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37th PARLIAMENT, 1st SESSION

Standing Committee on Industry, Science and Technology

COMMITTEE EVIDENCE

CONTENTS

Tuesday, February 5, 2002

0910

The Vice-Chair (Mr. Walt Lastewka (St. Catharines, Lib.))

Mr. Stanley Wong (Individual Presentation)

0915

0920

0925

The Vice-Chair (Mr. Walt Lastewka)

Mr. Stanley Wong

The Vice-Chair (Mr. Walt Lastewka)

Mr. Robert Russell (Individual Presentation)

0930

0935

0940

The Vice-Chair (Mr. Walt Lastewka)

Mr. John Rook (Individual Presentation)

0945

0950

The Vice-Chair (Mr. Walt Lastewka)

Mr. Paul Crampton (Individual Presentation)

1000

The Vice-Chair (Mr. Walt Lastewka)

Mr. Charlie Penson (Peace River, Canadian Alliance)

Mr. John Rook

1005

Mr. Charlie Penson

Mr. John Rook

Mr. Charlie Penson

Mr. John Rook

Mr. Charlie Penson

Mr. John Rook

The Vice-Chair (Mr. Walt Lastewka)

Mr. Robert Russell

1010

The Vice-Chair (Mr. Walt Lastewka)

Mr. Larry Bagnell (Yukon, Lib.)

Mr. Stanley Wong

The Vice-Chair (Mr. Walt Lastewka)

Mr. Paul Crampton

1015

Mr. Robert Russell

Mr. John Rook

1020

The Vice-Chair (Mr. Walt Lastewka)

Mr. Stéphane Bergeron (Verchères--Les-Patriotes, BQ)

Mr. Paul Crampton

Mr. Stanley Wong

1025

Mr. Robert Russell

Mr. Paul Crampton

1030

The Vice-Chair (Mr. Walt Lastewka)

Mr. Brent St. Denis (Algoma--Manitoulin, Lib.)

Mr. Robert Russell

1035

The Vice-Chair (Mr. Walt Lastewka)

Mr. Paul Crampton

Mr. John Rook

The Vice-Chair (Mr. Walt Lastewka)

Mr. Stanley Wong

1040

The Vice-Chair (Mr. Walt Lastewka)

Mrs. Bev Desjarlais (Churchill, NDP)

Mr. Stanley Wong

1045

Mr. John Rook

Mr. Paul Crampton

Mr. Robert Russell

1050

The Vice-Chair (Mr. Walt Lastewka)

Mr. Dan McTeague (Pickering--Ajax--Uxbridge, Lib.)

Mr. Robert Russell

1055

Mr. Stanley Wong

The Vice-Chair (Mr. Walt Lastewka)

Mr. John Rook

Mr. Paul Crampton

The Vice-Chair (Mr. Walt Lastewka)

Mr. Stanley Wong

1100

Mr. Dan McTeague

Mr. Robert Russell

Mr. Paul Crampton

The Vice-Chair (Mr. Walt Lastewka)

1105

Ms. Paddy Torsney (Burlington, Lib.)

The Vice-Chair (Mr. Walt Lastewka)

Mr. Paul Crampton

Mr. Robert Russell

1110

Mr. Stanley Wong

Mr. John Rook

The Vice-Chair (Mr. Walt Lastewka)

Mr. Andy Savoy (Tobique--Mactaquac, Lib.)

Mr. Paul Crampton

1115

Mr. Stanley Wong

Mr. Robert Russell

1120

The Vice-Chair (Mr. Walt Lastewka)

Mr. John Rook

The Vice-Chair (Mr. Walt Lastewka)

Mr. Roger Ware

1135

1140

The Vice-Chair (Mr. Walt Lastewka)

Mr. Tim Kennish (Individual Presentation):

1145

1150

1155

The Vice-Chair (Mr. Walt Lastewka)

Mr. Paul Crampton

1200

1205

1210

The Vice-Chair (Mr. Walt Lastewka)

Mr. Stéphane Bergeron

Mr. Paul Crampton

Mr. Tim Kennish

Mr. Roger Ware

1215

Mr. Stéphane Bergeron

Mr. Tim Kennish

1220

The Vice-Chair (Mr. Walt Lastewka)

Mr. Andy Savoy

The Vice-Chair (Mr. Walt Lastewka)

Mr. Roger Ware

1225

1230

The Vice-Chair (Mr. Walt Lastewka)

Mr. Paul Crampton

1235

The Vice-Chair (Mr. Walt Lastewka)

Mr. Tim Kennish

The Vice-Chair (Mr. Walt Lastewka)

Mr. Chuck Strahl (Fraser Valley, PC/DR)

Mr. Roger Ware

1240

Mr. Strahl

The Vice-Chair (Mr. Walt Lastewka)

Mr. Dan McTeague

Mr. Paul Crampton

1245

Mr. Dan McTeague

Mr. Paul Crampton

Mr. Tim Kennish

1250

Mr. Roger Ware

The Vice-Chair (Mr. Walt Lastewka)

Mr. Brent St. Denis

The Vice-Chair (Mr. Walt Lastewka)

Mr. Roger Ware

1255

Mr. Brent St. Denis

Mr. Roger Ware

The Vice-Chair (Mr. Walt Lastewka)

Mr. Paul Crampton

The Vice-Chair (Mr. Walt Lastewka)

Mr. Larry Bagnell

1300

Mr. Paul Crampton

Mr. Tim Kennish

The Vice-Chair (Mr. Walt Lastewka)

CANADA

Standing Committee on Industry, Science and Technology

NUMBER 065

1st SESSION

37th PARLIAMENT

COMMITTEE EVIDENCE

Tuesday, February 5, 2002

[Recorded by Electronic Apparatus]

¿ (0910)

[English]

The Vice-Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): I'd like to call this meeting to order pursuant to the committee's mandate under Standing Order 108(2), consideration of the competition law and policy.

This morning we have a panel of witnesses who will be with us in a round table: Robert Russell, a lawyer from Borden Ladner Gervais; Stanley Wong, a lawyer from Davis and Company; John Rook, a lawyer from Osler, Hoskin & Harcourt; and Paul Crampton, a lawyer from Davies Ward Phillips & Vineberg.

The procedure this morning is that we'll have some opening remarks of between five and ten minutes. At around the nine-minute mark you'll start getting a signal from the chairman to wrap up your opening remarks. Then we'll have a round table, and we have a total of two hours dedicated for this round table. So in order to be as productive as possible, I want to begin right away, and we'll go as written on the agenda.

Where's Mr. Russell? Mr. Wong, I think we'll start with you, since you're next on the list.

Mr. Stanley Wong (Individual Presentation): I talked to some of the parliamentary staff about the fact that it might be helpful to speak a bit about the context in which we're talking about the tribunal.

I come to this with some background in the area. I was counsel for the commissioner in the first contested case, the Southam case, which lasted some eight or nine years. I'm afraid to count the actual number of days. I also come from the perspective of not only being a lawyer but also an economist in my former life as an economics professor here in Ottawa at Carleton. And then thirdly, as a member of the Competition Tribunal and Bar Association liaison committee since 1997, I have engaged in a number of discussions and reform projects.

My view is that we're being harsh about the overall system. I think it's a pretty good system. I know I've made remarks before this committee about various changes that should be in place or that are warranted, but I think that by and large it's a pretty good system. Obviously, we can all make it more efficient, and that's the reason we're all here.

Let me just start now by commenting a bit for the benefit of the members who are maybe less familiar with the system as to the role of the Competition Tribunal. The tribunal was created in the 1986 amendments. Those amendments were the major amendments that brought in what is now called the Competition Act from the former Combines Investigation Act. At that time it was decided that the previous method of adjudication involving the Restrictive Trade Practices Commission--I know some members here are familiar with that--was not an adequate one because among other things the Restrictive Trade Practices Commission had investigatory powers as well as adjudicative powers. What we came up with was the classic Canadian compromise, that we have an adjudicative body made up of judges, the judicial members of the tribunal, and lay members of the tribunal, and that's basically the system we have.

The tribunal is responsible for what are the non-criminal provisions of the act; this is set out in part VIII, as well as now in part VII.1, I believe, or VII. This is the part that deals with the non-criminal adjudication of misleading advertising. But by and large, most and virtually all of the experience of the tribunal is on the part VIII side, in particular mergers. Remember, in the 1986 amendments mergers were decriminalized, put into the non-criminal section, and given into the exclusive jurisdiction of the Competition Tribunal. That's one.

Abuse of dominance prior to that was called monopolization. It was a criminal offence, and it was moved over to the non-criminal side in part VIII, exclusive jurisdiction being given to the tribunal on that as well as on things like exclusive dealing and tied selling--by and large, business practices that are not inherently anti-competitive. That's one way of looking at the part VIII matters--that is, practices and mergers not inherently anti-competitive. Nor does the fact that you are dominant in a marketplace necessarily make what you do anti-competitive. It depends on how you conduct yourself, and hence the term “abuse of dominance” position, a term Parliament has adopted in the bill that created the 1986 act. It's a term that is drawn from the experience of the European Union, the Treaty of Rome. They are the ones who started using that concept, and I know my colleague, Mr. Crampton, knows much more about it than I.

So by and large, what we wanted and had was a hybrid system including judges and lay people being given exclusive jurisdiction over this part VIII, with one very small exception regarding specialization agreements, which was the exclusive right of the Commissioner of Competition to apply. That is of course being changed in Bill C-23, which has left this body and is now in the Senate.

There are certain peculiar features of the tribunal, and one is that the judicial members are drawn from the Federal Court trial division and that the chairman is drawn from the judicial members. Judicial members have the exclusive right to decide on questions of law, and then all other questions are decided by the entire panel. They typically sit in panels of three on adjudicative matters.

In terms of appeal of the decisions, the appeal goes to the Federal Court of Appeal, except for questions of pure fact in which an application for leave is required. I'll come back to these two points in a minute, because it's a bit awkward for that tribunal to operate in that way. In reality, the tribunal members probably look at everything together, and we certainly have seen a number of decisions where you would say, isn't that layperson writing a dissent involving a question of law?

¿ (0915)

We lawyers spend a lot of time and a lot of our clients' money trying to figure out what's a question of law, what's mixed fact and law, and what are questions of fact. Unlike with other adjudicative tribunals, there is this division. You will see that in other administrative tribunals, where the panel itself decides even questions of law. The CRTC is an example.

One more comment about the tribunal is that the tribunal doesn't have a lot of experience. This body was created in 1986 and really started operating in 1987. The first contested case of mergers went in 1990.

Now, we've not had that many cases. If you look at the experience of the United States or even the European Union, we don't have a lot of cases, so the significance of every case is magnified. We immediately say, gee, that's a terrible decision, or this is not the right thing, and we want to run around and try to make all sorts of changes. I think we have to sit back and say no, use the institutional design, the right one. How should we try to modify it? With respect, I don't think it's good public policy to constantly tinker with the system; it brings in a lot of uncertainty, and I don't think that fundamentally the concept is flawed.

Whichever side of a case we're on, we can be unhappy. We always do that in the courts, but nobody has ever suggested we abolish the courts or limit the powers of the courts in their area of jurisdiction. We seem to have a tendency every time somebody doesn't like a decision of the tribunal to immediately say, gee, now shouldn't they do something less?

You've heard me speak in connection with Bill C-23 that I was very unhappy from a policy point of view about moving consent orders into a registry system. I think that's exactly the term I used when I appeared here on a panel with my friend Mr. Russell and a few others in connection with Bill C-23.

Let me now talk a bit about the specific points I want to bring to your attention. First of all, there's this issue of amendments. I think that the division the Competition Tribunal Act calls for, which is the enabling act for the tribunal, specifies that questions of law are only to be determined by judicial members. That's in paragraph 12(1)(a) of the Competition Tribunal Act. Then questions of fact or mixed fact and law are, according to paragraph 12(1)(b) of the Competition Tribunal Act, within the jurisdiction of all members. I think that's too awkward. I don't think there's anything wrong in principle in having everybody decide on everything. We see that with other tribunals. I don't think it's wrong for non-lawyers to decide on questions of law in a specialized context.

The second point about amendments really concerns leave to appeal. Right now there is an automatic right of leave to appeal except on questions of fact. I know of no skillful lawyer who can't at least make a question of mixed fact and law to launch an appeal. This, I think, unnecessarily delays the adjudicative process, given that the purpose of the tribunal is to be a specialized tribunal. In the Southam decision of the Supreme Court of Canada, the court said when you're into the expertise of the tribunal, you should defer.

Now, I appreciate that there has been a subsequent decision of the Federal Court of Appeal concerning what questions of law are, what questions of mixed fact and law are, and at what degrees you should defer on questions of law. But having said that and looking at it from an institutional perspective, I think it is good, in light of the decision of the Supreme Court of Canada in Southam, to confer deference on the tribunal, and when you want to appeal, you should seek leave. I may be the lone voice in suggesting that amendment, but I think it would be a useful one. It is not good for the system to have a very prolonged period for adjudication of appeal and subsequent appeal because, certainly in the merger context, very few mergers will be held up. That is, mergers that were not completed would not wait.

What you have in the cases that have gone before the tribunal, by and large, are cases in which the mergers have already been completed and are already allowed to operate. We see that in the Superior Propane case, which is still in the adjudicative process, and certainly in Southam the merger was already closed before the challenge was launched.

With respect to the tribunal process, as a member of the Competition Tribunal and Bar Association liaison committee, let me just make some general comments. I appreciate that the members here will be getting some direct information from the tribunal, so I am not speaking for the tribunal, nor could I, nor am I speaking for the committee. I'm just offering a perspective of what I think the tribunal is doing through its tribunal liaison committee, which has members of the bar on it as well as representatives of the Department of Justice.

¿ (0920)

The liaison committee was created at the initiative of the tribunal in 1997 as a way of providing some guidance and advice concerning the procedures. In 1999 the tribunal liaison committee initiated a process review. What it did was really review the tribunal's experience in dealing with the 1986 amendments. I think the committee acknowledged that there was a need to reform the procedures and practices to ensure a speedy and more effective adjudication.

At the outset, it was decided just to look at non-mergers, not because mergers did not warrant review but because mergers have special issues there, such as timeliness, and with the non-mergers you will see typically and almost always a history of dealings. Before the commissioner challenges something in the non-mergers area, there may have been months, if not years, of prior dealings, so that it's not a surprise when an application is launched. So we thought the rules there should be a bit different.

One issue you have to keep in mind is that when the tribunal was created in 1986, it was thought, both by the tribunal and members of the bar, that the normal rules of civil litigation would apply.

I know my friend here, Mr. Rook, will have strong views about this. He and I have had differences of views about what is the ideal model here. But the concepts the tribunal operates under, and both from the perspective of the tribunal as well as members of the bar, were that this was a civil litigation model, that the speed in which you operated was based on the will of the parties, with one exception: the tribunal has always insisted on some scheduling.

Now, I think the civil litigation model did not give sufficient weight to certain important aspects of these proceedings. The first one is that the tribunal is by statute a specialized body with expertise in competition law and policy and is comprised of members with judicial, economic, accounting, commercial, and other expertise. The second is that the proceedings are initiated, except in very limited circumstances, only by the Commissioner of Competition in exercising the statutory duty to enforce part VIII of the act, now part VIII and part VII.1.

The reason why that is important, as I mentioned earlier, is that before the commissioner initiates any proceeding, there is going to be extensive discussion. If you look at any of the decided cases, you will see sometimes a year, sometimes even two years, so that brings in a different flavour. It's not like you've been surprised with an application. Certainly, typically, a commissioner will say to some party, “Can you do this? Can you do that? Will you change your practices?” They say “No, we won't”. Then we say “Well, you're going to have to apply”. So it's not a surprise to the respondent party.

