations. You can judge for yourself whether what we propose to demand should the act be passed is indeed excessive or whether this is reasonable, given some of the transactions we will face. So I have them here, and if you will permit I will give them to the clerk and she can distribute them to the members.

The Chair: Sure.

Mr. Konrad von Finckenstein: The last portion is called “other amendments”. It's really a grab bag of various and sundry provisions to bring the act up to date. My colleague Don Mercer will walk us through those.

Mr. Don Mercer (Head, Amendments Unit, Department of Industry): Thank you, Mr. von Finckenstein.

These are a number of clauses that clean up the legislation, as Konrad says, in terms of a number of issues. The first is prohibition orders, which you will find dealt with in clauses 11, 39, and 40. Prohibition orders are a tool by which when we get a conviction normally and under a couple of other circumstances a judge can order that there not be a continuation or repetition of the offence. Therefore, if the offence is repeated what happens is that there would also be an issue of contempt of court. So these orders are an important tool in terms of achieving compliance with the law.

The principal problem with those prohibition orders is that they previously only allowed us to get an order against continuation of the offence. It was very proscriptive. Our experience was that there was a need to be more creative and, for example, to be able to order such things as compliance programs and education programs.

The other point that we needed to deal with in the bill was the fact that these orders have never had an ability to be varied or to be rescinded or to be interpreted. We were stuck with the orders we had.

So clauses 11, 39, and 40 deal with those issues and they also put a fixed term on these orders of 10 years.

Then we deal with some issues of definition. You will see that from clauses 1, 3, 4, 5, and so forth, up to clauses 37, 38, 54, what we're dealing with there, of course, is the change in definition of the title of the director to the Commissioner of Competition. This reflects, of course, the director's role as the head of the Competition Bureau.

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A number of other titles confused that role. There are a number of directors in the public service who, for example, were not the heads of organizations, and it was deemed appropriate to clarify that and make it consistent with other titles, such as the RCMP.

There are a number of other points—for example, the warrant for entry of premises. When we set up the new deceptive telemarketing provision, proposed section 52.1, it was necessary, of course, to add that to the search, that we had search powers available for that purpose as well as we have search powers for all the other provisions of the act.

There is an issue, as well, that we have integrated through this bill: the consumer products activity; that is to say, the labelling statute such as the Consumer Packaging and Labelling Act, the Textile Labelling Act, and the Precious Metals Marking Act. Those statutes now come under the responsibility of the director of investigation, versus the commissioner. Those provisions really are confirmation of status. These powers were previously delegated to the director, and that is what those do; it's a confirmation of status.

What a couple of the amendments do, for example, to the annual report, clause 36, is give the director responsibility also for reporting on activity under those statutes as well as the Competition Act.

There is another clause that I know has attracted some of your attention, clause 23, which deals with exclusive dealing and tied selling. It's a little word change that is quite important to us in terms of experience. It's a change of “the” to “a”—“a market”—and the issue there is to enable us to deal with cover situations that are not necessarily in the same market whereby control over one market gives you control over another activity in another market. It wasn't quite clear until we put that “a” there, and that is why that change.

That is essentially the global nature of those changes. The other changes are essentially changes to other statutes, for example, to reflect the name of the title change of the commissioner.

Thank you.

Mr. Konrad von Finckenstein: Thank you, Don.

Thank you, Madam Chairman. That basically is a bird's-eye view of what this act has to do in the four groupings you have identified. We can go into detail in these groupings, or we can answer general questions. I'm in your hands.

The Chair: I would probably prefer, as I think would committee members, the opportunity to ask questions. We've all had the books in our office now for almost two weeks to review the detailed sections. They're very detailed, and they're very good with regard to the explanations and reasons.

That being said, I will turn it over to Madame Lalonde to ask questions.

[Translation]

Ms. Francine Lalonde: I'll try to pick up from where I left off earlier. Something which is important to me and, I believe to others as well, is this duplication that will result from this decriminalization, at any rate, there will be some duplication with the Quebec legislation. I'm not familiar with the Ontario legislation, nor with that of the other provinces, but I do know that the report put out by the Canada-US task force on deceptive telemarketing indicates that in Canada, the division of powers is such that the provinces have primary jurisdiction over business activities, ownership and civil law.

The ten Canadian provinces and two territories all have some type of consumer protection legislation. The majority of these acts contain provisions similar to those found in US legislation. I could go on and on. However, mention is made of the fact that the provinces do not have the power to adopt criminal legislation, but that they can adopt creative provisions to deal with ownership and civil law offences, which include many business activities.

The offences found in the Quebec Act on the Consumer Protection Bureau and the definition of these offences run parallel to those found in clauses 45, 47 and 51. The fines are also the same. However, there are some important differences with respect to what you want to implement here.

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In all honesty, I believe that there is some duplication here and I also believe that, in some respects, there are some differences that create problems. I would therefore also like to take a look at this issue with respect to other provinces as well.

For example, the Quebec Act states:

261. No person may derogate from this Act by private agreement.

262. No consumer may waive the rights granted to him by this Act unless otherwise provided herein.

Your power to request an order, which is the equivalent of the injunction found in the Quebec Act, also provides that the person must be given 48 hours' notice of the order and that the order can be agreed upon. I don't have the exact wording of the legislation, but I believe that it may in fact contain some things that could not have been in the order.

Accordingly, I would say that I'm concerned about what is happening to citizens' rights. Generally speaking, I'm worried about duplication and contradictions that may occur. I'm also bothered about what is meant by this administrative monetary penalty which, in my mind, means "fine". Perhaps you didn't want to use this term because of possible "constitutional" problems.