As an initial phase of change, what the tribunal liaison committee did was try to modify the procedures. Among the things they talked about was discovery. Again, although the rules could not provide for automatic oral discovery, the practice in the early days of the tribunal was to order oral discovery by both sides. That has so evolved now that oral discovery is less significant. Again, because there is a history of dealings, nobody is really surprised on either side on what has taken place. This again deals with the non-merger side.

The other one is disclosure. One of the things that one recognizes, of course, is that any respondent party must have disclosure of what the commissioner's case is. The reform--this is the process started in 1999 for non-mergers--is, I understand, shortly to be gazetted.

The third area of change was expert evidence, the idea that experts need to focus on the issues that are relevant to the tribunal's deliberation. Everybody knows that in civil litigation we all have experts and we can all have experts saying almost anything. So one of the ideas, and it's partly experimental, is to say that both sides' experts should be in a panel and speak. Again, it requires a greater degree of control by the tribunal, but I think the tribunal's up for the challenge.

As I said, the purpose of these changes will really deal with the non-mergers, and, by and large, people were supportive. There were some differences of views. What has happened now, I think, is that the liaison committee is engaged in looking at the merger side. Some were critical, saying “Why didn't you do the same thing for mergers?” As I said, we're saying let's see what happens with non-mergers and see whether there's any fundamental reason why not. As I said, with mergers the key is speed.

In our recent discussions, one of the things we said we thought we should be doing in change is not only look at mergers, but seeing if there is something we can do to shorten the process overall.

¿ (0925)

One of the ideas that's coming out--again, this is not yet a decision of the liaison committee as a recommendation--is that of limiting witnesses. I know that my friend, Mr. Rook, was probably shocked with horror that this could happen, but the idea would be.... In the Microsoft case, there were 20 witnesses on each side or something like that. This was the greatest anti-trust case in history, and they managed to have 20 witnesses or thereabouts, or even less, on each side.

What we're suggesting here is that maybe there should be a limitation on witnesses. Maybe there's no fixed number, but one of the things the tribunal would do at an early case management conference would be to say, “We've looked at the pleadings and here's what we think the issues are. Each side should have this number of witnesses, unless you can convince us otherwise.” That's one issue.

On the expert side, the idea would be--

The Vice-Chair (Mr. Walt Lastewka): Mr. Wong, I'm going to ask you to wrap up.

Mr. Stanley Wong: I will. Thank you.

The other idea is about expert witnesses. Again, there would be a panel of witnesses, perhaps with some idea of limiting the number of expert witnesses.

I have two more points. This is really the time for completion of hearing. I think there is a general support for the idea that tribunal proceedings should start and finish in six months, including a four-month period for adjudication and two months to write the decision. My sense is that the tribunal itself is predisposed to pursue that and obviously requires the cooperation of the parties as well as sufficient resources. I understand one of the problems with delay in the past has been that there have been insufficient judicial resources.

The final point, Mr. Chairman, is really one of case management. That term is used everywhere. If I may say so now, speaking from the perspective of a counsel that has appeared before the tribunal, the tribunal in its early days took case management from the framework of judges. That is, it's up to the parties to run the case.

Other members of the tribunal liaison and I have been encouraging or promoting the idea that there should be aggressive, active case management to get the parties on board. The tribunal itself should say, “Each party should do this. These are the questions I want to know. Your expert should answer these questions.” This is quite unusual compared to the civil litigation model.

I'm happy to expand on any of these topics as we go on.

The Vice-Chair (Mr. Walt Lastewka): Thank you, Mr. Wong.

I'll now ask Mr. Russell to begin. As I mentioned earlier, you have five to ten minutes. We went just a little bit longer with Mr. Wong, and I'm going to give you the same thing. I'll give you the signal at the 12-minute mark.

Mr. Robert Russell (Individual Presentation): Thank you for the opportunity to appear before you this morning on the issues that are in the first part of today's meeting.

I'll give you just a little bit of background on my experience, so that you can judge what I say within the context of what I've done. I have appeared on numerous occasions before the Competition Tribunal. I have acted for both the commissioner and for the private sector. Also, approximately half my practice is dedicated to commercial litigation. I'm a member of the commercial list users' committee in Toronto. I'm also a member of the rules committee's subcommittee with respect to technology in the courts.

What I would like to bring you today is some perspective on some of the issues you've raised, both in the tribunal and in the courts, to see if there are models that would make our system more efficient.

The first thing I'd say is to note the words of the Supreme Court of Canada in the Chrysler decision. They said that the issues before the tribunal were complicated commercial litigation. So the Supreme Court of Canada said what it is that's going before the tribunal. I think it's important to always keep that in mind, so that when we talk about truncating the procedures or having special procedures for the tribunal, we should not forget that what we're dealing with is commercial litigation within a certain sphere. We have a lot of history in our courts, if not in our tribunal, on how to manage those things, and we have various models, not only in Canada, but in other jurisdictions like the U.S., where they have started to manage commercial litigation more effectively and more efficiently.

While I say we have to be careful about truncating procedures in front of the tribunal, there are specific elements of competition matters that provide for opportunities of efficiency. Efficiency in the process is obviously very important, because we have important public interests at stake in this litigation. This is not private litigation in the sense that it's just private interests being weighed against each other. We have an important public interest. But we also have fairly important and dramatic effects on the interests of the private parties that are involved in the litigation at the time--dramatic effects on their business, potentially, from the proceedings.

I would say that generally the Competition Tribunal does a good job of scheduling matters before it. However, scheduling is dependent on the parties--as Mr. Wong said--bringing the issues forward in a timely fashion to the tribunal. So when we get involved in interlocutory matters, those being things that are determined before we actually get to the hearing.... I'll give you an example I was involved in, which was the CAST case in front of the tribunal. There were 52 interlocutory applications prior to the matter ever going to hearing. You can see very clearly from that example how easily the process can get bogged down if we don't manage the litigation in front of the tribunal well.

I think some real benefit can be derived from looking at other case management models where a judge is assigned not only to schedule, but to manage what issues are coming forward before the tribunal.

We have, I believe, a very good example in the commercial list in Toronto, which is simply a list...it's called a list because there are judges, typically six at a time, who are assigned to the list--three fairly permanent members, and three members who are rotated in every six months. It has a specific protocol in dealing with commercial litigation, and a very tight case management system, where a judge not only manages all of the pre-trial hearings, if you will, but also enforces that the parties go through methods of mediation, typically before they get to a trial.

I think we should at least recognize that, given the commercial litigation that is before the tribunal, mediation as a process in itself may be something very desirable to creating efficiency without full-blown hearings before the tribunal.

So, effective case management, case management by a judge, judicial case management, which, as Mr. Wong says...whether we use the term aggressive or.... But to manage the process and not just the scheduling is something that would, I believe, definitely assist our procedures in terms of the tribunal.

The second issue is with respect to discovery. Because of the important and complex commercial matters that come before the tribunal, we have to be very hesitant, in my view, of curtailing discovery beyond what the courts, for example, would do with commercial matters. There's a long history of the need for these procedures to make sure that as many of the facts come forward for a proper adjudication as possible.

¿ (0930)

But that doesn't mean, again, that there aren't specific opportunities within our procedures in the tribunal to make it more efficient and less time-consuming. One of the matters that has frequently arisen is the need for oral discovery of the commissioner. Remember, the commissioner is in many ways like a police officer who brings the case forward. He doesn't have facts within his business as the commercial litigant does, so he really doesn't have any evidence of his own, if you will. He has views of the case of his own, he has evidence from other witnesses he has to present and maybe from the industry that's being involved, competitors, or whatever the case may be.

It's very much more attuned to the situation we have in criminal matters, where the crown is proceeding. I believe that we could very significantly impact the process and time for discovery in the tribunal process by providing for proper disclosure, formal disclosure statements from the commissioner, as opposed to oral discovery of the commissioner. Oral discovery of the commissioner, when you go through it, is day after day of asking the commissioner's views of the case, which is not even relevant evidence. It can't ever go in as evidence before the tribunal. It really serves no point whatsoever, and when you see what goes on at the hearing, next to nothing could be read in from the discovery transcripts from oral discovery of the commissioner in any event.

One of the things we could do, for example, with discovery is to have formal disclosure from the commissioner and the opportunity for oral discovery, which the commissioner needs because of course he has to investigate an industry he is not typically part of and therefore he has to gather all the evidence on his side. The other party is obviously in the industry, has all this evidence, and knows its industry well beforehand. That we don't have to adopt a peer civil litigation model when it comes to oral discovery is the bottom line point with discovery. We should look for what fits the specific procedures we need before the tribunal.

As to expert evidence, I would be cautious about putting any formal limitations on expert evidence. The cases differ so widely in respect of what is needed in any given case. However, what the courts are doing more and more is saying they want proper expert opinion evidence, and that's all an expert can give, an opinion. What the courts have said is that they shouldn't be proffering opinions that are the ultimate issue for the court to decide--in other words, don't come and tell us there's a substantial lessening of competition if you're in front of the tribunal, because that's up to the tribunal to decide; only give expert opinions with respect to evidence, opinion evidence that's necessary for the tribunal to come to that decision. By doing that, the courts have very much curtailed how much expert evidence they're prepared to review in any given case. So there are other mechanisms out there procedurally that can limit that without putting any defined limitations on the evidence as necessary.

I've touched on the points on the agenda. The main point I'd like to raise today, however, is with respect to how we manage the rules of the tribunal, and I raised this in a previous hearing. If we look at the models in the courts, the commercial list, and other places, they all have essentially a rules committee that is given formal jurisdiction to define rules on an incremental basis. The courts have had that for centuries. In the courts in Ontario, for example, it is a committee that's made up of judges. It's headed by the associate chief justice of the province, who sits as associate chief justice of the court of appeal; he heads up that committee. There are members of the bar and members of the judiciary. They then look at the rules incrementally, and every six months they have to report on the need for rule changes.

So you have this incremental process going on. We don't have to look at wholesale procedures. We can gather experience on various issues and make suggestions that then go into regulations; this is provided for in the legislative regime for the rules committee, to make those incremental changes as they go. The easiest one to illustrate the point is the need to adapt to technological change in both the evidence and the procedures going on. The rules subcommittee I sit on regularly sits to look at what technological developments are out there, how they may assist the process of the courts, and what changes we need to make to the rules to accommodate technological change.

What I believe is ultimately the most important point for you today is to look at where we are in the rules of the tribunal and where we started. We started with a very small set of rules. We have a provision that says we can use the Federal Court rules by analogy, but to do that you have to bring a motion and you have to argue that it should apply. So every time you want a rule to apply to CT process--remember that number 52 I told you about in CAST alone--you have to say the rule from the Federal Court rules should apply to this procedure; let me give you my argument.

¿ (0935)

We did it initially for flexibility, but flexibility is only good in the sense that it allows us to apply a rule or not, given the particular circumstances before the tribunal.

What it leaves, of course, is that without a set of rules things don't move quickly, because every time you want to have a procedural step determined by the tribunal, there has to be an application or motion to have that determined. That's the main problem, in my view, with the rules we have with the CT right now.

By having a rules committee, you don't have to have a wholesale set of rules drafted, which may take five years to do, because this is a complex area. You have an incremental process to move the rules along with the change in the law, with the change in procedures, with the change in technology that allows us to adapt to that.

Finally, you've asked us to speak about remedies. I believe that administrative penalties and damages are something that are necessary to make our act effective. Currently, abuse of dominance is a provision that can be read this way: do it until you're told not to. And what's the cost of that?

The advice we have to give is that it's not unlawful until the tribunal says so. Of course, the clients can potentially read into that to do it until they say no.

It's too powerful. It's too important. There's too much damage to the economy and to the other competitors to leave it to the point that they say no, and walk away cleanly.

In the CAST litigation--again, I use it as an example--the opposing party in that litigation reported to the press at the end of the case that they had spent $10 million on the litigation--$10 million. They were prepared to spend that because they thought the issues were important to them, obviously. But unless we have significant penalties, we have no teeth in these provisions. We simply litigate, and litigation can be a tool in itself to draw things out until the damage is done, until the competitor disappears from the landscape. Only with the threat of significant penalties with these sorts of provisions will we have true deterrence in our economy.

Now, that would not necessarily pertain to every reviewable matter. Some reviewable matters, such as abuse, have an element of intent. And we can see in the law the grounding for penalties when there's an element of intent, and you proceed in that fashion.

When we look at what the U.S. has done, for example--now this is in the criminal sphere, so I want to make it clear--they brought out sentencing guidelines approximately five or six years ago. What they said in those sentencing guidelines is that the fine would be equal to the amount you've gained from your conduct. In other words, you're not going to have any illicit gains from this conduct; we're going to take it all back in fines and penalties.

I think you have to look at penalties, for example, under the abuse section--again, I think that's the most important one for this--to make sure the fines fit what the party may gain by ignoring the statute. It's that simple.

We currently have no teeth. We simply have the cost of litigation as the deterrent with respect to important provisions of the act.

I hope I've kept within my time. I ran through it rather quickly, and I'd be glad to address any questions on any of it.

Thank you.

¿ (0940)

The Vice-Chair (Mr. Walt Lastewka): I thank you very much for sticking to the time limit. I appreciate it.

Mr. Rook, we'll begin with you.

Mr. John Rook (Individual Presentation): Thank you, Mr. Chair.

Mr. Chair and members of the committee, I sent a statement to the clerk last week. It's available in both official languages. I don't know whether both copies have been distributed, but it is available should you wish to have it.

What I intend to do in the time available to me is to go over, in summary fashion, what's in my statement. I'll try not to read it. There may some element of repetition, given what you've already heard. Perhaps the emphasis will be different.

I come to this as a litigation lawyer. I've had more years of experience than I care to mention unless pressed, in the courts, in civil and criminal proceedings, and before the Competition Tribunal. Since 1986, when the Competition Tribunal was established, there have been a mere handful of cases before the tribunal. That notwithstanding, there's a widespread view, as I'm sure you've heard, that proceedings before the tribunal are overly cumbersome, inefficient, and costly. As a consequence, there have been numerous advocates for reform, and I'm certain you've heard something of that in prior proceedings of this committee.

In my judgment, those criticisms are overly simplistic and overstated. You should be wary about making amendments to the Competition Act or the Competition Tribunal Act, because, in my judgment, to do so may impact adversely on the balance that is currently struck in the legislation between what I will call expediency--that is, to put it in the vernacular, getting on with it--and what I will call, to use an American phrase, due process--that is, the ability to make full answer and defence.

How then did this concern arise, given the relative paucity of litigation? I believe it started right at the outset in two consent proceedings. In the first, a case known as Palm Dairies--a merger in western Canada in the dairy industry--the commissioner, then the director of investigation and research, brought an application for a consent order, and the tribunal rejected it for various reasons that are not relevant this morning. But it raised the issue that if the parties were to consent and the tribunal sought to revisit the consent, then what was the purpose of negotiating the consent in the first place?

The second case involved a merger in the oil industry involving Imperial Oil, and that was also a consent order proceeding. It became very protracted, and the tribunal issued an order in which it said we will approve this settlement if you make the following changes. Again, there was a lot of criticism of the tribunal among the cognoscenti, for which you should read, the parties to the merger settlement. This started or fueled the criticism of the tribunal.

Thereafter there have been a number of contested cases before the tribunal, many of which have been extremely lengthy. My friend Mr. Wong mentioned the Southam case. He was counsel for the commissioner. I don't know that he had anything to do with the undue length of the proceeding; nevertheless, it was a lengthy case.

¿ (0945)

More recently, I'm sure you've all heard of the propane case, particularly if you happen to have a propane tank, as I do, post-merger. That case has gone on for a long time. Given those circumstances, people ask, isn't there something that could be done--indeed, should be done?

What this history fails to recognize, in my view, is that there has been an evolution in the process over the last 15 years. In my judgment, the Competition Tribunal is now managing its caseload very effectively, and recent litigation before the tribunal evidences that. That's not to say that there won't be long cases in the future; indeed there will be. If there are, I don't believe this committee should engage in handwringing over that process. It's in the nature of litigation.

Given that, there are two themes that, in my submission, you should have at the forefront of your thinking in considering amendments, if any, either to the legislation or to the rules.

First, and I think most important, the tribunal, like any court, should have the flexibility to manage its docket as it sees fit. That is what the tribunal has at this point, albeit there seems to be an ever-increasing desire to put fixed time limits around various activities in the pre-litigation phase. But that discretion to determine the appropriate balance between expedition and fairness should be left with the tribunal going forward.

The second theme you should have in mind, in my submission, is accountability. There has to be accountability at the level of the tribunal, which is of course what the courts are for, by way of review. There has to be accountability among the litigants, and most particularly, there has to be accountability at the level of the commissioner. In my paper I expound on this at some length, and I'd be happy to answer any questions you might have about it.

To frame the debate from the perspective of respondents--that is, those against whom the commissioner is seeking an order--bear in mind that when you get to court, you have a fight on your hands. There's a disagreement. In cases in front of the tribunal, bear in mind that the commissioner has been investigating this matter for months and months usually, and has often exercised formal powers to obtain information by way of search warrant or has compelled testimony under section 11 of the act. When you get to the tribunal, the commissioner has amassed a lot of this information. The respondents usually do not have access to a lot of this information.

What has fuelled a lot of the acrimony in litigation before the tribunal is the sense that there is an imbalance of information and power between the commissioner on the one hand and respondents on the other. This concern is very pointed at the moment, or will become so by virtue of the amendments to Bill C-23, because Parliament has seen fit to give the commissioner the power to seek an interim order on very limited grounds, ex parte.

For example, if you happen to be somebody who is a participant in an industry and the actions of someone else are affecting your revenues, if you can convince the commissioner to bring an application before the tribunal to stop it, then, as I read the decision of the tribunal in the Air Canada case or one of the Air Canada proceedings that's ongoing, there's a very low threshold for obtaining such an order.

¿ (0950)

If the commissioner exercises those powers and is not accountable for doing so, then in my judgment it threatens the balance between expediency on the one hand and efficiency on the other. I don't know that my concern is ultimately ever going to materialize. It's one that I have.

In my paper I go on to say that this power may make private right of access academic. Why would one bring an application to the tribunal as a private litigant if you can convince the commissioner to make an ex parte application to stop your competitor from doing what it is doing in the marketplace? Why spend your money when you can spend the money of the public through the eyes of the commissioner in bringing an application to the tribunal? That's something the committee is going to have to consider in going forward.

In sum, Mr. Chair and members of the committee, in my opinion you should keep your eye on the ball--that is, where is the appropriate balance in particular cases and who should make that judgment in particular cases? In my opinion, that should be left to the tribunal. It shouldn't be put into a straitjacket of particular rules that must be observed in all cases without the exercise of discretion.

Thank you, sir.

The Vice-Chair (Mr. Walt Lastewka): Thank you very much, Mr. Rook.

We'll now proceed to Mr. Crampton.

Mr. Paul Crampton (Individual Presentation): Thank you, Mr. Chair and members of this committee. I'm pleased to be able to appear before you here again.

This is likely going to be my last time before I depart to joint the OECD in April, where I will be responsible for coordinating the delivery of technical assistance to non-OECD countries in the transitioning and developing world. I will miss participating in the important work of this committee and in the broader debate of topical competition policy issues here in Canada. The experience I've gained here in Canada, first in the bureau and then in the private sector over the last 15 years, has provided some valuable insights and lessons I hope can be of benefit to the developing and transitioning world.

One of the areas where this is particularly the case is with respect to the treatment given to efficiency gains in the analysis of mergers and restrictive trade practices, which is the subject of the second panel later this morning.

Regarding the subject of the first panel, on the Competition Tribunal procedures and remedies, I would simply like to make a few general introductory remarks. First, like my colleagues here beside me, I am persuaded that the tribunal has already gone a long way towards streamlining the litigation process by managing that process more effectively. Bill C-23 should greatly assist in further streamlining the process with respect to consent proceedings. However, I believe that in contested proceedings more could be done along the lines described by Wong and Mr. Russell. First, you could substantially curtail the time-consuming discovery process, and in this regard I think I would probably want to go a little further than my colleagues. I like Mr. Russell's idea of disclosure statements, but we have to keep in mind that the commissioner himself has ample time to get all the discovery he wants prior to laying an application by issuing extensive information requests, even pursuant to a court order.

Second, you could make greater use of the Australian practice of putting opposing experts in the witness box together.

Third, as Mr. Wong mentioned, you could limit the number of witnesses to be called in a given case. I believe that in the Microsoft case they had a limit of 15 experts a side. That was a mammoth litigation, yet they managed to be able to get it done with 15 witnesses a side, if I'm not mistaken; it may have been 20, as Mr. Wong suggested.

Fourth, you could reduce the formality of the overall process.

Fifth, you could set overall time limits, such as four months or six months, on the proceedings. You should note that the current matter, which is supposed to have benefited from all the learning and experience over the last 15 years, the Superior Propane matter currently before the tribunal, was consummated over three years ago, and that should be a reality check as you think about these things.

Sixth, there could be more aggressive managing of the process along the lines described by Mr. Russell.

Now, I'm aware that some of my colleagues in the competition bar, who are litigators, would obviously have severe reservations about some of what I'm saying, but I can tell you, as a non-litigator who's been involved in the early stages of perhaps hundreds of transactions, that clients, business people, simply have no appetite to become involved in extended, unpredictable, costly tribunal proceedings.

Virtually all the cases that have been brought in the 15-year period since the tribunal was created and the merger provisions were decriminalized have involved mergers that had already been consummated. At that point the merging parties had every incentive to hunker down and fight. By contrast, business people invariably have no appetite whatsoever to become involved in contested proceedings where their transaction has not yet been consummated.

À (1000)

The Vice-Chair (Mr. Walt Lastewka): Thank you very much.

We will now begin the round-table discussion, starting with Mr. Penson.

Mr. Charlie Penson (Peace River, Canadian Alliance): Thank you, Mr. Chairman.

I'm starting to wonder whether our committee is trying to set a record for the longest study in the history of Parliament in terms of looking at this competition law. It seems that way to me sometimes.

From my perspective, this is a pretty small part of business. Normal business goes on every day in Canada. There are the merger aspects, of course, but it's a pretty small part that we're talking about.

Sometimes I get the feeling that people think you can substitute a healthy business environment with competition policy that is going to beat somebody over the head and bring them into line. It's in that context that I am asking Mr. Rook, why don't companies just take their case to the Competition Tribunal? Why do we need the Competition Commissioner? It seems to me that might be the case in mergers, but in other cases, why don't they appeal directly to them and have their day in court, rather than have the screening process? I see you have concerns about the interim orders, about consent orders. What's your response to them?

Mr. John Rook: The traditional reason that has been given, sir, is that there are many competition issues that have a public interest dimension that do not affect solely the interests of the parties to the transaction. To the extent that is true, where it does have such a dimension, the view has been, as expressed in the legislation from the beginning, that these matters should be filtered through the office of what is now the commissioner with a view to determining what is in the public interest and what is not, and only those cases that impact on the public interest have been seen fit to be brought before a court, now the tribunal.

There has been an evolution in that thinking to some degree, which has led to Parliament passing this right of private action in certain limited circumstances, and that's addressing the concern you have, if I understand your question correctly. So what you might see--and I say “might” only--is parties bringing applications without the intervention of the commissioner. Parliament has surrounded this right of public access with a number of fences, to use an airline term, and it remains to be seen whether it's practicable and will be used.

I said in my opening remarks and in my statement that I don't see the incentives there, particularly for a private litigant, to proceed in that fashion, given the interim order of power, but that's simply a view. Time will tell whether I'm right or not.

À (1005)

Mr. Charlie Penson: In dealing with that interim order, your concern is the power of the commissioner in that regard. But my understanding is that he has to take that to the tribunal to get an interim order, so they would have to review it. So they would also be the people who have made the decision to issue the interim order. Isn't that true?

Mr. John Rook: That's true. This interim order of power originated with section 104 as it relates to a transportation service. When that particular provision was at issue in the case of Air Canada, the Competition Tribunal ruled in effect that where it was established by the commissioner, among other things, that the effect of the impugned activity would be to impact on the revenues of another competitor in the market, that was sufficient.

What I was trying to say is that when that provision was made general in the amendments to section 103, it now has a very broad compass. If I can bring an application to you in your office in which I say that the actions of the chair are impacting on your revenues and the commissioner has the power to bring an application to stop him from doing that simply on that low threshold, it seems to me that is a fairly low threshold. What I was trying to say, and I'm probably stating it badly, is that the court thus far has said you can do this, that is, the commissioner can obtain this order ex parte on a fairly low threshold. In business, if I can stop the chair, in my hypothetical, from doing something for 35 or 70 days or whatever the time period is, time is money in business.

Mr. Charlie Penson: You also talked about the need to manage their docket in order to proceed effectively. Let's just use the example of the case brought by WestJet on Air Canada, which the tribunal has delayed hearing for several months. In a case like that, if you didn't have this interim order, how would you handle a situation where there could be only one carrier in the country as a result of things that could happen?

Mr. John Rook: Don't misunderstand me. I'm not suggesting this power should not exist. In my paper I make the point that the commissioner has to act in the public interest, and in some cases he must act quickly. Except in cases involving the airline industry, he must do so before the tribunal.

So I'm not saying that there is no judicial oversight in most cases. I'm simply saying that given the extraordinary powers the commissioner has and given the way in which the tribunal has reacted thus far--and bear in mind that we only have one case--there has to be some sort of check on the discretion. That's all.

Mr. Charlie Penson: Point well taken.

I have one more question, and it deals with your concern about the consent orders. I didn't quite understand the point you were making in that regard.

Mr. John Rook: That was simply an historic problem, one I think has now been resolved.

The Vice-Chair (Mr. Walt Lastewka): Mr. Russell, I understand you had a comment.

Mr. Robert Russell: Yes, I did, just in response to a couple of the questions you posed. A different perspective, perhaps, from Mr. Rook's is to put the provision in context. We're talking about an ex parte order that only lasts for ten days before it's fully reviewed, and an application to have a review can come in a matter of days.

The tribunal itself is considered a disadvantage for the commissioner at the beginning of a case because he doesn't know the industry and he doesn't have the evidence. He has on many occasions cited that disadvantage as the need for the formal powers the commissioner has, so there is a need for the ability to act ex parte, and it's not unknown to our courts. We have ex parte provisions. You can bring an ex parte motion. It's subject to being overturned when the party is served with that, but it's a matter to deal with things of urgency.

As to the role of the commissioner, which you raised, I'll just briefly comment on that. Europe is an example where there's a commissioner. There's no person with the role of the commissioner per se as an independent officer, if you will, under the statute to fulfill his duties as he has under the Competition Act. But when you look around the world, in other jurisdictions, we have the equivalent of a commissioner in most of those jurisdictions. The reason for that, cited by my friend Mr. Rook, is that you need that independence to look at very complex matters.

When you bring a matter against a party, it's potentially going to have dramatic impact on their business. Somebody needs to be there to review the evidence, to review the case, and make a determination. That's why, when you go right back to the Combines Investigation Act, we've always had what was at one time called a persona designata, which is a person to whom Parliament actually entrusts a specific role independent of Parliament to a fair degree to make a determination so Parliament itself is not caught up in the to-ing and fro-ing between the private interests on an important matter that affects the public interest. My own view is that it's very important that we maintain that role in Canada.

Thank you.

À (1010)

The Vice-Chair (Mr. Walt Lastewka): Thank you very much.

Mr. Bagnell.

Mr. Larry Bagnell (Yukon, Lib.): Thank you, Mr. Chair.

I would like to say the Superior Propane decision, no matter how long, has been very good for my riding of the Yukon. We'd rather get a right answer, no matter how long it takes. And the Air Canada thing was good for us too.

I'd just like to ask you, because you're experts in the area and because I can't come to the next panel, to think outside the box, not exactly about what you were talking about today, but something I started last time. Basically, it's the effectiveness of the whole process related to smaller businesses and rural businesses, as opposed to the big businesses it normally deals with. I think the whole process deals with something more than just a few cases against big companies. It's basic protection for a tenet of our society, western civilization. We live in a capitalist society, but we have to ensure that the capitalism is free to operate in competition so we have good prices. And that's not exclusive to just big businesses. That point could be gotten across better with some more communication, which I'll talk to the tribunal about the next time they're before us.

What I never got to ask last time was--and several of us were interested--how many cases that have been handled by the commission are smaller or rural types of cases? The commissioner said last time, oh yes, that's a power, and we can do it any time. What we never did get to ask you is how many times have they done it, and how much effect is there on small business? Except for things like Superior Propane and Air Canada, our constituents would never even know that the bureau exists. As far as I've seen, it never gets involved in businesses at our level. I'm curious as to that and to what your thoughts are as to whether it's providing a good service at the level of small, medium, or rural business.

Mr. Stanley Wong: I think there are a couple of realities here. I think that the cases that get to the tribunal or the courts are often big cases, for the obvious reason that it takes money to fight the commissioner. That's the reality, and you're not going to see many litigation cases involving a respondent who's a small business. That's a fact of life.

But having said that, I know from my practice--and I'm sure my friends at this table and elsewhere in the competition bar are the same--that you get issued in with small businesses all the time. I know from my practice in Vancouver or my practice in Toronto that these issues come up all the time, so I don't think there's any institutional bias against it.

That being said, from the commissioner's perspective, given his limited resources, he typically only takes cases he thinks have national or major impact. The Superior Propane case you mentioned, of course, doesn't only have an impact on the Yukon, it has an impact on small businesses and other types of business throughout the country.

From a purely resource perspective, the commissioner is only able to take so many cases. He wants to make sure he takes on cases that have national impact. As I understand it, that's one of the reasons he promoted and encouraged Parliament to adopt the right of private access under Bill C-23: to say that in the small-business world it doesn't make sense for us to spend public funds, because it's too much of a localized issue, so you should spend the money. But that to me is inconsistent, because in order for a small business to take on a case in the tribunal under Bill C-23 it's going to cost money.

The Vice-Chair (Mr. Walt Lastewka): Mr. Crampton, Mr. Russell, and then Mr. Rook.

Mr. Paul Crampton: To answer your question, the Competition Bureau does look at small matters. I can remember one case from when I was there for three and a half years at the end of the 1980s that was a $400,000 market. I think it was the merger of the last two grocery stores in some small town in Ontario. So the bureau does look at these cases.

Typically such cases would come to its attention by way of a complaint, but the bureau also reads about these cases in the press of the day and has other sources of information. For example, an MP may call up the bureau and draw something to its attention. But there are some disciplining factors that keep these types of cases from coming to the tribunal, as well as the practical factor, which is that very rarely would these types of small cases raise competition issues. But sometimes they do.

From the Competition Bureau's perspective, it has limited resources. As you've heard me and others say before, the bureau is in fact fairly strapped when it comes to resources, so it has to make responsible decisions as to how it deploys those resources. It currently has case-screening criteria that would bias its decisions in favour of bringing cases that have a broader economic impact.