So I'll ask you the question outright. Have you given any thought to the possibility of this aspect of the legislation leading to constitutional challenges? If so, I would like to know what answers you received and, if not, do you not think it's dangerous to amend an act which in fact could not be enabling legislation for you?

[English]

Mr. Konrad von Finckenstein: Towards the tail end, yes, of course we have looked at the constitutional aspect. Like all legislation presented by the federal government before Parliament, it is examined with respect to the Constitution and the charter to make sure it's consistent, and in our view it is.

In terms of duplication and overlap, I'm absolutely in agreement with you. I want to avoid all duplication and overlap. There's no intention here to cover anything twice. A lot of these issues are interprovincial and cover more than one province.

Secondly, this is not a consumer protection statute. This is a statute that's designed to promote a competitive system, and our focus is different. As I mentioned in the answer to the question from Mr. Bellemare, we are trying to make sure there is adequate information on the marketplace, objective neutral information allowing the consumer to make an informed choice. We're not trying to protect the consumer. Our focus is slightly different.

We work very closely with the provinces and there is no overlap. I don't believe there is one, but I will ask my colleague Mr. Wright, who will be administering this on a day-to-day basis, to give you more detail on this.

Mr. Tom Wright: My understanding, as the director has pointed out, is that this will enable the federal government to deal with cases which cut across a multitude of jurisdictions.

Our ability to deal with companies who are affecting the welfare of other companies is a particular area where I don't believe the provincial statute has an ability to offer protection. It seems to me a number of these activities can only be handled effectively at the federal level, through the views that we have here.

We have a long history, in fact, of working cooperatively with the agencies in the province of Quebec and in fact in the other provinces. Ultimately, for effective law enforcement in dealing with a number of these issues it is going to be through the cooperation, information sharing and liaison that we are able to succeed. Equally, provincial offices, including offices in Quebec, have referred cases to us to be followed up and to be pursued, resulting in some complementary enforcement activities.

• 1035

[Translation]

Ms. Francine Lalonde: Excuse me, but I do think that there was a difference previously. Indeed, the provinces could not deal with issues under the criminal regime, but now, you are intervening in matters that come under their jurisdiction. So what will the difference be? I must say that I have tested this. Many of your complaints deal with activities that are going on in one province alone, whether this be Quebec or elsewhere.

For instance, let's consider the famous case in Sherbrooke where the owner of a driver education school was sent to prison. If the legislation were amended, would things turn out the same way? Or if you could choose to issue an order?

[English]

Mr. Konrad von Finckenstein: Well, the case you're referring to was not a misleading advertising case, it was a conspiracy case.

[Translation]

Ms. Francine Lalonde: Yes, that's true.

[English]

Mr. Konrad von Finckenstein: Our cooperation with the provinces is really working very well, and we have no intention of doing their work. To the extent that there are issues coming up in the province such that the provincial government has the capacity to look after this, and does look after, that's obviously of help to us, and we certainly don't intend duplicate anything.

We do share information constantly. We have different laws. We have a different focus.

Basically, they look after the cases they can handle and we look after the ones we can handle that they can't handle.

[Translation]

Mr. Tom Wright: Often, it's the province of Quebec that will refer cases to us where Quebec citizens have been affected by the activities of individuals living in other provinces. It is because of this type of co-operation that we should continue operating like this. As I explained earlier, the ability to use the civil track makes us more efficient. This efficiency will benefit Canadians throughout Canada. As the director said, we want to cooperate with all provincial agencies. At any rate, we are not trying to duplicate operations.

Ms. Francine Lalonde: I would like to point out that even though this is not the objective you're seeking, this is what is going to happen all the same. I'm not talking simply about you.

Ms. Nicole Ladouceur: I'd like to add to this answer. We are working very closely with the provinces. Moreover, we have a federal-provincial committee that meets every month by conference call and physically every two to three months per year. We discuss consumer problems at the provincial level but also at the marketplace level, therefore, at a level where the federal government may intervene.

As far as Quebec is concerned, we work with Ms. Nicole Fontaine of the CPO on a regular basis and we also worked with her predecessor, Marie Bédard.

When we receive a complaint, the purpose of our initial analysis is in fact to determine the question of jurisdiction. If it is truly a matter involving contract law between a Quebec consumer and a Quebec company, or even a company outside the province, if it's really pure and simple contract law, we refer the file to the Consumer Protection Office. However, if we're really dealing with a marketplace problem—

Ms. Francine Lalonde: That is at the commercial level. You have a rather narrow field there.

Ms. Nicole Ladouceur: The existing Federal Constitution also allows federal authorities possible intervention at the commercial level. The powers are mostly used for interprovincial problems.

There is also a matter of resources; I think that all of the authorities concerned try to use the resources at their disposal as effectively as possible. That is why there is real co-operation with all of the provinces to attempt to solve the problems in the most effective way possible. We try to use the tools that are at our disposal to do that.

Ms. Francine Lalonde: You talked about your intention but not about this tool that gives you the means to intervene in the other field of jurisdiction. I'll get back to this. We'll talk again in the course of the next few weeks.

[English]

The Chair: Thank you, Madame Lalonde.

Mr. Shepherd.

Mr. Alex Shepherd (Durham, Lib.): Thank you, Madam Chairman.

We've been using the word “wiretap” around the table, but in fact the legislation doesn't talk about wiretaps, does it? It talks about the interception of private communications. Is that it?

• 1040

Mr. Konrad von Finckenstein: It's a technical term. It's the interception of private communications. Wiretapping is the layman's term for it.

Mr. Alex Shepherd: Well, I mean there must be other types of interceptions of communications, like bugs, listening devices. Are there are other forms of interception?

Mr. Konrad von Finckenstein: I have with me a colleague from the Department of Justice who's our expert on wiretapping. If you want, I'll have Yvan Roy from the Department of Justice answer the question.

Why don't you take that chair there, Yvan, and answer the question?

Mr. Yvan Roy (Senior General Counsel, Criminal Law Policy Section, Department of Justice): What's being proposed in Bill C-20 is to extend the definition of what is private communication so that part IV of the Criminal Code of Canada can be used for the purpose of investigating some offences that have been created or exist already in the Competition Act.

The word “wiretap” is simply a way of describing how things are being done, but quite frankly, someone who would be wearing what is called in law enforcement jargon a body pack, which is a device to record a conversation with someone, who would be wiretapping someone. It's a general word that simply refers to a number of ways of doing something.

Mr. Alex Shepherd: In other words, you are using the term “bugged” or installing listening devices in people's premises. This would be included in this legislation.

Mr. Yvan Roy: Absolutely.

Mr. Alex Shepherd: It talks about expanding this definition, and it includes the issue of conspiracy. Conspiracy under section 45 seems to have a very wide definition.

Mr. Yvan Roy: Yes.

Mr. Alex Shepherd: It talks about manufacturing, productions, purchases, and supplies. It goes on to say that it shall not be necessary to prove that the conspiracy would likely eliminate or completely virtually eliminate competition in the market. In other words, it's a pretty wide, general definition, and you don't even have to prove that in fact the conspiracy ended up in an indictable offence possibly.

This doesn't just apply to telemarketing, it applies to all other sections of that act as well, doesn't it? So you're actually giving the Competition Bureau additional powers of investigation, not just dealing with wiretapping or telemarketing, but in all other sections of the act. Is that correct?

Mr. Konrad von Finckenstein: No, that's not correct. Unfortunately, it's limited to three provisions: bid-rigging, conspiracy, and deceptive telemarketing.

In terms of conspiracy, as I mentioned, we filed those guidelines with you. We mean to only deal with conspiracy to price-fix or market-share, nothing else.

It's for the very reason that you just mentioned. Conspiracy is, of course, wide. It can be any kind of other act under the Competition Act. Any violation can be done by way of a conspiracy. We're not concerned with those, we're only concerned with the conspiracy to fix prices or to share markets.

Mr. Alex Shepherd: It says that these provisions will include those sections under section 45, which includes conspiracy.

Mr. Konrad von Finckenstein: You're absolutely right. I tried to explain this earlier to Mr. Schmidt.

The act, the way it's written, does not parse out section 45 into subsets of types of conspiracies. It covers anything. It's the whole broad spectrum of conspiracy to unduly lessen competition.

As for the ability to wiretap, we intend to apply that only in cases where there is price-fixing or market-sharing, nothing else. That's why I issued those guidelines saying that if this Parliament should enact it, in the way the director will administer that power and exercise it, he will only apply to a court in the case where there is a conspiracy to fix prices or share markets.

Mr. Alex Shepherd: Why wouldn't that be enshrined in the legislation rather than in a separate guideline?

Mr. Konrad von Finckenstein: Because essentially our drafting difficulty is in the way section 45 is written right now. How do you contain it, given that section 45...? If you look at section 45 in the original act, it doesn't mention anywhere price-fixing or market-sharing. It's a drafting issue. That's why we have approached it like this.

• 1045

Mr. Schmidt already mentioned that we should attempt to make amendments to limit it to price-fixing and market-sharing. My answer to him is the same I give to you: it is not our intention to go beyond that. If it can be done, by all means. That's what we're trying to focus on, on price-fixing and market-sharing.

Mr. Alex Shepherd: Let me try to clarify it. If you felt that there was some kind of conspiracy in the banking industry, through maybe one of these mergers, to somehow unduly restrict trade or competitive forces in the marketplace, do you have the right to bug boardrooms in the Royal Bank?

Mr. Konrad von Finckenstein: No, because we would not apply that; it's not our intention to do this. I would deal with that with the other powers I have under the act. What we try to do here is when people come together and try to deliberately say that you will charge so much and I will charge this much, or you will service this province and I will promise that.... I'm not the slightest bit interested in bugging boardrooms, in getting information on other commercial activity, etc. In terms of that kind of activity, we can get it under our existing provisions, and we do. In regard to our relationship with the industry, a large part of it is consensual and cooperative, as my colleague mentioned. For mergers, etc., they have a business to do and I have a business to do, and we have to do it together.

There are those few players in the industry who deliberately engage in criminal conduct, who violate the law with full intent. Those are the ones I'm trying to go after. They do that usually in one of two ways: they try to lock markets among each other or they try to fix the price.

Mr. Alex Shepherd: So it certainly isn't just related to telemarketing.

Mr. Konrad von Finckenstein: It's three provisions of the act: telemarketing, conspiracy, and bid-rigging, where contractors get together and decide who will win the bid beforehand.

Mr. Alex Shepherd: Getting back to the question of mergers, I understand what you're talking about when you say you are studying the transactions and so forth. What other conditions do you take into consideration? Do you take into consideration how the industry is evolving, for instance that there could be subsequent consolidations in that industry, and how that has occurred in other jurisdictions, other countries?