On the parties side, if parties to smaller transactions--mergers, for example--want to proceed with their transaction without notifying the Competition Bureau and try to fly below the radar screen, they have to take the risk that the Competition Bureau isn't going to find out about the transaction for three years, because if the bureau does, it can bring an application to the tribunal for up to three years and force divestiture. That's a huge risk, and business people typically do not want to assume that risk without comfort. So I find myself frequently, at any given time, having several matters on the go that involve transactions that are not above the notification thresholds, but the parties nevertheless want comfort from the Competition Bureau in the form of a no-action letter or an advance ruling certificate before they put their money on the table and proceed with the transaction.

So those are the disciplining factors that exist within the framework that would mitigate against these smaller types of cases coming forward. That's probably why you don't see too many of them.

À (1015)

Mr. Robert Russell: I just want to comment that, although from the surface it may appear that some of these cases are only about large businesses, that is actually not correct. If you take something that I refer to as the CAST decision, which I was involved in, that was container shipping to and from Canada, but the people who had a strong interest were all the businesses in Canada--small, medium, and large--relying on that service within Canada. The complainants, if you will, even if they're not at the front, even though they are not a party to the proceedings in a formal way, are definitely being represented by the commissioner in cases like that. That's where the complaints come from.

So in answer to your question, if you look at section 1 of the act, it lists all the objectives of this statute. It talks about making sure that our economy is efficient, making sure that we have opportunities for small and medium-sized businesses, making sure that we have the best prices for consumers. Those are all important things. Exports from Canada are also listed in there. Those are important economic objectives for the country. They are actually very complex, and in any given situation, one of those things may have to weigh in favour of the other.

But in looking at it historically, in countries that have had strong competition laws, like the U.S., and countries that had very weak competition laws, like Japan, they found that they didn't end up with very productive and efficient economies when they didn't foster competition and make sure those efficiencies, that productivity and efficiency, were there. So when the cases are looked at, it's not just on the basis of the consumer or the small business alone, but the Canadian economy and what benefits consumers as a whole. So deciding which cases move forward is not a simple exercise of the jurisdiction that the commissioner has.

Mr. John Rook: To my knowledge, there have been three cases since 1986 that directly impacted on the interests of market participants. The first was the ability of an individual to purchase auto parts from a large multinational and remarket them. The second was a similar kind of issue in the photocopying business. The third involved access to yellow-page directory advertising. All other cases, as my friends have explained, have been indirect, such as the propane case, where your constituents would be impacted by the merger because the price of propane services was said by the tribunal to go up post-merger.

The right of private access that this committee sponsored, or at least endorsed, has the potential to make the tribunal more relevant to small business going forward. Time will tell whether that happens.

À (1020)

[Translation]

The Vice-Chair (Mr. Walt Lastewka): Mr. Bergeron, you have the floor.

Mr. Stéphane Bergeron (Verchères--Les-Patriotes, BQ): Thank you, Mr. Chairman.

I hope that the frosty temperature that has been foisted upon us this morning is not simply a way to get us to speed up the proceedings, otherwise we may have to envision the same thing for the competition tribunal.

I would like to approach the role of the competition commissioner from an angle that is quite different from the one introduced by Mr. Penson a few moments ago. If we agree with the assumption that—and I know that Mr. Rook will probably disagree with me—the competition tribunal proceedings are too lengthy, too cumbersome, too fastidious, inefficient and costly, could we not cosider broadening the role of the commissioner so that, in certain specific sectors, his ruling would be binding, and if necessary allowing respondents to appeal before the competition tribunal? That could prevent certain cases from bogging down the tribunal when private access is introduced. Could we not give some thought to such a measure?

[English]

Mr. Paul Crampton: Some people have suggested going that route; in fact, that is the model in Europe. Right now there's a very heated and intense debate going on in Europe and around the world on the absence of due process in that system, because in effect the commission is the investigator and the adjudicator. In Canada, because of our Charter of Rights and Freedoms, we have a fundamental separation of powers between the investigatory function and the adjudicatory function. Many of us--I include myself in this--feel passionately that separation of powers ought to be preserved. That's why, when the commissioner initially proposed having the ability to issue temporary orders, a number of us showed up before you and suggested that, at a minimum, some independent arbiter ought to be inserted into the process. That's what you recommended, and hopefully it will ultimately become law.

So I think we need to be very cautious about allowing someone who has invested in a process as a stakeholder to then try to separate himself or herself from that process and all of a sudden become the adjudicator. As a practical matter, because of the deficiencies with the competition tribunal, parties go to the commissioner today, and have since the initial problem started surfacing with the tribunal, to offer undertakings as a way of resolving the commissioner's concerns. That has de facto put him in the position, according to some of the critics, of being investigator and adjudicator.

I continue to belive that the best way to try to attenuate or put a stop to that process whereby the commissioner is increasingly becoming the adjudicator is by fixing the tribunal and making it work better.

Mr. Stanley Wong: I agree with my friend Mr. Crampton on this point. I think our system is based on checks and balances, and in the 1986 act the tribunal was designed to play a critical role in balancing off the interests.

And I agree with Mr. Crampton that what in fact has happened is that the cost of litigation is very high, so in effect the commissioner's rulings, or preliminary rulings, often win the day. People will abandon mergers if the commissioner says “I agree that it doesn't substantially lessen competition”.

I'm very concerned, as I've expressed on my previous two appearances before the committee, that we're already seeing a movement to executive orders, like in the interim order regarding airlines, which I call the “Air Canada order”, because it's designed to deal only with one airline. Of course, I appeared before you along with others in your initial interim study, and we recommended that style should be changed. I think in the new interim-order powers that issue has been addressed. The commissioner does not make the orders, but he has to apply them.

Having said that, I think the last time I was here, in connection Bill C-23, I also said that I thought the threshold--and I agree with Mr. Rook on this--was too low. But one has to remember it's dealing not only with big businesses. The same thing could happen to smaller businesses. Of course, the smaller businesses will have fewer resources to challenge the commissioner.

This is my concern. It's not because I think the commissioner and his staff have any improper motives, but the problem is that it's not, in my respectful submission, for the commissioner to decide alone. That's why we have an adjudicative system. There have to be checks and balances, and somebody independent....

When the commissioner goes before the tribunal, it has already investigated--years of work, perhaps. They've committed, and have come to the conclusion that they're absolutely right. That's what happens in litigation. So they are obviously upset if they don't succeed. But that's the reality of our system, where we do have checks and balances. I don't think we should tamper with that too much.

The Vice-Chair (Mr. Walt Lastewka): Mr. Russell, do you have any comments?

À (1025)

Mr. Robert Russell: Yes, I have just two comments on your question.

First of all, we have to take a step back in history to the Combines Investigation Act, which was the legislation that preceded the Competition Act. The formal powers at that time allowed the then-called director, now-called commissioner, to issue certain orders. That was challenged under the charter successfully. So we do have a dividing line in play here--our charter--that limits what the commissioner would be enabled to do under the legislation. I think becoming an adjudicator would go beyond the process for the due process reasons that have been mentioned by Mr. Rook.

The second comment I'd make is that there's a whole invisible decision-making process that does clear a lot of cases that we're not talking about. We're talking about the cases that go to the tribunal. As a matter of process, if you're a complainant, you go to the commissioner. Depending on how sophisticated you are, whether you have counsel in tow, whatever you do, you sit down with competition-law officers and make your case for why you believe there's been offence under the act.

That does get considered, albeit administratively, albeit by the commissioner, in determining whether he should exercise his prosecutorial discretion, if it's a criminal matter, or his administrative discretion to bring the matter before the tribunal. There is a process that allows for that.

Secondly, there are advisory opinions the commissioner will issue on a given matter. So if you're a complainant, you can ask for an opinion. We're not talking about an adjudication here, of course; we're talking about a pressure in the system that the commissioner can bring to bear on a party to get them to mend their ways. That happens all the time.

Marketing practices are the prime example. There's misleading advertising going on all the time in this country. The reason we don't have a heck of a lot of cases is because as soon as your client gets the letter in, they come to see you. Hold the fort, you say, let's get this dealt with. There's a whole administrative process to bring a resolution to that. Typically, the commissioner requires the parties to sign on the dotted line that they won't do it again.

So there's a whole process here that you don't see before the tribunal, which is helping us have the appropriate deterrents in place. Now, parties may not be happy with the commissioner's decision, and you tend to hear more about them than about the people who think there's been a satisfactory resolution brought to that administrative process.

The Vice-Chair (Mr. Walt Lastewka): Mr. Crampton.

Mr. Paul Crampton: I have a supplementary comment.

In fairness to the committee, in case you are not aware, a proposal has been floated. I'm thinking specifically of a proposal that was raised at the conference on the future of the Competition Act last June. I know Mr. McTeague was there. One of the former commissioners of the Competition Bureau suggested that Canada adopt a model along the lines of the United States Federal Trade Commission, which has five commissioners, including a chair. The specific proposal was that we move to a model that had three commissioners.

A speaker came from the United States and explained how problematic that would be, because in the United States now, all sorts of resources and energy are put into lobbying each of the commissioners and making separate submissions to each of the commissioners. I understand the problem there is that the commissioners are also the persons who authorize the filing of a complaint, and then they sit and adjudicate in administrative proceedings.

I do not see that process as being productive or helpful here in Canada. I am aware that many of the other participants at that conference I mentioned, as well as others who weren't at the conference, also feel the same way. There is a virtually unanimous view by people who have experience in this area that it would not be a helpful refinement for Canadian competition law and policy.

À (1030)

The Vice-Chair (Mr. Walt Lastewka): Thank you.

We will now proceed to Mr. St. Denis.

Mr. Brent St. Denis (Algoma--Manitoulin, Lib.): Thank you, Mr. Chair, and I thank the gentlemen for being here.

In the few minutes I have, I would like to talk about the big picture. Among the excellent comments you've all made, Mr. Russell made one that I would like to pick up on.

Mr. Russell, on a scale of one to ten, without using numbers, you sort of suggested Japan had less when it came to competition law, if I understood you, and in relation to the Japanese, the Americans had more. I'm not sure if you suggested some of the chaos in Japan now, in the private sector, was a result of that.

It seems to me that if you went around the world and quickly took snapshots of the different jurisdictions, you would find a wide range of application of competition law in each of the jurisdictions. With the Olympics around the corner, I sort of think of these things in terms of a hockey game. In a perfect hockey game, the referees are not even noticed, the players are able to fully exercise their talents, and the game proceeds at a good pace. That's in a perfect game, with perfect referees.

Given that we would certainly all want our competition law to evolve within a Canadian context, are there some best practices, within the discussion we're having today, that we can find elsewhere in the world? I'm not sure if any of you have international experience.

I would be interested in hearing some comments in that regard, because we can always learn from others. The Canadian marketplace is very different from the Japanese marketplace, so we would need different solutions.

So I'm wondering, as a first cut, if I could get some comments on some of the best practices elsewhere.

Mr. Robert Russell: First of all, just to clarify the comment on Japan, I got roped into giving a paper at the University of Toronto many years ago and didn't watch the topic. The topic turned out to be looking at Japan and what they did. So I raised it as an issue and had to go there. It astounded me, as a competition lawyer, that they actually had legislation to encourage the big players to collaborate in ways that would be criminal in Canada.

There are all sorts of complexities in what's happened with Japan's economy, but the lack of competition has run clear and large lately. When you look at the lack of legislation, I think you can at least point the finger to that being one of the contributing factors.

I also heard the Minister of Labour from New Zealand many years ago at a talk. He spoke about what the New Zealand economy was like, their lack of distinct competition laws, and the distaster they went through in their economy, with lack of productivity and efficiency.

In answer to your question, I think we have one of the best systems in the world. I would not take too many notes from the Americans or the Europeans. Our system is efficient and has a good balance between administrative discretion and the tribunal's role. I start from there, so when we talk about the things I was talking about today, I'm talking about continuous improvement, but not a wholesale change.

I was retained by the commissioner to do a paper on section 45. I reviewed the statutes in the various jurisdictions in the world. To a large extent, they are similar to our model and the American model. In fact, when you go outside of Europe and the U.S., you find that most other jurisdictions did as we did and took the best from both and built models in that fashion. If you look at Australia's, which is the closest to ours, you find a lot of similarities to our system.

The one distinction--and I'm not advocating this--is that in New Zealand, South Africa, and Australia, all of which have similar models, they have factors that go beyond efficiencies in their acts. They have factors that say you can overcome a substantial lessening, if it means there will be greater employment--what we call non-true efficiencies in our economic model in Canada.

I do not advocate adopting them, because right now in Canada, when you look at the position the government is able to take in the world and the economy we're in today, we should be proud of the fact that we have a productive and efficient economy. I think our act has served us well in trying to get there.

À (1035)

The Vice-Chair (Mr. Walt Lastewka): Mr. Crampton.

Mr. Paul Crampton: I would largely echo Mr. Russell's comments. But in response to your specific question about best practices, you should be aware that the business and industry advisory committee to the OECD recently submitted draft best practices, in the area of international merger control, to OECD Working Party No. 3, which is chaired by Konrad von Finckenstein. I'd be happy to give you a copy of them. I was involved in the development of them. They're currently being considered by the new international competition network, which is also being chaired on an interim basis by Mr. von Finckenstein. I think you would find them to be very interesting and helpful, in terms of clarifying your thinking and focusing on the issues.

You should also be aware that the Asia Pacific Economic Cooperation Council developed competition principles. These are broader principles that go beyond private restraints and also address government restraints, such as foreign ownership in the airline sector. I think you would also find these competition principles, which were actually endorsed in a shorter form by the APEC ministers in the fall of 1999, to be very helpful. I'd be pleased to provide you with copies of both of those documents. I was also involved in the latter ones.

The Vice-Chair (Mr. Walt Lastewka): Mr. Rook.

Mr. John Rook: Thank you.

I don't believe that there's a lot to be learned from the practice and procedure followed in other jurisdictions. I've often wondered about the ability of the United States courts to deal with mergers by way of injunctive proceedings, whereas we seem in this country to engage in more protracted proceedings. There are a number of cases in the U.S. where the Department of Justice challenges the merger by way of an attempt to obtain an injunction, and if it does, that's usually the end of it.

When the act was passed in 1986, I naively believed that we would be embarking upon a system similar to that in the United States, and it hasn't happened. I don't know whether it should happen or not, but perhaps that's something that might be looked at.

My suspicion is that the tools are there now with the passage of Bill C-23. There are some further changes for which, if I had the magic wand in my hand, I would want to wave it. Nevertheless, I think the powers of aggressive case management.... I've never understood, for example, why the Competition Tribunal cannot act the way the Commercial List does in Toronto. I don't mean, for those of you who are not from Ontario, to say that everything in Ontario is wonderful, but I don't understand why we cannot have proceedings in front of the tribunal similar to those the Commercial List deals with in Toronto. But the powers that have been granted to the tribunal in Bill C-23 with respect to costs and with respect to making summary determinations have the potential--just the potential--to streamline the process better and bring about the best practices you envisage.

The Vice-Chair (Mr. Walt Lastewka): Thank you.

Mr. Wong.

Mr. Stanley Wong: I have two observations, one about the overall system. I had occasion very recently--in fact last month--to attend a meeting at their invitation at the leadership meeting of the antitrust section of the American Bar Association. A number of U.S. counsel mentioned to me that they regard the Canadian merger notification system as the best system in the world. They said that they have shared that view with one of the two agencies in the United States that enforces competition law, that is, the U.S. Department of Justice, Antitrust Division. They said that not because they were pandering to Canadians--they have no need to pander to Canadians--but they said they regard that as a far better system than they have in the United States or they have in Europe.