Mr. Konrad von Finckenstein: Indeed we do.

Ray, maybe you want to say exactly how you do it.

Mr. Raymond Pierce: Yes. We take into account all the economic circumstances and factors that are occurring in the industry, so we would look at other consolidation. Typically what we do in these detailed reviews is we would approach other participants in the market, for example major competitors, and determine whether or not they have any plans on producing additional products or competing with the parties that are merging, that sort of thing. It is a very fact-intensive exercise we engage in.

The Chair: Mr. Pankiw.

Mr. Jim Pankiw (Saskatoon—Humboldt, Ref.): Thank you, Madam Chair. My question is for Mr. Wright.

I think the best way to ask my question is to paint a picture. Mr. Wright, let's suppose that you're the director of many corporations, a very busy person, and one of the businesses you own is a retail business and I'm your manager. But because you're such a busy person you only see me once a week for an hour; you have trust in me and that's the way it is. I decide to enter into a deceptive telemarketing scheme to increase the business and profit, whatever my motives may be. Maybe my remuneration is tied to the profits of the company or I'm bucking for a promotion, whatever. Maybe I'm just inherently a bad guy. But I do that and it comes to light. According to proposed subsection 52.1(8), you are assumed guilty and have to prove your innocence.

I don't think that's right. I think the onus should not be on you to prove your innocence but rather it should be established that you directed me to do it or had control and knowledge of what my activities were.

• 1050

Mr. Tom Wright: I think you'll find that the act provides for a defence of due diligence in a case like that. So I think you'll find that the issue you're describing—

Mr. Jim Pankiw: I understand that, but it's a provision of a defence. It's an assumption of guilt, though, isn't it?

Mr. Konrad von Finkenstein: No, it's not an assumption of guilt. Don't forget, before we lay the charge, we will look at all the facts. We will look at what happened in that business, etc. We will look at what is the relationship, in the hypothetical you paint, between you and your superior. What are the internal rules the company has established? What are the instructions you have given, etc.? We will lay a charge where we feel that indeed the act has taken place and there has been no attempt made to ensure that people who work in the company act in accordance with the law.

Then, once we lay the charge, you have the ability to rebut and say no, sorry, you have it wrong. We actually have these books in place and we have the due diligence. But we wouldn't lay the charge. First of all, it's not us; we would refer it to the Attorney General, who would lay the charge, but he would lay it only after the facts have been examined and it's clear that in this case the act has been committed and there's no attempt being made at all to ensure that there is compliance with the law. There have been no instructions. There have been no explanations, etc. On the contrary, you can read into it that there has been implicit sanctioning.

Mr. Jim Pankiw: Just to clarify that then, let's say the circumstances are not very clear and Mr. Wright is an aloof type of manager and there was no intent, but it's difficult for him to establish that. Do you think that this clause is implying the guilt upon him, or are you implying that his responsibility is up to him to prove? Do you see what I'm getting at?

Mr. Konrad von Finkenstein: You are really asking a philosophical question. It strikes me that if you are in a business, you engage in an activity, etc., and you hire people to do work for you, it's incumbent upon you to ensure that the activity you're engaging in, and which you are employing other people to engage in, is in comformity with the law. That's part of being in business. You're the employer. You employ these people and you tell them what to do. But make sure you tell them what they can do and what they can't do. That's normal. You said if they don't breach the law.... If they then breach the law and we come and we charge the people and we charge you as well, what this act says here is you have a defence. You can show that you told them, but they did it against your specific instructions.

The Chair: Thank you, Mr. Pankiw.

Mr. Lastewka, did you have questions?

Mr. Walt Lastewka (St. Catharines, Lib.): Yes, Madam Chair.

Mr. von Finckenstein, the wiretap issue is, as you see, a concern with the committee. I'd like you to go back and explain the procedure of when the wiretapping procedure is triggered and for what types of situations.

Mr. Konrad von Finckenstein: You have to assume that we have received a complaint or we have started an investigation because there's some suspicious activity. We examine it. We go through the process of gathering the evidence. We will have tried to obtain whatever necessary evidence we have through the various powers that we have once we go on an inquiry, which just means that we can demand the documents be supplied to us. We can have a search and seizure done. We can put people under oath and question them about the activity in question. We have done all that. We may also have somebody who has turned over evidence and has come to us and told us what activity is going on and how he is being a participant, wilfully or against his volition, whatever. Those are the facts.

• 1055

So that's a situation that's an ongoing activity, but the evidence that we have is not sufficient, in our view, to mount a successful prosecution. We know it's continuing, and at this point in time we will want to apply for wiretapping. We would then apply to a judge, asking for the ability to wiretap this transaction or this activity at that place, at that time, etc., because we believe there will be evidence of a criminal conspiracy. Those will be the cases of conspiracy, which seem to be the concern of the committee.

I expect the majority of the cases we will use these powers for will be for telemarketing, where we have complaints from senior citizens who have been deprived of their savings. Say we have looked into it and come to the conclusion that the senior is probably not going to be a very good witness, that some of their memories are faulty. It is an outfit that does this for a living. It's one of those boiler rooms that just phone around and try to catch people in the afternoon, when they know people are at home who are retired, and work up a personal relationship.