The second observation I want to make is that when you look at other jurisdictions and look at their adjudicative system, be very careful as to what they are doing. I know that part of the genesis of the tribunal's own reform was a paper written by Professor Trebilcock, who is known by this group, by Mr. Campbell, who is also known to this group, and by Professor Hudson Janish, who talked about the European system. I urge you not to really think the European system is anywhere close to our system. You have to remember, in Europe they operate under a different legal tradition, plus the fact that there are 15 sovereign states giving up some powers to a central bureaucracy.

The way it works both in mergers and non-mergers is that the staff investigates, and in a merger they have 30 days to make a decision before it goes more formal. Other than that virtue, they publish something called a statement of objections, which they send to the parties and ask them to comment on. Then there's a right to have an oral hearing.

But let's not be mistaken. The oral hearing is nowhere like our system. What it is, there's a case officer, a hearing officer, and who attends? The party under investigation or in the case of a cartel all the cartel parties plus an advisory committee made up of the antitrust or competition law agencies in the member states. Then a decision is made by the commissioner, in this case Mario Monti, and it goes to a formal vote of the commission itself with x number of commissioners.

The cases in which it's actually challenged...there's no challenge. It's all administrative. I know the GE-Honeywell...I know what the current status is...has launched a challenge in the court of first instance in Luxembourg. But these things take years. If you think our tribunal is slow and our court process is slow, this is extremely slow. Their system is one of pure administrative determination, so there's intense lobbying of the commission and the commission staff.

Look at the Australian system. I know you've heard from Mr. Fells. I know that there are some virtues that are admired because Mr. Fells is almost God-like in Australia and their decisions are rarely challenged. That's not a good system, one where you have that much power concentrated in the commission. I know the commission is more than one person, but it is very centralized, and the parties do not take the commission on.

I don't think there's anything wrong in our system, where if people don't like the decision of the commissioner, they can challenge it. That's our system, and I think it's a good system.

Having said that, I like to see myself as a member of the loyal opposition, if you will, in terms of what goes on in the commissioner's office, because I think we do need to improve things as a system. But let's not beat ourselves up, thinking we have a terrible system.

À (1040)

The Vice-Chair (Mr. Walt Lastewka): Thank you.

Mrs. Desjarlais.

Mrs. Bev Desjarlais (Churchill, NDP): I might be making this too simplistic, but your comments and answers have been extremely informative. For someone who's new at dealing with this part of it, I found it very enlightening.

I get the feeling that generally you're all in consensus that we have a reasonable system. We have a good process in place, but there is need for change. I get the impression that the need for change is more on the oversight of the commissioner's office. But if you were to list three and very simplified, if we were to look at a committee of three things that you would like to see, what would you list?

Mr. Stanley Wong: In terms of the tribunal process, the first thing is that we have to ensure the tribunal plays a central role in our system. It was designed that way. To the extent that in a parliamentary system the committee can resist legislation, I urge you again that we have to be very careful to preserve the central role of the tribunal.

Second, I think in order for the tribunal to do its job, one has to make sure there are sufficient resources. One of the causes for delay is the lack of judicial resources in the tribunal. After all, the judicial members of the tribunal are also judges of the Federal Court, trial division.

There have been very few cases. The judges are not on standby. The registry of the trial division will hand cases out, and they've done so on a number of occasion--and you can get that directly from the tribunal--where there are insufficient judicial members. Similarly, with respect to the economist, for example, it's part of the convention of the tribunal--the custom of the tribunal--that when you do a merger case you have to have an economist.

I know when I was doing the Southam case for the commissioner, the economist, Dr. Roseman, was at the same time sitting on an abuse case involving Laidlaw. We had to schedule the hearing so that he could be in both. That is unacceptable. Neither party should have to wait months in order for the member to be available. I think we need more resources for the tribunal.

The Vice-Chair (Mr. Walt Lastewka): Thank you.

Mr. Rook.

À (1045)

Mr. John Rook: Thank you. I'm not sure I can come up with three, and part of it will be an echo of what you've heard.

First, I would urge that the tribunal continue to maintain a broad and flexible discretion to manage cases in both the party's and the public interest. I am concerned about the attempt by the rules and by members of the tribunal to think that this can be done by fixed rules, which mostly relate to the timing of when things should be filed and the like. In my judgment, that is simply tinkering at the edges of substance.

Second or third, you should look going forward at opening up the system to allow participants more access to the tribunal. I find it hugely ironic that in an act devoted to competition the commissioner has a monopoly or near monopoly on access.

One area that in my judgment would add a lot of accountability, particularly in merger cases, is if a merger is before the tribunal the reference power that exists in Bill C-23 should be amended to permit the respondent to bring an application to the tribunal for a ruling on a summary point.

Right now what happens is it's like an iceberg. Most of what happens goes on beneath the water, not above the water. In negotiations that my friends who are merger lawyers engage in there's a give and take that goes on. Oftentimes what is demanded is not reasonable, but the parties, for reasons that Mr. Crampton mentioned, want to get on with it.

If the respondent in that case had the power to go to the tribunal and say this is wrong, this is outside the mandate of the commissioner in these circumstances, and you ought to do something about it, that would have a very healthy disciplinary effect on the exercise of discretion beneath the water.

The Vice-Chair (Mr. Walt Lastewka): Thank you.

Mr. Crampton.

Mr. Paul Crampton: Thank you.

If pressed for three recommendations, I think my three would be, point one, that the tribunal process ought to become less formalized.

Point two, personally, I think time limits on the overall tribunal process in a particular case ought to be seriously considered. I'm not a litigator, but I can tell you from the perspective of a business person, timing certainty would be a very critical piece of the puzzle in terms of inducing them to make greater use of the tribunal. Without that certainty, I fear that people will just continue to be very reluctant to become involved in competition tribunal proceedings.

And finally, in terms of penalties, which is the other subject of this panel, I would urge the committee to consider adopting an administrative penalty power in the abuse of dominance provisions of the act. I limit it to the abuse of dominance provisions of the act because, in my view, the other non-criminal provisions of the act should become redundant, and perhaps repealed, if we fix the abuse of dominance provisions in the way that I described in the paper that I know a number of you have from last fall.

The Vice-Chair (Mr. Walt Lastewka): Thank you.

Mr. Russell.

Mr. Robert Russell: I think I can easily fit within three recommendations. It's the three that I came with today, which I think are important, but it may be not as easy to put them in order.

First, as I've advocated in the last session and at this session, I believe we need a rules committee, because we have to recognize that this is high-stakes litigation. It is warfare when it is on; there's no question about that. You won't find too many people sitting here who can tell you about 52 interlocutory motions before trial. This is as high-stakes as it gets in terms of commercial litigation in this country. That is what the tribunal has to hear on a contested application.

The rules committee would then be allowed to formulate rules over time that would make sure that the process is properly managed. It would make changes incrementally. The process that you'd go with would be to have a recommendation coming forward formally every six months. It's a committee that's enshrined to give recommendations to this committee, or whatever the case may be, and regulations are put in place, then, to formalize the rule changes that are necessary. That incremental change is something that has been missing since we started in 1986, and you're really hearing a lot about the baggage that has been accumulated in terms of discovery rights and things, and time limits that may be needed.

I don't believe in time limits; this is too big when you're actually in the litigation. I found that we started the application in CAST in December, and we were still in these 52 applications ten months later. I did not have a moment to breathe in that ten months, never mind somebody telling me I had to do it within six months. I can tell you, it wouldn't have been possible. So you have to recognize the complexity and the size of the litigation. I think artificial constraints on time would be a mistake.

Mandatory case management, which you see supported across the board, is something that would allow strategic litigation to be brought down. In other words, maybe you wouldn't have 52 applications or motions, because with a case management judge, you'd have to justify each motion that you bring, before you get to bring it. So it's really important.

It is not a Toronto phenomenon, by the way. We actually copied it in Toronto from other jurisdictions; I think we all know that. New York does it, and Delaware does it. This is one place in which the U.S. got it right first, in my view. In Delaware and New York, they get large commercial litigation to trial in three months. We still don't easily do that in Toronto. So I think the Toronto model is great, but there are others that have it so fine-tuned that you're in that courtroom door having your case heard in three months. I don't believe anybody could suggest that sort of aggressive case management wouldn't be helpful to the tribunal process.

The final thing--and we haven't spent a lot of time on it--is administrative penalties and damages to parties that are harmed. Without that, we don't have teeth in this legislation for important reviewable matters. If you put a company out of business today, all that will be said to you is you shouldn't have done it. That's not a good enough deterrent. If you're going to abuse your dominant position in this country, you should be called to pay for damages to the party, costs for the proceedings, and penalties because the public interest has been affected. We need those teeth. That is an important legislative reform that I believe we have to move forward on the agenda.

Thank you.

À (1050)

The Vice-Chair (Mr. Walt Lastewka): Thank you very much--another good question taking up all of the time.

Mr. McTeague.

Mr. Dan McTeague (Pickering--Ajax--Uxbridge, Lib.): Mr. Russell, I'm going to lead off with your last comment, because I was intrigued with your comments with respect to damages. Before I do, though, I want to compliment Mr. Crampton on his new posting in the OECD.

Certainly on this side of the House--and I'm sure I speak on behalf of all the members of the committee--we wish you very well, Mr. Crampton, in your successes down the road. It would seem to me--Mr. Penson may have alluded to this a little earlier--the issue of competition has led to many successful careers. I include, of course, our parliamentary secretary and our chair, who have now moved on and up, if one considers that to be a rather interesting phenomenon.

I am interested, gentlemen, in the comments you've made with respect to--some of you have been more guarded in terms of remedies--the question of damages, which has been brought up in the context of matters, under part VIII, which are reviewable. It has come as a concern to certain members of this committee that from time to time to characterize matters--or issues, incidents--that happen in the private sector as reviewable when in fact they may very well be anti-competitive strikes us as a bit of a concern.

You've made a proposal, Mr. Russell, but I'd like others to comment on it, the effect of damages and raising the issue of the public's interest. Do you see damages as streamlining and making more efficient the role of the tribunal in terms of not having to dispose of issues on a case-by-case basis? Perhaps a message could be sent out to the business community in one or two examples of cases of damages that are raised after a long or prolonged, hopefully not too long, case before the tribunal to act as a deterrent to certain activities.

Mr. Robert Russell: I think when you look at other jurisdictions, such as Europe, it's an important element of deterrence under their legislation that fines be applicable to civil matters--reviewable matters, as we call them. Without that, if you don't have sufficient deterrence, then you spend a lot more money on litigating the issues. That's always the balance that legislation tries to bring, whether we have enough deterrence in this act with respect to reviewable matters.

I think most Canadians would reflect on various events over the last number of years and say there is not enough deterrence in our legislation. I think that's actually what the public's saying, and I believe it's correct. When it comes to our reviewable matters--and you've heard it out of the mouths of other people here--you're put in a position, as a lawyer, to review the matter for your client and tell them it's not unlawful until the tribunal says so. That's actually the truth, so they then have to make a business decision based on that limited advice that it's a lawful activity until the tribunal says no.

À (1055)

Mr. Stanley Wong: I think, in respect to administrative penalties, there are going to be issues about where it should be in terms of the system. But I agree with Mr. Russell. I think anybody who looks at this with dispassion will know that with monopolization--that's what abuse of dominance is--there is no deterrence, because as everybody's saying, all you do is stop doing it.

Having said that, I think there is a need to review the whole scheme as to what we're trying to do. I think it's in Bill C-23 that there's now a penalty of $15 million in the airline situation. I think that's too hasty. I appreciate there are all sorts of political considerations, but I think it is too hasty in coming to that. I think you need to look more generally at what principles you want enshrined in the act to deal with reviewable matters. But right now, you just say gee, we have a terrible situation in our airline; let's put in the $15 million; let's make sure these guys get a message.

Remember, when you stop putting those in, it affects not only big business, but also small business. Let's not forget that. So it's not a question of what we can do to stop the big business. When you have these penalties in place, they will apply equally to smaller businesses.

The Vice-Chair (Mr. Walt Lastewka): Mr. Rook.

Mr. John Rook: Historically, Canada's antitrust legislation has been principally concerned with the public interest in competition, as opposed to the private interests of individual competitors.

If you amended the legislation, as Mr. Russell is suggesting, to afford a litigant the right to damages, I think the implications would be quite profound, not only for process in front of the tribunal, but also for the role of the commissioner going forward. I think inevitably where you would end up is that the tribunal would become a court like any other, only it would be a specialized court. So a lot of thought has to be given on whether it is in the public interest to migrate the legislation in that direction.

In thinking about that--and I don't have any categorical view on it--don't lose sight of the fact that there are remedies still available under the civil regimes that exist.

Mr. Paul Crampton: Let me make a brief observation on administrative penalties, which you know I support. I'd like to refine that a little bit and state that I think the amount should be at the discretion of the Competition Tribunal.

As we note from the area of hard-core cartels, even a $10 million fine may not suffice. I know when I was at the Competition Bureau, when we were looking at a particular case, we calculated the overcharge to be hundreds of millions of dollars, so even a $10 million fine in that particular case, had it gone forward, would have been a mere fraction of the profits.

If you're going to introduce an administrative monetary penalty for abusive dominance, I think you really want to give the tribunal the greatest flexibility by allowing it to impose a penalty at its discretion. That will enable it to set the penalty at any level.

With respect to damages, we've been through a very delicate period in the last six months with respect to the fine print of Bill C-23. As the members of this committee are aware, there were some strong feelings with respect to the issue of damages, and it was ultimately decided, after carefully balancing the various issues, that we ought not to proceed with damages at this particular time.

I, for one, would be inclined to wait and see how this proposal in Bill C-23 fares over a matter of a few years before revisiting the subject of damages. This is where I come out on that particular issue.

The Vice-Chair (Mr. Walt Lastewka): Mr. Wong, and then back to Mr. McTeague.

Mr. Stanley Wong: I have two observations.

Bill C-23's right of private access is conditional on the fact that the commissioner hasn't done anything. It's either/or, basically. If the commissioner has done something, you cannot bring private access.

When you look at this issue of damages and penalty, one has to give thought as to how these two things interplay. What I think there should be less dispute about is when there is a breach of abusive dominance, the public should have the right to exact a penalty, if you will, or administrative fine, whatever you want.

The question is, what are you going to do about the private litigants? Let's say the private litigant can demonstrate a result of the abuse they have suffered. Do you allow them to have a right of private action for damages, or is it that once there is a public determination, you are out of luck?

I think you have to grapple with those: whether you say that once you go public you can't go private, or you say that after the public is over, a private litigant can tack onto the case and basically say “Now I want to be able to prove the damages caused to me directly”.

Á (1100)

Mr. Dan McTeague: I guess our concern as legislators is that we have to also balance the public interest with what are otherwise matters that private litigants may bring before us. Of course, we've crossed that bridge with Bill C-23.

Mr. Crampton, you talked a bit about the question of administrative penalties. I think that's a great idea. The problem, however, is that the aggrieved party, the person or persons who may be subjected to an anti-competitive act that is provable in the long run, may find themselves out of business. This has the potential of creating a harm to the public in general.

Given Canada's intrinsic nature of being highly concentrated, one can give examples of where if we don't have the kinds of instruments that provide us with some modicum of damages, I'm suggesting, perhaps, that we might consider allowing the discretion of the tribunal. Forget going single, double, triple, whatever number you want. But why would you not want to consider at least damages...or one would not want to consider the question of damages in the widest context of its bearing on the public interest as a result of private entrants being defeated or knocked out of the industry they serve?

Mr. Robert Russell: I think this is one that you shouldn't necessarily leave to the lawyers, saying that I'm one, and I'll tell you why. Justice is supposed to be equitable and fair. That's the principle that applies.

I'll give you a scenario that goes right to your point. If I were a small enterprise that had services supplied to me at an airport, and another dominant entity came along and told me to terminate my contract with that party, there's a remedy in law called inducing breach of contract. I could get millions of dollars in damages because it interfered with my business.

The scenario under the Competition Act is similar. That same dominant entity comes along and says “You only do business with me; don't do business with that small carrier”--me. Today, I can't get any damages under that, because the law...the courts have looked at it, and that's not unlawful. Section 36 says that you can't bring an action, so there's no remedy under section 36 of the Competition Act.

The tort law that would be applicable says--it's gone to the courts and they've considered this repeatedly since the act came into force in 1986, with its amendments--it's not unlawful at that point in time because the tribunal hasn't said so.

So you are without a remedy as a small enterprise in Canada when your business is potentially crushed. In my view, that's not equitable, that's not fair. I believe we have to come up with a model. I'm not suggesting which model, but I believe we might at least start with your suggestion that it be up to the tribunal's discretion to consider both administrative penalties for abusive dominance and damages to a party who is directly impacted, or is the target of the abusive conduct. I think there's lots of room for us to do that without disturbing the model that we have under the act.

The Vice-Chair (Mr. Walt Lastewka): Mr. Crampton.

Mr. Paul Crampton: Thank you.

To respond to Mr. McTeague's last question, I think that in the abstract, to ask the question is almost to answer it, and personally I think that damages can't be considered in isolation. They obviously have to be considered together with the implications a power to award damages would have for parties to engage in anti-competitive strategic litigation, for example.

I'm personally inclined to wait and see how this first compromise approach works, and if it doesn't work, then you'll be well armed to come back and say that approach didn't work; we need to strengthen it. Now let's think about how we're going to strengthen it. For now, I would come back to the position of we've got this brand-new proposal, and let's just see how it works before we start tinkering with it.

The Vice-Chair (Mr. Walt Lastewka): Mr. Bergeron has accepted not to ask any more questions, allowing Ms. Torsney and Mr. Savoy to ask questions.

Madam Torsney, you're first on. We're going to go about 10 or 15 minutes over because there's one less witness in the next round table, and we'll only have three instead of four. Ms. Torsney.

Á (1105)

Ms. Paddy Torsney (Burlington, Lib.): We'll have to have a get-warm break, since we're apparently saving the country money on the heating bills today. I feel like conjugating the verb geler or something.

You talked to Mr. Russell about ten months of full-time work on a particular case. I can't imagine what that would cost a business. The cases you're talking about are huge. People have calculated before they're going to...talk about the merger, the cost of getting through this whole process, and these are really big mergers you're talking about. Really, if we're going to be a competitive country and if we're going to have a spirit of competition, there are all kinds of little businesses being sold that are pretty important to the communities they're in, but they're never going to hit the Competition Tribunal. There isn't a process that would be efficient in its current form that would ensure that this is fostering and encouraging healthy competition.

It sort of struck us the other day at another panel of witnesses that in the same way we have a parallel court system for very small matters, is there not a possibility of setting up some kind of group of experts across the country that would be like a small claims court of competition decisions, so that if it is...? You talked about, Mr. Crampton, the last two grocery stores in a small town...some of these stores are really like variety stores, and they're really small, but in a northern community or in a rural community, that's it. You could be a consumer where one guy owns everything in town, and there isn't another way to get your food, so the competition could be important.

On the other hand, my goodness, we wouldn't want a system where nobody was ever able to sell their business or they weren't able to merge companies at a very small level and grow bigger, take on the world. But is there a need for some assurances or some kind of parallel system that would be helpful? I'm not sure the cases I'm talking about even hit your desk or your points of reference, because you're so busy with the big ones.

The Vice-Chair (Mr. Walt Lastewka): Mr. Crampton.

Mr. Paul Crampton: That's an intriguing idea. As I think about it, I immediately start to think that maybe it would involve the creation of a separate government agency to handle small matters. I'm not sure that would be efficient. I think the best thing to do--and this is just my initial reaction--would be to give the Competition Bureau more resources.

The reason it can't allocate resources to the smaller cases is because it doesn't have them, and therefore it has this case-screening criterion, which is, where can I get the biggest bang for my buck--let me throw my resources at those cases that involve the greatest potential harm to the Canadian economy.

I would come back to giving the bureau greater resources to do its job, and maybe your idea could be accommodated within the bureau itself by having a special unit that would handle and be responsible for smaller matters, small and medium-sized business issues. That's something that certainly is worthy of consideration.

Mr. Robert Russell: I think that it isn't a problem with the legislation. Legislation provides that the issue of two small variety stores in a small town, if it's a market, should be dealt with by the commissioner. The mandate is there to do it. I believe that the focus on cases of national import has been a resource issue. So I agree with Mr. Crampton that in the past.... When that case was going on that I told you I was on, I had to stop working twice in the year because of lack of resources. It was the one case going on at the time for the commissioner. I was told to lay down tools. I couldn't talk to my experts twice for lack of resources. It's simply that.

Second is access to justice. We need to make sure that the people in those committees have access to justice in their communities. That's a lawyer's problem that we have to deal with, and I don't want to drag it in here. But it's debated in the Law Society of Upper Canada in Ontario that we have to make ourselves available. I can tell you that the Law Society does have a referral program that requires us to give advice--pro bono advice--for the first half hour, I think it is. There are a number of practitioners in the competition field that sign up for that. I have done that. I have done it in a case where a small retailer of gasoline products had a problem under the competition act, and I have advised.

It's those two things. The small business should get remedy under this act. There's nothing that prevents it, except the money to do the policing by the commissioner and making sure that legal advice is readily available. I think the legal community has to do something about the latter and the government has to do something about the former.

Á (1110)

Mr. Stanley Wong: With respect to litigating small cases--for example, two grocery stores in a small community--the commissioner is not going to take that on without sufficient resources. It doesn't make sense. But having said that, it doesn't mean the commissioner doesn't look at it. Certainly in my Vancouver practice, as opposed to my trial practice, I have dealt with smaller businesses--for example, a merger of Ready Mix companies. I can vividly remember one where, even though it was not notifiable, it was brought to the commissioner's attention that two Ready Mix companies in a particular geographic area were merging. So he called up the parties and talked to them.

So it is within view that the commissioner does look at these things, but of course whether or not they will litigate depends on resource issues. If you want the commissioner to litigate everything, then you'll have to give the commissioner more money.

Mr. John Rook: I'm not sure I have a concrete example like that. But clause 103, in my judgment, has the potential to bring about the very outcome you're concerned with, because it affords for the first time the opportunity for a small-business participant to bring an application to the tribunal and bypass the great edifice of the commissioner's office, where things can get mired for months, if not years in some cases.

So there's that potential. While I have some concerns about whether it will be effectively utilized because of the interim power that I spoke about earlier, in my judgment you should wait and see.

The Vice-Chair (Mr. Walt Lastewka): Mr. Savoy.

Mr. Andy Savoy (Tobique--Mactaquac, Lib.): Thank you, Mr. Chair.

There is a consensus among many competition experts that we should be looking at moving anti-competitive pricing practices from criminal to civil law. They are currently under criminal sanctions. But we should be looking at reviewable civil practices under the abuse of dominance provision. The arguments are that it has a chilling effect presently with the criminal provisions, that it would permit consideration of competitive effects of the practice, and that it would lower the burden of proof to civil standards.

We heard arguments last week against such a move. One of the challenges that was presented to myself and the committee, I assume, was to identify situations where allegations of either vertical price maintenance or price discrimination actually resulted in pro-competitive or efficiency-enhancing effects. Basically, the witness challenged us to identify situations where price discrimination or price maintenance allegations resulted in pro-competitive or efficiency-enhancing effects, as I said. Can you give us from your experiences either hypothetical or specific examples of this occurrence?

I think Mr. Crampton is probably the one to start with this, Mr. Chair.

Mr. Paul Crampton: I can unequivocally tell you that on the basis of my own experience, both within the bureau and in the 11 years or so since I left the bureau and have been in private practice, business persons routinely consider initiatives. They might be low-pricing initiatives that would be pro-competitive, but they don't pursue them because of the chilling effect of the current criminal provision. They could be discount initiatives that happen all the time and that are abandoned or reformulated to get around the criminal price discrimination provision. They might also be vertical pricing practices.

I'm trying to think of some public examples to give you. I can honestly say that it happens all the time that parties are chilled. The Canadian economy winds up being the loser because that behaviour does not proceed. Companies, especially public companies, are very concerned about being involved in a criminal investigation. It would certainly taint their goodwill and reputation in the marketplace if that were ever reported, and certainly if they ever became embroiled in proceedings, that would be the case.

It often doesn't help for us as counsel to say to them that as a practical matter, the commissioner doesn't bring these cases. He really doesn't very often. He will from time to time make noises behind the scenes, but often he doesn't bring the cases. Right now the act is not effective when it comes to those matters, if the commissioner wants to bring the case, because of the criminal burden of proof.

What I suggested in that Canadian Bar Association paper in the fall, which will be published in the next few weeks in the Canadian Business Law Journal, was to decriminalize these practices, rely on the abuse of dominance provisions to address them. That would give the commissioner a lower burden of proof. It would give the private sector the benefit of decriminalization so it wouldn't have that chilling effect. So it would be a win-win.

To address the concern that maybe the commissioner would lose some deterrent effect by losing the criminal sanctions, you could insert an administrative penalty power. If you wanted to further strengthen the abuse of dominance provisions, you would get rid of subparagraph 79(1)(a), which requires that the respondents be demonstrated to control or substantially control a class or species of business. If you got rid of that, you would simply have to demonstrate that the anti-competitive acts were likely to substantively lessen competition, which is exactly the same threshold you have over in the predatory pricing provision.

So I think it would be a win-win for everybody. I think it's something you should seriously consider. I don't really see much of a downside.

Á (1115)

Mr. Stanley Wong: I'd like to draw a bit on my experience on the price discrimination side. We should remember that there is not one contested case in our act. It's been in the act since 1933 or 1934.

This is one area where thousands of opinions have been given. I know Mr. Crampton acts for the big business and wants to engage in decriminalization. I certainly have been involved for a bit in setting up buying groups for very small businesses. They spend very good money to try to get around it, which you can do through forming buying groups. Again, why is that all necessary?

Of course, the thing you have to watch for when a group of buyers get together is that they're not engaging in a boycott, and in fact a conspiracy. Having dealt with that issue, which is covered by our conspiracy laws, you should move into the civil side and allow that to be dealt with. Far too many resources have been devoted to dealing with price discrimination.

If you look at the guidelines published by the commissioner, maybe more than a decade ago, the interpretation, in my respectful view, is different from what the statutes actually say, as a way of sort of warming up the chilling effect of the statute, if you will.

Mr. Robert Russell: Actually, the two issues you raised are intellectually very interesting, but also you can look at them by contrasting our law to that of the U.S., because in both cases it's different in the U.S.

Take price maintenance. We have a very strict law here. There's no necessity for an agreement to be in place regarding that. The necessity for agreement in U.S. law allows the so-called Colgate doctrine, which means that they can unilaterally sell...they can say you won't sell my product for less than...you just can't have an agreement. They use that all the time. So price maintenance that would be unlawful in Canada occurs in the U.S. all the time. That's a cross-border legal issue that I have to deal with monthly, because you have to advise American businesses that the law is different here.

Would you say they're better off in the U.S. with their law? I couldn't point you one way or the other, but we have stronger laws in Canada on RPM. There's lots of economic opinion, though, that RPM shouldn't be in any competition law. Because effectively, if I make my price, and I say you don't sell it for less than that, as long as there's other competition for that product, I won't be able to maintain it. Theoretically, it has to go away.

So the economists would tend to tell you that RPM is really useless, because it doesn't have any long-term effect. You can't win unless you're already in a dominant position, which would support the view of moving it into the abuse-of-dominance position. You'd have to establish that element first, but you'd have an easier road, if you will, because it would be a civil matter. That, I think, intellectually, is an attractive proposal to review.

On price discrimination, we're really weak in Canada compared to the U.S., because in the U.S. you can discriminate in price on the basis of volume. So you can, as a store, for example, buy 100 of a product for less than if you buy two. It's completely arbitrary in our law. You can make a differentiation between one and two, or one and 5,000--whatever you want--and set your price on that level. That's the law in Canada. You don't have to justify it on the basis of cost as a manufacturer.

In the U.S., you can't discriminate unless you can justify it. In other words, if it's a lot cheaper for me as a manufacturer to produce 100, I can pass on that cost benefit when I sell 100, as opposed to selling one. But that's all that I can pass on as a discrimination in price to the retailer.

So the law in the U.S. is much stricter on price discrimination. Again, ask yourself if it's any better down there than it is here with respect to this.

I don't particularly consider them to be overly relevant to our competition policy, either one of these sections, but there are two models to study. You could look at it either way if you wanted to.

Á (1120)

The Vice-Chair (Mr. Walt Lastewka): Okay, as we close off this round table, Mr. Rook, would you have some final comments?

Mr. John Rook: Not really, Mr. Chairman. I tend to agree with the comments my friends have made in this respect, particularly regarding the price discrimination provision. In my experience, it's very seldom resorted to. I've always been able--once I figured out what it meant, which took some time, I might say--to think of a way to get around it. It's just a barrier that probably doesn't need to be in the criminal provisions at all.

The Vice-Chair (Mr. Walt Lastewka): Thank you very much. I want to thank the witnesses for being with us today and having some excellent discussion and assistance for our process. I apologize for the cold weather, but winter has arrived in Ottawa.

We're going to take a three-minute break, and then continue round table two.

Thank you very much.

Á (1122)

Á (1131)

The Vice-Chair (Mr. Walt Lastewka): I want to apologize to the witnesses and thank them for their patience.

Unfortunately, Mr. Winter could not be with us. We do have today Roger Ware, professor, Queen's University ; Paul Crampton, who of course was with us in the first round table; and Tim Kennish, lawyer, from Osler, Hoskin & Harcourt.

We'll begin with Professor Roger Ware for say 10 to 12 minutes. We're going to try to stick to the time in order to get as many questions back and forth in the round table as possible.

Professor Ware.

Mr. Roger Ware(Individual Presentation): Thank you, Mr. Chairman.

I may not use all of that time in my initial remarks, so I'll be happy to elaborate.

I want to start by suggesting that the commissioner's suspension of sections of the merger enforcement guidelines that deal with efficiency claims in merger review have created a serious vacuum in guidance given to firms contemplating acquisitions, and there is now an urgent need for guidance in this area.

The guidance that has been offered by the commissioner, which you can find on the bureau's website, I believe, is to follow the prescriptions of the Federal Court of Appeal in the Superior Propane decision.

In my view, the guidance given by that Federal Court of Appeal decision is not adequate to this task. I don't claim to quote it exactly, but broadly speaking it says the tribunal, in considering weight given to efficiencies, should apply a flexible approach, not restricted to the approach that's become known as a total surplus approach, which I'd be happy to elaborate on later if anybody would like me to. It takes account of diverse factors, such as the effects on small business, the possibility of creating monopolies, and perhaps income distribution effects.

I've written elsewhere about this, but I think this Federal Court of Appeal decision is quite flawed in some respects. I also think it doesn't, whether flawed or not, give a good guide to the future conduct of competition policy.

I also believe there's a danger that Canada could move from a position of being more supportive of efficiency claims in merger review than the United States--a position that was enshrined in the 1986 Competition Act, and even more clearly in the various sets of merger guidelines that were issued at the beginning of the 1990s--to a position where we could be less supportive of efficiency claims than the Americans.

I urge that once the final decision in the propane case has been delivered, which I presume will be fairly soon, we begin a debate, not about whether efficiencies should count in merger review, but how they should count, and what types of efficiencies should count, in particular.