Then the question is how do we get the concrete evidence? What we have is only the effect, the victim there, etc. However, when you go after these companies, they will say, “Well, I'm sorry, but I laid it all out. I explained what the situation was, and there's a misunderstanding”, etc. There's nothing to search, there's nothing to seize, because most of their records are electronic, and you're talking about phone conversations. The best evidence in such a situation would be to record an actual telephone call. So we would get that on tape, and then you have exactly: Did the person misrepresent or not? Did they identify themselves? Did they ask for a payment for a prize before the prize was delivered? Did they disclose the fair value of whatever product they were selling, or not? That will then allow us to proceed and put these people out of business.

Mr. Walt Lastewka: When you get telemarketing complaints, do you wait for the six complaints? When do you click in for telemarketing complaints?

Mr. Konrad von Finckenstein: The moment we get a complaint, we look into it. It doesn't have to be six residents. It can be just one person complaining to us about what has happened. We look at it and see if it warrants an investigation or not. If we do, we will investigate it. If we feel it's an isolated incident, and there's insufficient evidence, or the situation is unclear and there may have been a misunderstanding, obviously we don't.

Mr. Walt Lastewka: Madam Chair, I'll share my time with Mr. Ianno.

Mr. Tony Ianno (Trinity—Spadina, Lib.): Thank you.

On the 35% threshold rule, in terms of determining what is acceptable in competition, how do you determine who it best serves when that question comes into play—in other words, Canadians at large, the company, the industry, international or domestic?

Mr. Konrad von Finckenstein: First of all, the 35% rule is a rule of thumb, as you know. It's not an absolute guideline, but one we have established.

Second, our business is to ensure that there's a competitive marketplace, not to protect competitors. I'm not looking at the impact on a particular company, etc. I want to make sure that there is a competitive market, and that after the merger, should it succeed—and there should be a market share around the 35%, etc.—there will still be a competitive marketplace. Will there be sufficient competitors? Will there be an ability by the person who has the market share of 35% or above to control the market, to influence the behaviour of others, or not? Will there be other entries to the market so that other people will come in should that person attempt to raise prices, or is the market so competitive that there will be other entries and he will not be able to sustain prices?

So the whole idea is to assure that there is a competitive marketplace, because by definition, a competitive marketplace will benefit the consumer.

Mr. Tony Ianno: When you look at the overall question, how do you deal with a rural community versus an urban community? Do you look at that split at all—whether someone voids a certain community, in terms of banking; whether, yes, there is the option for someone else to come in, but will that void be taken and therefore more competition...? How do you look at that issue?

• 1100

Mr. Konrad von Finckenstein: We look at markets. We look at the market in terms of product and also in terms of geography. What is the market for the product? I presume you're thinking about banks. What are the markets in terms of products that the bank is in? Are mortgages a market? Are credit cards a market? Is deposit-taking a market? And so on. We also look at it in terms of geography.

If you want to sort of know the exact procedure, I think Ray can probably explain it better than I can.

Ray, would you answer Mr. Ianno's question?

Mr. Raymond Pierce: Well, I think that's a very good explanation.

We will be, in the banking merger, looking at the impact of the merger on local market areas. Some of those will be rural market areas, obviously, and we'll be looking at the impact. We look at a number of factors in terms of whether or not there's effective competition remaining—whether there would be other entry into those markets, for example. Is there going to be a loss of a vigorous and effective competitor? Those are the kinds of economic issues the act directs us to look at.

Mr. Tony Ianno: How would you deal with it if the answer was no, there's not enough competition in certain markets, but in other aspects that you're looking at there is? How do you address that? Do you make recommendations on an individual market basis, or do you do the overall answer: no, we can't let this go through because of A, B, and C? How do you deal with that?

Mr. Raymond Pierce: First of all, the test is whether or not the merger will cause a substantial lessening of competition in a particular market. If it does, then we're looking at a remedy that potentially looks at, for example, divestiture of a branch or a branch network to others that would come in and operate that network and maintain the viability of competition in those markets.

Mr. Tony Ianno: Similar to, I guess, in the States, when they did AT&T and the breaking up of the Bells there?

Mr. Raymond Pierce: I don't know if I would compare it to that kind of order.

Mr. Tony Ianno: No, not the order, but the same concept—sell, and that way we still keep the integrity.

Mr. Raymond Pierce: It's the same concept.

Mr. Konrad von Finckenstein: We recently had a case involving flour mills, which probably will illustrate the points Ray is making. Ray, why don't you explain what we did?

Mr. Raymond Pierce: It was a recent merger of companies in the flour industry, and because there was an impact in the Quebec market, the eastern markets, the tribunal ordered the divestiture of one of the plants, to try to resolve that. So we have the divestiture of those assets, and a new competitor will come into that market and operate those assets so the level of competition that existed pre-merger remains, to remedy any potentially anti-competitive effect.

Mr. Tony Ianno: Just on a different perspective, if by growth and expansion someone eventually hits the 40% mark that seems to have crept up, how is the Competition Bureau notified? How does it keep its eyes on the ball when the ball doesn't seem to be moving but all of a sudden has sort of grown beyond the 35% rule of thumb?

Mr. Raymond Pierce: There's nothing that prevents a company from growing internally. If it's growth through a merger and they meet the notification requirements, then that's something we would see. We would see that kind of transaction.

Mr. Konrad von Finckenstein: The point is, you're now moving out of mergers. I assume implicit in your question is that company has grown and has taken a 40% or 45% market share, and is also using the power in that market share in an untrammelled way. If that's the case, then we can look at it in terms of abuse of dominance, and see whether there's a case to be made, and move against them, not on the merger front but on another provision of the act.

Mr. Tony Ianno: But how would that get triggered? How does it happen?