That's a debate that the Americans have already begun. It's interesting there has been a sort of curious divergence of policy direction here, in the sense that the Americans have moved steadily, over the decade of the 1990s, toward more and more serious consideration of efficiencies in merger review, and we appear to be moving in the opposite direction. That concerns me.

I'd like to give you a couple of quotes from Robert Pitofsky, the former FTC Chairman. In 1992 he said, “The failure of United States enforcement agencies and courts to take into account efficiency...considerations in merger analyses was the principal cause of American firms' difficulties in international trade.” That statement seems a little over the top to me, but nevertheless it points to the concern. A year later he said, “If long-term U.S. economic interests turn on productivity and innovation, it may be time to treat assertions of efficiency in defense of a transaction in a less grudging way".

In a few cases south of the border, while efficiencies haven't succeeded in overturning otherwise anti-competitive mergers, they have certainly been given very significant consideration in the decisions in those mergers.

Á (1135)

Just to make a point that I've made elsewhere, if we don't give consideration to efficiencies in these merger reviews, which at times seems to be the position that the commissioner would like to adopt, the consequence of such a position is to lead to lower wealth and lower productivity for Canadians.

I was considering trying to articulate and analyse a little bit the different standards that have been applied to how efficiency gains might count in a merger analysis, but I think I might leave that to a later discussion. We have the total surplus standard, we have a consumer welfare standard, we have what has been called a wealth transfer, and we also have what is sometimes called a price standard, all of which have been applied. All have different implications for the weighting of efficiency gains.

As I said, what I would like to do is move in a sense beyond that and start talking about the different types of efficiency and how they should count. I will just make a few points in closing about that.

One issue with respect to efficiencies is the time profile. Our merger review takes the position that the time horizon is two years or thereabouts. In other words, if we're going to consider costs and benefits, lessening of competition, then we use a two-year time horizon. Part of the problem with respect to efficiency gains is that efficiency gains usually accrue over a much longer period than that. Certainly it is true in the propane case that the tribunal looked at efficiency gains over a ten-year time horizon. The only point I want to emphasize here is that it matters. It matters if your efficiency gains are going to occur between years five and ten, because then they wouldn't even show up in a two-year review. So these things matter.

Another issue that is critical in consideration of efficiencies, which has been debated quite a bit among U.S. antitrust scholars recently, is the issue of what efficiency gains might be expected to occur in the absence of the merger. We're thinking again strictly about a merger review. One of the things that it says in the merger guidelines is that efficiency gains only count if they could not have been achieved in the absence of the merger. This is sometimes stated as the efficiency gains must be merger-specific.

This is a question that is not easy to evaluate, actually. As I said, I would like to start a debate about when we think efficiency gains could have been realized in the absence of merger and when they couldn't. One way to distinguish between different types of efficiency gains along these lines is the distinction between what are called synergistic efficiencies and efficiencies due to economies of scale.

Economies of scale are very easy to understand, obviously. We can take ill-fated bank merger proposals of a few years ago. If the Royal Bank and the Bank of Montreal had succeeded in their plans, and the result of that, which was not their stated intention, had been that they closed down all of the branches of one of them, so that we ended up with exactly half the number of branches, they would have achieved a high level of economies of scale. They would have processed a similar volume of business with half the bricks and mortar, half the number of branches, and a considerably smaller number of personnel. But none of those efficiency gains would have been what we call synergies.

Á (1140)

Synergistic efficiency gains are gains that lead to a genuinely higher productivity for the joint enterprise than was available or attainable before the merger. Usually that has to do with the existence of unique attributes belonging to each of the firms that, once combined, lead to a higher productivity than either of them could realize on their own.

I think I'll leave it at that, and I'm happy to amplify on these points later on.

The Vice-Chair (Mr. Walt Lastewka): Thank you very much.

We'll now go over to Mr. Tim Kennish.

Mr. Tim Kennish (Individual Presentation): Thank you, Mr. Chairman and honourable members. I appreciate the opportunity to present my views on the role of efficiencies in competition law and policy.

I'm not an economist, so I defer to others who are economists with regard to discussion of economic concepts as such. I am a practising lawyer in the field of competition, and I've had experience particularly with regard to mergers. Under the Competition Act, efficiencies are considered within a specific legal context, so although I admit my shortcomings in not being an economist, I think I may have something to contribute to the discussion.

I'm also concerned that although efficiencies clearly have an important role to play in competition policy, under present circumstances and as the act is administered and interpreted, that role has largely been marginalized, and I want to talk a bit about that . Particularly in the context of mergers, one of the competitively desirable outcomes of merger activity is the achievement of increased efficiency. It's a frequently stated article of faith almost that a principal benefit of the competitive process is that ordinarily it is one of the best if not the best means of effecting the efficient allocation of resources.

In addition, as you know, the act specifically has an avowed purpose of maintaining and encouraging competition in order to promote the efficiency of the Canadian economy. Competition isn't really an end in itself; it's a means to other ends, and one of those is the achievement of efficiencies. Notwithstanding that, this objective is a primary one under the act, but I think the role actually played by efficiencies has largely been marginalized. I don't think that it's an overstatement to say that they really don't count. One of the reasons that this is the case is that they're really, in the merger context, only considered in regard to the defence in section 96, and that defence may be invoked in regard to a merger that might otherwise be unlawful, where the efficiencies exceed and offset the perceived adverse effects of the merger.

In the context of this defence you have what I describe as an all-or-nothing situation. Efficiencies are irrelevant unless they can be said to trump the adverse competitive effects of a merger. There doesn't appear to be any consideration of them in the general assessment in the first instance of whether the merger is one that will likely lead to a substantial lessening of competition.

There are several reasons for this. First, section 96 now appears to have been interpreted in a way that the prospects of it ever being successfully invoked to save a merger have diminished to the vanishing point. I think that's the practical effect of the decision of the Federal Court of Appeal in the Superior Propane case. As Roger has pointed out, the story hasn't really finally played out because the courts have not yet determined fully the scope of the adverse effects of the merger, which are required to be covered by efficiencies. But it seems very likely that whatever the final decision is, few if any mergers will generate sufficient efficiencies to meet the test.

The thing that's clear at this stage that the more narrow concept that was originally enshrined in the merger enforcement guidelines of the total welfare standard where the so-called dead weight loss, the loss of productive efficiency of the economy as a result of the merger, has now been rejected as the governing principle.

I'm not here to apologize for or to advocate a return to that standard. I think that in some respects it has a somewhat perverse operation. It seems to me that in a number of situations the dead weight loss is often the smallest quantitatively and thus the easiest to offset, where the demand for the product is the most inelastic.

Á (1145)

To give an example, if you had two firms that were the only suppliers of a life-saving drug and they were to merge, and subsequently the merged firm chose to raise its price for that drug, which it might well do because it wouldn't at that point have the competition to constrain it, the demand for its product would probably remain constant, largely constant, and the dead-weight loss would be relatively small. Mind you, the actual wealth transfer could be enormous, depending on the scale of the price increase.

By contrast, another product where the demand is much more elastic--PlayStation 3 or something--is likely to suffer more reduction in output if they raise prices, and as a consequence, the dead-weight loss would be larger and the efficiencies would be greater. At the same time, because of the impact on the output, the merged company might be less inclined to raise prices.

So, as I say, I think we have a rather unsatisfactory situation with an all-or-nothing proposition under the existing defence, and I think it's very unlikely that it will ever be brought into play as presently interpreted.

There's the very substantial quantum of efficiencies that have to be established to overcome the adverse effects of a merger that is found to substantially lessen competition, and then there's the other issue, which is the great difficulty demonstrating in advance of the merger actually taking place that the merger-specific efficiencies that are likely to be engendered will in fact be there to the point where they can be relied upon.

So I'm sorry to say, as a result of all of this, I think efficiencies will now be completely ignored in the merger review process, because they aren't mentioned in the list of factors that are to be taken into account in assessing the legality of a merger under section 93.

I say it's unfortunate because, in addition to efficiencies achieved being one of the primary objects of the competitive process, often they themselves stimulate a greater degree of competition in an affected marketplace. So a merger that on its face might look anti-competitive in that it involves a reduction of numbers of competitors might nevertheless, on balance, be not anti-competitive at all where, as a result of efficiencies being achieved, the merged party choosing to pass those on to the marketplace could stimulate more competition as they seek to enlarge their market position and bring pressure to bear on their competitors to achieve similar economies or efficiencies in their operations and be able to compete on price.

Efficiencies allow firms to increase their effective margins without raising prices, to increase their absolute profit even while reducing prices. So it's often the case that, in fact, efficiencies do benefit the competitive milieu. It doesn't always happen that way, but it's one of the possibilities that can occur in addition to representing a realization that one of the acknowledged objectives is to earn these efficiencies.

Another aspect of efficiencies that I think is important, and it doesn't have anything to do with the efficiencies defence in section 96, is the fact that they can frequently provide a positive rationale or explanation of the purpose of the parties in entering into a transaction, quite apart from an inference that you might otherwise make that they were doing it simply to enhance their market power. That has important implications also in terms of the likely competitive effects of a merger transaction and a sense that, if they went in to achieve those kinds of consequences, it may be that the merger may not have the more serious effects that might otherwise be attributed to it.

Á (1150)

I think it's important, because mergers are frequently motivated by a desire to capture these kinds of efficiencies. We'll no doubt be talking about this later, but in many industries you have competitors who are operating inefficiently because their plant size is too large to meet demand, whereas, combined with a competitor, they could become more efficient.

I'm concerned that as long as efficiencies continue to be considered only in the context of section 96, they're going to be excluded from consideration in the evaluation of mergers. In a sense, this has already been my experience in practice even when the bureau was considering the section 96 defence to be available where the efficiencies would offset only the dead-weight loss. I don't recall a case in which they ever reached that conclusion.

The upshot of all this is that I would like you to consider that we'd be better off if section 96 itself were to be repealed and section 93, which is the one that directs the tribunal as to considerations it ought to take account of in looking at whether a merger should be allowed to proceed or not, should be directed to consider efficiencies in that connection.

The situation with regard to efficiencies is further exacerbated by an attitude on the part of enforcement authorities toward recognition of efficiencies, which, in my experience, to use the term of a former FTC chairman, is grudging, but it ranges from grudging to cynical. It's true that in most cases we're trying to assess them prospectively, so when a merger hasn't occurred the assertions as to what they may be can be fairly responsible.

At the same time, I think there needs to be symmetry here between the test that is used to evaluate the likelihood of achieving efficiencies in a merger, on the one hand, versus what is the likelihood of having a substantial lessening of competition. I don't think that standard is equal in present practice.

As has been mentioned by Roger, the U.S. position is not very different from what I'm advocating. They have come to this view. It's reflected in the horizontal merger guidelines issued jointly by the FTC and the Department of Justice as amended in 1997.

In a number of cases there has been specific acknowledgment that it's appropriate for the court to consider efficiencies in assessing whether a merger is one that is unlawful or not. Most recently in the Heinz case, although the merger efficiencies did not save the proposed merger in that case, the Federal Court of Appeal, which I think is the highest court to consider this, recently has upheld the idea that they're an appropriate factor to take into account and cited the U.S. merger guidelines with approval.

In the U.S., it's not an all-or-nothing situation like we have. Efficiencies are recognized to be relevant. I would advocate a similar approach being taken here.

My paper discusses efficiencies in the context of some of the other provisions of the act, but they haven't been as material, and I think we do have an issue in regard to mergers.

I'll confine my remarks to that at this point.

Á (1155)

The Vice-Chair (Mr. Walt Lastewka): Thank you very much, Mr. Kennish.

Now Mr. Crampton.

Mr. Paul Crampton: Thank you, Mr. Chairman and honourable members.

I'd like to begin with two general points at the outset. First of all, with respect to mergers, I have reluctantly come to the conclusion that the state-of-the-art approach to efficiencies that many of us believe was contemplated in section 96 of the act is in need of significant rethinking, not just fine-tuning.

My second point is with respect to non-mergers, such as abuse of dominance, or non-criminal, horizontal restraints, if we ultimately go with the two-track approach outlined in your interim report, as well as vertical restraints. I believe it would benefit the Canadian economy to build into the act some explicit role for the consideration of efficiencies in the determination of whether to prohibit the conduct in question. I don't think it would be appropriate to insert an efficiency defence into any of the criminal provisions of the act. It just wouldn't be workable, given the criminal burden of proof.

As recognized in your interim report, a competition law must incorporate the most up-to-date analytical framework. That's proposition number one.

Proposition number two, which also seems to be accepted in the interim report, is that competition is simply a means to an end, such as better products at lower prices and a better average standard of living for the citizens in the economy.

Combined, these two basic propositions mandate a greater role for the consideration of efficiencies in the act. So I would echo Professor Ware's comments in that regard.

Now, as some of you may be aware, I have written extensively on the subject of efficiencies, primarily in merger analysis. I was also the principal author of the bureau's 1991 merger enforcement guidelines. At that time, and when I wrote my book in the late eighties, which devotes an entire chapter to wrestling with this whole issue of efficiencies and merger analysis, and in particular in section 96 of the act, I was a strong advocate of what Professor Ware and Mr. Kennish referred to as the “total surplus approach” to efficiencies. That's the approach in the now suspended part 5 of the merger enforcement guidelines. It was also the approach adopted by the Competition Tribunal in its first decision in the Superior Propane-ICG Propane matter. Now, as you're no doubt aware, that approach was rejected by the court of appeal in that same case last year.

Just so we understand the basic concepts, in a nutshell, under a total surplus approach, the Competition Tribunal would be prohibited from issuing an order in respect of an anti-competitive merger if it found that the overall effect of the merger on the economy likely would be positive. In other words, if the gain to producers resulting from the cost savings and other efficiency gains likely to be brought about by the merger were greater than the loss to society attributed to the anti-competitive effects, the tribunal would not be permitted to issue an order in respect of the merger.

In this very complicated analysis, wealth transfers from consumers to producers are treated as neutral, because they have no bearing on the aggregate level of wealth in the economy. Some of you may find this proposition to be somewhat surprising, but I can assure you that it's a basic principle of welfare economics. Nevertheless, because we knew that some people would find this to be objectionable, to say the least, we wrestled with this approach long and hard before ultimately endorsing it in the merger enforcement guidelines. We endorsed it because it was the only approach that we believed would breathe any life into section 96 and give that section a useful role in merger policy. In short, we believe under any other plausible interpretation of section 96 that provision would have no useful role and be virtually useless.

Â (1200)

The key for you, as it turns out, is that even under the business-friendly interpretation adopted in the merger enforcement guidelines--this total surplus approach--section 96 has wound up playing virtually no useful role in merger analysis over the last 15 years. I should say 10 years, because the guidelines were released in 1991. This was because not a single merger was found to meet the test articulated in the guidelines.

In retrospect, I believe the total surplus approach contemplated in the guidelines was doomed to fail, largely because it required that efficiencies be established on the balance and probabilities. That's too high a standard of proof, in my view, because entrepreneurs typically do not conduct detailed studies on the cost savings that are likely to result from a potential merger.

The same is true regarding other forms of cooperation with competitors, as well as vertical distribution practices. In fact, business persons typically are prevented, by their competition law counsel, from exchanging the type of competitively sensitive information they would require to develop a detailed analysis of the efficiencies.

The reality is that entrepreneurs will develop a strong gut feeling on the benefits of a merger, and frequently the team of managers, employees and outside advisors who are assigned to crunch the numbers will arrive at only very high-level estimates of various categories of potential or likely cost savings. But these high-level estimates would never satisfy the burden of proof in tribunal proceedings, and the hurdles in the non-merger area would be even greater.