Mr. Konrad von Finckenstein: Usually by competitors complaining to us or customers complaining that they have no effective choice—that this one company is so dominant that they control the market. Regardless of where they go, they get the same price.

Mr. Tony Ianno: In the food distribution network I hear some concerns from a lot of small business people who are supplying to large independent grocers, etc., and that seems to be taking hold. Of course we all understand the shelf fee and all the other issues that come to bear. It reminds me almost of tied selling on the banking side, or—you can't use the word “extortion”, because that's not good—something that forces people to pay to ensure that either competition is not on the shelves or that their product is on the shelf. How do we deal with that in Canada?

• 1105

Mr. Konrad von Finckenstein: I'm aware of the complaint. I actually went to the Canadian Food Processors Association and spoke to them. The issue is one of evidence. A lot of people are making allegations. Nobody has come forward with evidence and saying they are being victimized, that this is happening to them, and so on, and please look into it.

Until there is some tangible evidence for us to start an inquiry and look at, there is not very much I can do. The problem is there are a lot of allegations, but so far no substantive evidence of any kind has been shown.

Mr. Tony Ianno: It's very difficult for one business to come forward and say it has had to pay $250,000 to get on the shelf, in an isolated case, because at that point, especially if one of the grocers owns 30%, 40%, or 50% of the distribution network, if they were known to be complaining, they're finished, especially in Canada, unless they export.

Have you thought about trying to do a multi-approach that will not isolate one company but will in effect give the opportunity for some to give evidence that at least does not expose them to the point of detriment, to see if it's real or if it's more than just one?

Mr. Konrad von Finckenstein: I'm not saying I need only one complainant, and so on, but I need some evidence. Nobody has come forward to the bureau with any evidence. All I have heard is allegations. I can't deal in allegations. There has to be some evidence, some behaviour, some pattern, some symptoms in the market that lead you to believe at least this is taking place.

I cannot act on mere suspicion or allegations, and it would be an abuse of my powers to do so. As Madame Lalonde pointed out, I'm vested with considerable powers but I have to exercise them very carefully and very prudently. I don't want to disturb the economy. I don't want to disturb the normal functioning of the marketplace. So unless somebody comes forward and gives me evidence that somehow there is a market imperfection here and this market imperfection is not because of competitive forces but is actually caused by somebody taking advantage, I don't know that I can or should intervene.

Mr. Tony Ianno: If several came forward, would you be prepared to consider studying that?

Mr. Konrad von Finckenstein: I'll look at any evidence that anybody brings forward to me to see whether there is any undue competitive behaviour.

Mr. Tony Ianno: Thank you.

The Chair: Thank you, Mr. Ianno.

[Translation]

Ms. Lalonde, did you have another question?

Ms. Francine Lalonde: Yes, I do. First, Mr. von Finckenstein, you corrected me when I indicated that there had to be six persons for a request to be made. I studied the Act and it says there that six persons residing in Canada of 18 years or less may ask the Director to initiate an investigation. That is why I said "six". You said "one" because you consider that one voice is enough, but the law says six.

[English]

Mr. Konrad von Finckenstein: I will correct you on just one point. I can look at any complaint. When six people come and file a complaint, I have to look to them.

[Translation]

Ms. Francine Lalonde: That's it. And you can look yourself, as well. I have a few brief questions still on various areas and I will get back to the matter of duplication later.

I was surprised to note that there is a provision in the Act about the use of wiretaps because the Canada-US Committee recommended last November that further study be done before including that in the law. And yet the Bill, which is also from last November, forges ahead and asks for wiretaps. You have already provided reasons but I would like to know why you chose to do this immediately rather than waiting for the study to proceed further, as had been recommended.

[English]

Mr. Konrad von Finckenstein: Clearly, the binational task force pointed out that this is an area that warranted further study. Because it would be inappropriate to tell governments what to do, they just point out what is an issue that needs looking into.

The government, seeing the abuse that's taking place in the telemarketing, and so on, and since it wants to approach this in a comprehensive way, establishes the new crime of telemarketing. It puts the obligation on telemarketers, on what to do. It backs it up with the provisions regarding why it's happening. Because for the reasons that I mentioned already several times today, there is a difficulty in obtaining substantive evidence. It is a very narrow one, as you can see. It is for only three sections of the act, and the guidelines make it even narrower, because that's really all we are concerned with.

• 1110

The fact that the task force said look into this, etc., is the euphemistic, diplomatic way that international task forces talk, rather than their making outright suggestions on what the government should do. Clearly it is now up to the governments and the parliaments of each country to decide what's appropriate.

Mr. Tom Wright: It's perhaps worth noting that members of our organization were on the drafting committee of that report. So the recommendation and the direction that was being considered was known as early as June, when the meetings first took place. The actual final report had originally been intended for publication in September. So we were in fact able to do some parallel work.

Mr. Konrad von Finckenstein: Thank you for that clarification.

[Translation]

Ms. Francine Lalonde: Correct me if I am mistaken, but it seems to me that this is the first time we see such a provision in commercial law in Canada.

[English]

Mr. Konrad von Finckenstein: Do you mean wiretapping?

[Translation]

Ms. Francine Lalonde: Yes.

[English]

Mr. Konrad von Finckenstein: We have the Criminal Code right now, which provides in section 183 the various offences for which you can wiretap. There's a whole list of them; it's over a page long—

[Translation]

Ms. Francine Lalonde: I know, because I looked.

[English]

Mr. Konrad von Finckenstein: —and it deals with the Criminal Code and with all sorts of other statutes. It doesn't only deal with the Criminal Code.

[Translation]

Ms. Francine Lalonde: There are other laws, but no other laws pertaining to trade.

[English]

Mr. Konrad von Finckenstein: Yes, indeed it does. I think bankruptcy is a part of business; it deals with bankruptcy. It deals with the Export and Import Permits Act; it deals with the Customs Act. These are all business statutes, and you are allowed to wiretap with regard to offences under those acts. As I say, I don't see philosophically the difference between doing a fraudulent bankruptcy and having a conspiracy to fix prices of share markets. In both terms you're committing an economic crime.

[Translation]

Ms. Francine Lalonde: Let's talk about decriminalization. I have several concerns about all of these provisions. I expressed some of them, the ones about duplication, among others, and I was not convinced because it seems to me that there are going to be two civil legal instruments that will not contain the same provisions and will cover the same territory. It seems to me this makes no sense, prima facie, as lawyers would say.

I have however another concern which I expressed to the Minister. We are weakening the law, and sending out a certain message. I read the decision that led to the incarceration in the case of the driving lessons plot. The judge had said that the entrepreneurs were not necessarily... I am going to read it.

The difficulty in detecting the crimes the accused has been convicted of justifies the imposition of more serious sanctions than simple fines. Indeed, those fines are often paid by the corporate entity which diminishes the respect which is necessary to the effectiveness and proper operation of the Competition Act. The Supreme Court has in effect recommended the imposition of sanctions that will force Canadian business people to understand that the undue constraining of competition and the use of threats to increase or reduce prices unreasonably are prohibited. In the interest of Canadian society an exemplary and appropriate sentence must be imposed...

It seems to me that in so doing an important message was given in a society where there is an increase in the gaps and where little people can be given long prison sentences for offenses that seem much less serious than price fixing.

• 1115

Won't decriminalization change the balance of power? Just as you are giving yourselves the means to obtain proof by using wiretaps, you are decriminalizing. Isn't there a contradiction here?

[English]

Mr. Konrad von Finckenstein: No, with respect, I don't think so. What we're doing is targeting. We want to make sure we deal with criminal activities effectively and in such a way that our actions will work as deterrents for future activity. Some of the activities that right now fall under the criminal regime and that are being decriminalized, as you say, are not being weakened. It's because essentially this is not a criminal activity. We have the dual mode on misleading advertising. We can go criminally as deliberate, wilful, reckless conduct, there is no question about it, but in the vast majority of misleading advertising cases we're not talking about criminal activity.

[Translation]

Ms. Francine Lalonde: That's very nice. Deliberately and with no regard for the prejudice caused, you are adding it to this act. It wasn't there before.

[English]

Mr. Konrad von Finckenstein: Yes, right. I'm making the deliberate distinction between the two things. One is somebody goes out to commit a crime. He has the intent to mislead. The other one is a merchant who puts out an ad. It may be misleading, but he wants to sell his product. He may have done something that is inappropriate and he should be stopped. Under certain circumstances he should be fined; for instance, if he's a repeat offender he should be fined. I don't think it's in the same boat as this person who deliberately breaches the law with the full intent of what he's doing, and he's committing a crime. Those are two separate areas.

What we're trying to do is target the criminals and go after them full blast. Those people who are really engaged in an economic activity and who engage in anti-competitive behaviour, who step over the line.... It is an excessive zeal, if you want, or a sharp business practice, whatever. It isn't a crime. They should not be treated as criminals. That's what we're trying to do under this legislation.

[Translation]

Ms. Francine Lalonde: If you give me more time I will ask more questions, but I could also stop here.

[English]

The Chair: We actually have one more question from Mr. Shepherd. The witnesses have already been here longer than they anticipated. So if it's okay, Madam Lalonde, we'll move on.

Mr. Konrad von Finckenstein: Perhaps I could just add one last thing. This decision was not ours. It was done on the basis of extensive consultation. We had this consultative panel. We had all the players from the industry: the advertisers, the purchasers, the producers, the manufacturers. They all felt this was the proper way to approach the subject.

[Translation]

The Chair: Thank you, Ms. Lalonde.

[English]

Mr. Shepherd, you have a question.

Mr. Alex Shepherd: Going back to the listening devices, you talk about limiting your authority under the conspiracy provisions to price-fixing and market-sharing. Under the definition clauses of the bill, I don't see any definition of these two terms, “price-fixing” and “market-sharing”. Are there definitions?

Mr. Konrad von Finckenstein: That's one of the problems. How do you define it so that you do not limit yourself, so that when you come to actually prosecute somebody you know there's an argument technically that this is not market-sharing? That's why the route we have chosen is to do it by guidelines. To determine, to define in advance what is “market-sharing”, which can take various forms, you run the danger of somebody stretching himself around the provisions so that he's market-sharing but he doesn't fall into that exact, precise definition you have crafted.

Mr. Alex Shepherd: In reality, it's giving you a great deal of discretion, because whatever definition you determine it to be, the section allows you to impose listening devices on people.

Mr. Konrad von Finckenstein: As with all discretions, you have to exercise them judicially and you have to exercise them wisely. It is a discretion because it's difficult to define. If you are worried about us abusing our power, section 45 as it is right now gives us a vast scope of authority to look at all sorts of activities and to say these are conspiracies and to drag people into court. We don't do that. We exercise our section 45 power very narrowly and very judiciously, trying to go after conduct that is truly criminal and anti-competitive.

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If you look at the bare wording of section 45, it has a huge scope, and you could encompass a lot of activities if you wanted, in effect, to incorrectly use that discretion.

Mr. Alex Shepherd: I guess the question is that it depends on your good nature, as opposed to what's in the legislation.

Mr. Konrad von Finckenstein: But it depends also on the courts. Don't forget that the courts are there to discipline any excess use of power.

Mr. Alex Shepherd: But these are increases in your existing powers. What evidence is there that you've been unable to convict or you've been unable to break up price-fixing or market-sharing and that you now have to come to Parliament and ask for these increased powers?

Mr. Konrad von Finckenstein: As I mentioned earlier, we actually have had cases where somebody has come to us and said there is this conspiracy going on and they're actually part of it, and they have given us.... Of course in anticipation of getting a lighter sentence by being a cooperative witness, they're telling us there are further acts of conspiracy happening, time and place when they're happening. But there's no way we can intercept that meeting, however it takes place, whether it takes place over a telephone conference call or by an actual meeting, unless that person consents to us taping it. There is a sort of psychological barrier, for a lot of witnesses, to go that final step and actively assist in the downfall of their fellow plotters.

Mr. Alex Shepherd: So how many lost convictions or unable to convict would there have been? What's the abuse we're trying to deal with here?

Mr. Konrad von Finckenstein: I can't give you the precise nature at this time. All I can tell you, as I've said several times now, is I expect this power to be used primarily for telemarketing. There are occasional cases under both sections 45 and 47 where we will make an application to a court for permission to use this power, hoping to make a sufficient case to the judge that indeed our existing powers are insufficient. By definition, if the existing powers are sufficient to deal with it, we won't get the order. Even if we did get it, the court would throw it out when we tried to bring the case in, because the first motion that the defence usually brings is trying to attack the law and saying it was obtained without sufficient authority.

The Chair: Thank you, Mr. Shepherd.

Madame Lalonde, you assure me it's one brief question.

[Translation]

Ms. Francine Lalonde: You did not answer the part of my question on decriminalization and on the two civil legislative measures that bear on a certain number of identical points and would thus be in competition with each other. This wouldn't happen otherwise and it seems to me that this makes no sense either. The Quebec law is very clear with regard to misrepresentation but when you move away from the criminal area, the provisions are not the same. Thus, businesses or citizens would be able to choose between the two. This makes no sense.

[English]

Mr. Konrad von Finckenstein: Let me just answer globally, and then I'll ask Nicole to give you more detail on what we actually do on a day-to-day basis.

We have a different focus. As I've mentioned several times, we've tried to ensure a competitive marketplace. The provincial legislation tries to protect the consumer.

Secondly, we were looking primarily, of course, at issues that cross provincial boundaries and therefore are outside the domain of a single government. But certainly we work really very intensively with the provincial governments in order to coordinate our activity so that there can be no question of overlap or duplication or working at cross-purposes.

Nicole, would you amplify on that, please?

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Ms. Nicole Ladouceur: Thank you.

[Translation]

Ms. Lalonde, this is a problem or an advantage that exists at the present time. It often works to the advantage of enforcement agencies.

I'll give you an example that concerns telemarketing. The line between misrepresentation and fraud is often very slim, on the issue of misrepresentation. We are thus going to work very closely with the RCMP and with the Sûreté du Québec in Quebec, as that police corps is responsible there for the enforcement of the Criminal Code.

When the evidence does not allow for sanctions under the Criminal Code, we often continue our work by using the Competition Act. I see a similar scenario insofar as administrative sanctions in civil matters are concerned. I think that we first of all have to look at where the offence occurs, in the context of the law, and then look at possible sanctions.

We work with the provinces and they are often the ones to tell us that they have tried everything with a given business and that their administrative sanctions or penalties are not sufficient or that the decisions handed down by the courts are contradictory. They ask us, in our capacity as a federal agency, to do something.

Ms. Francine Lalonde: Yes.

Ms. Nicole Ladouceur: There are also an increasing number of trade practices that are spreading throughout the country. If we consider the importance of consistency for enforcement agencies actions, I think once again we can see an advantage here.

You raise something that exists in a number of areas, the fact that there is a possibility. Often, this possibility derives from the fact that we have laws with very different objectives. The Competition Act governs market activities and rules, principally, whereas the Consumer Protection Act adopts a completely different angle. Although there is the occasional overlap, the objectives are quite different.

Ms. Francine Lalonde: But until now, you did not have this law...

A voice: Oh!

Ms. Francine Lalonde: I'll stop here, but please be assured that I will continue. Thank you very much.

The Chair: Thank you, Ms. Lalonde.

[English]

I want to thank Mr. von Finckenstein and all the officials from the bureau who have been with us today and those who are behind who are also here to answer questions. As you can see, we could continue this discussion for many hours.

I anticipate that after other witnesses come before the committee we will have many more questions again. We'll have to determine, based on the number of witnesses, whether we need to meet with you during the witness procedure or just at the end. We'll play that by ear, if that's okay.

We thank you. I don't know if you have a concluding comment for us today.

Mr. Konrad von Finckenstein: Thank you very much, and we are at your disposal whenever you want help in this difficult examination of the act.

The Chair: Thank you very much.

I want to thank all the members. I know the clerk has been talking to you about the proposed visit by the minister from Norway on April 23 and 24.

Again, as a reminder, if anyone has any witnesses for Bill C-20, if you could let the clerk know, that would be great.

The meeting is adjourned.