There is a second and perhaps more important reason why I no longer support the approach outlined in the now suspended part 5 of the merger enforcement guidelines. Political scrutiny of the Competition Act, particularly in the merger area, has dramatically increased over the last 10 years, to the point that if a high-profile anti-competitive merger were ever permitted to proceed on the basis of efficiencies, I believe Parliament would quickly amend section 96 in a way that would leave it with virtually no role in merger policy going forward.

For example--and I don't mean any disrespect by this--if section 96 were amended in the manner contemplated by Bill C-248, I don't think it would play any useful role. If this business-friendly interpretation, which has a lower bar than the bar contemplated in Bill C-248, never played a role over 10 years, why would we believe that a provision that had an even more onerous test would play any useful role?

So given all the foregoing, I've come to the conclusion that the best way to maintain a meaningful role for efficiencies in merger analysis would be to amend section 96 in the manner described in the paper I provided to you last fall.

In short, my recommendation is that subsection 96(1) be amended to prevent the Competition Tribunal from issuing an order in respect of a merger, where it finds that the merger is reasonably likely to result in substantial real efficiency gains, relative to the likely anti-competitive effects of the merger, that would not likely be achieved if an order were made in respect of the merger. The tribunal would then be further instructed to give particular weight to dynamic efficiency gains and dynamic anti-competitive effects, in assessing the test in subsection 96(1).

As I stated in my paper, there's no reason why the same defence could not be inserted into the abuse of dominance provisions in section 79, and in any new civil provisions dealing with horizontal restraints. This latter recommendation is consistent with a recommendation made in your interim report, and I think that recommendation makes eminent sense, because there's no analytical basis for allowing mergers to benefit from an efficiency defence, while rejecting a similar defence for other forms of cooperation.

Â (1205)

If you're going to allow a defence for the ultimate form of cooperation in the form of a merger, then you ought to have a defence for lesser integrative forms of cooperation. Likewise, if the vertical provisions in sections 77 and 61 are retained, I submit that it would be entirely appropriate to insert a similar defence in those sections.

Whatever approach you ultimately may recommend should be workable. That should be your first principle, I submit. The key trade-off is going to be balancing certainty and predictability against what's realistic and practical in light of the business considerations and the tools at the bureau's disposal.

Now, the Federal Court of Appeal has effectively told us that any balancing or consideration of efficiencies can't be mechanistic, so there will be some uncertainty and some subjectivity. That seems to be unavoidable. I would submit that your task will be to try to craft a framework that will give a meaningful role to the consideration of efficiencies while constraining the degree of subjectivity. My gut feeling is that you should avoid any approach that would box in the tribunal and prevent it from issuing an order in respect of a high profile anti-competitive merger. We've already tried that approach and it didn't work, and as we've seen in the Superior Propane case, it is exceptionally complex. The approach needs to be made simpler and more workable.

In my view, and I say this with the greatest of respect to Mr. Kennish, the problem with making efficiencies just another factor in section 93 is that it would then only be relevant to the determination of whether the merger is likely to substantially lessen competition. It would not give the tribunal or the commissioner any way out where the merger did substantially lessen competition. So for example, if you had a merger in a declining industry such as the proverbial buggy whip industry and you wanted to allow the merger to avoid hundreds or thousands of job losses that would be associated with blocking the merger, you wouldn't have a way out. You wouldn't have that safety valve. So I would caution you against going that route.

Thank you very much. Those are my opening remarks.

Â (1210)

The Vice-Chair (Mr. Walt Lastewka): Thank you very much.

We'll now go to questioning. Monsieur Bergeron.

[Translation]

Mr. Stéphane Bergeron: Thank you, Mr. Chairman.

In responding to Mr. St.Denis' question earlier, Mr. Russell said that the competition protection system in Canada was probably the best in the world. So much so that some of us sitting around the table wondered jokingly what we were doing here, trying to improve the Competition Act, when we supposedly have the best system in the world. But since everything in life can be improved, we forged ahead, and we have this second panel. Perhaps my question will be just as existential as the one we raised earlier.

Considering that the Supreme Court has to render its decision on the Superior Propane case, by what authority can this committee study or make suggestions about matters pertaining to gains in efficiency following mergers? Would it not be more prudent for us to wait until the Supreme Court has rendered its decision, its ruling, before we make such proposals?

[English]

Mr. Paul Crampton: I can try to respond to that.

First of all, there obviously is merit in waiting to see what the Competition Tribunal has to say, but we should keep in mind that the Competition Tribunal is seized of a very limited mandate right now, which is a redetermination to consider the meaning of the word “effects” in section 96 of the Competition Act as currently written. What we're talking about here--at least what I'm talking about--is a substantial rewriting of section 96.

I think you've heard both my colleagues say that whatever interpretation comes out of the Competition Tribunal, it's not going to leave any meaningful role for the consideration of efficiencies. From that perspective, we might just want to get on with it because we're eventually going to have to get on with it.

You have this final report to Parliament you're going to be submitting in the not-too-distant future, I understand, and it may be some time before you have another opportunity to come along and revisit the Competition Act. I would encourage you to make your views known on the subject of efficiencies while at the same time, obviously, respecting the tribunal and the fact that there is a matter before it right now. I'm sure you can do that in a way that accomplishes that objective.

Mr. Tim Kennish: If I may just echo my friend's comments, I think the game is really over here. The Federal Court of Appeal made its judgment. Leave was sought to the Supreme Court of Canada, and they declined to allow the leave application. So the Federal Court of Appeal's decision on whether or not the total surplus standard is an appropriate one for working this trade-off is settled. I agree with Paul. I think just about any other effects that have to be covered in order to invoke this defence are going to be so large that the scope of meaningful efficiencies under the act will be diminished to the point of disappearance. So I wouldn't wait.

Mr. Roger Ware: May I add just a couple of points?

First of all, I'm not quite as sure that the game is over as Tim Kennish is. I think we might get some quite interesting ruminations from the tribunal on all of the directions they've been asked to pursue. But I do agree with both my colleagues that whatever we get from the tribunal in their final decision, it's going to imply a complete reconsideration of the role of efficiencies, which will start with a reconsideration of section 96.

So I completely agree with Paul Crampton in the sense that I really think it's important we don't just try to muddle on with the act and section 96 as it is, and just blunder into our next Superior Propane Titanic disaster. We should actually try to reformulate our view of efficiencies, and there are various ways of doing that. Certainly some modification of section 96, perhaps possibly getting rid of it, will be required.

Â (1215)

[Translation]

Mr. Stéphane Bergeron: Let us say that we agree that this committee should amend the legislation with respect to gains in efficiencies following mergers. In examining the various proposals that you have put forward, I see that Mr. Kennish has suggested, for all intents and purposes, that we simply repeal section 96. It is suggested that explicit guidelines be set out in section 93 with respect to the efficiencies in the list of factors to be taken into account by the tribunal in assessing the merger. But you say that we should immediately dismiss the total surplus standard.

I would like to ask you three questions. My first question is as follows: why should we dismiss the total surplus standard outright?

Then, you say in your presentation that it is better to consider the efficiencies as a factor to be taken into account as part of the assessment of the anti-competitive effects of a merger, rather than deal with them solely as a means of defence to thwart a merger that otherwise would be illegal.

I am not sure that that assertion is necessarily very clear. I would therefore ask you to elaborate on this point.

Thirdly, what is your opinion of Mr. Crampton's proposed amendment to section 96, namely, the proposal he presented a few moments ago? Instead of simply repealing this section, could you agree to an amendment such as the one suggested by Mr. Crampton?

[English]

Mr. Tim Kennish: Thank you very much. I'll try to deal with the questions in the order given.

Why should we reject the surplus standard? As I mentioned before, I have some reservations about the way in which it operates, but I'm not an economist. I think it's been put aside because the federal Court of Appeal has determined that it isn't a broad enough concept to take account of the full effects that are supposed to be covered by section 96. So that's why I think it doesn't work there.

It might be that you would rewrite the act in a different way that, as Paul suggested, would restore that kind of an approach. I do think people are going to choke on a standard that allows mergers to take place and raises prices to consumers, and everybody's happy. I think people expect the competition law and the antitrust laws to protect consumers from the simple discretionary price rises by people who get together through combinations to raise prices.

You also asked if we're taking efficiencies into account and assessing whether a merger may in fact have a level of anti-competitive effects that should be prohibited. You didn't understand how efficiencies actually go into that. I think there are a couple of ways.

First of all, one of the objectives of having effective competitive markets is that it's presumed, and I think probably demonstrated, that you get a more efficient operation of those markets where there's competition working ordinarily. So that's one of the outcomes of having competition. If competition is a bit diminished, at the same time you achieve efficiencies that might otherwise be lost. This compensates for it. I think it is relevant to the mix.

In addition, some of the efficiencies that are realized will likely get working back into the marketplace in the form of lower prices or new products or other developments that will charge up the competitive milieu and create pressure on rivals to replicate those cost savings that you yourself have achieved. So I think it's relevant in those contexts. I'm not suggesting that in the circumstances where it's just treated as a factor, it would be allowed to trump a merger that otherwise is seen to be anti-competitive. But I do think it's relevant. I don't think they're being considered, and that's why I suggest that this is a way of dealing with it.

Thirdly, as to Paul's suggested solution, I must say I haven't read his paper, so I'm not as familiar with the concept. I listened as he formulated it, and it sounded to me like there might be similar issues of interpretation that could surround it and make it difficult to be sure you would get to the point he'd like to get to once the courts are through with it. But I'd have to study it more.

Â (1220)

The Vice-Chair (Mr. Walt Lastewka): Thank you very much.

Mr. Savoy.

Mr. Andy Savoy: Thank you, Mr. Chair.

On the issue of anti-competitive pricing practices--I'll just deviate a bit from the merger--looking specifically at vertical price maintenance and price discrimination, which you spoke of in the earlier round table, there were a couple of arguments. There's one argument that because we treat vertical price maintenance and price discrimination as criminal prosecution cases, there's a chilling effect for businesses that are seen to be engaging in that practice.

There's another argument, I guess from the naysayers, when you explain to them that vertical price maintenance and price discrimination can, in many instances, actually be efficiency enhancing and pro-competitive. What examples can we use to substantiate the argument that companies engaging in vertical price maintenance and price discrimination can be pro-competitive and efficiency enhancing? How can we substantiate that argument?

The Vice-Chair (Mr. Walt Lastewka): Mr. Ware, you wanted to make a comment earlier. Maybe you can combine them.

Mr. Roger Ware: Could I respond to Mr. Bergeron's question first?

I do want to make a few points on this. On your first question--why reject total surplus--in my view, we shouldn't reject total surplus, certainly not as an analytical tool, a framework for considering the effects of mergers.

I do feel compelled to comment on a point that Tim Kennish made, which I have written about elsewhere. There is a misconception that has emerged in the propane case that the total surplus case makes it more likely that mergers among products that are inelastic in demand will be approved or accepted. And that, as I have written about, is a complete fallacy. In fact, the reverse is the case, and the reason is quite simple.

When you have two inelastic products.... Take for example a drug that helps with some life-threatening disease. There are only two manufacturers of it, and they propose a merger. They would probably like to increase prices as a result of the merger. Dead-weight loss in a case like that would increase with the inelasticity of demands. In other words, the more inelastic that product is, the bigger the dead-weight loss will be, not smaller. And it's less likely that such a merger would be approved, not more likely. I really wanted to leap to the defence of total surplus in that respect.

Secondly, like Paul Crampton, I have been an advocate of the total surplus criterion in merger review for some time, and I've written to that effect. I have not modified my position quite to the extent that Paul has, but I do have one strong view that I wanted to communicate. I really believe that the balancing weights approach, which has been advocated in the propane case, gives a kind of flexible weight to the lessening-of-competition effects on consumers and the efficiency-enhancing effect on producers.

That kind of approach is, I think, very unhelpful and dangerous, and leads to far too much discretion being asked for on the part of the tribunal. The general message I would advocate is that even though the Federal Court of Appeal advocated a more flexible approach than total surplus--although they didn't say what it was--in my view, flexibility is a dangerous thing, because flexibility means that one tribunal in one case will give weight to, let's say the effect on small business, while another tribunal composed of different members in a different case may give weight to what they perceive to be the creation of a monopoly. There's a real danger of losing consistency. I would much rather see an approach where total surplus was the criterion, because at least we'd have consistent decisions that way.

Also, just to comment on one thing that Paul Crampton said, the Superior Propane case is the case he said would never happen--the case where we have an anti-competitive price increase and we have an efficiency gain that outweighs it. And of course, as Paul said, it could never be accepted. Well, it hasn't been accepted; he's right in that sense. But I believe that had the Federal Court of Appeals gone the other way, this case would be over. We'd still have section 96. We would have a vindication of the merger guidelines--section 96. And I don't think people would be rising in the streets in order to debate this.

Â (1225)

I apologize for diverting attention from your point, but I did want to comment on total surplus.

I have just a very quick comment on your question. As I think you know, economists have been arguing for several decades that vertical restraints of various kinds, including resale price maintenance and various exclusive-dealing arrangements, are at least as likely to be pro-competitive as anti-competitive. So my view would be that certainly one should evaluate such things on a rule of reason or under the civil provisions, not criminal.

The test I always like to use and I tell my students to think about is to always ask yourself this question: in any vertical relationship, let's say between a manufacturer and a distributor, suppose the manufacturer owned the distributor. I mean, think about Sony, where Sony has Sony stores in shopping malls. Suppose they owned the distributor. Then they could decide whatever terms and conditions they wanted that product to be sold under, including price, the quality of the sales personnel, their qualifications. The manufacturer could determine everything down to the lighting in the store, and we wouldn't consider that to be anti-competitive, so why would we consider it to be anti-competitive if Sony tried to do some of those things at arm's length?

Anyway, I guess that's all I have for now on that comment.

Â (1230)

The Vice-Chair (Mr. Walt Lastewka): Mr. Crampton.

Mr. Paul Crampton: Thank you.

Let me go back to Mr. Savoy's question. If I understood it correctly, it was how could vertical price maintenance or price discrimination be pro-competitive. Let's take price discrimination. Right now, if you're a supplier and Mr. Kennish and I both purchase a similar quantity of your product, you can't give one of us a discount. Now, there's a bit of an exception in the Competition Bureau's price discrimination enforcement guidelines, which aren't binding on a court, so they wouldn't be binding on a court in a private action. I think Mr. Wong this morning intimated that he had some difficulty with the interpretation reflected in the guidelines.

To put it in a nutshell, let's say I were to come to you and say, I'll tell you what, I'll come and pick the product up at your door, or I'll warehouse the product, or I'll perform some other function for you and save you money if you give me a deal. It's arguable whether you could give me a discount in recognition of that pro-competitive initiative on my part. It may be that I'm just a better negotiator. It may be that I'm going to do something for you in a different market, maybe buy more goods from you in a different market, if you give me a better discount.

It just chills the negotiation process: I can't negotiate with you because you're prevented. It would be a criminal offence for you to give me a better discount. The whole competitive process one would normally see between supplier and customer is chilled. There's an example right there for you.

In terms of vertical price maintenance, typically, the example given would be, say for example in the electronics industry, some of you go to Bay Bloor Radio. You can sit down, you can go into a sound room, and you can listen to a whole bunch of different types of speakers. You can listen to a bunch of different types of CD players, and you can get a real feel for the quality differences. But it costs Bay Bloor Radio a lot of money to put that sound room in place. If somebody else could come along and free-ride off that by locating down the street or a few blocks away and selling exactly the same products but at a substantially reduced price, Bay Bloor Radio wouldn't be able to continue to provide the consumer with the benefit of that.

Now, the theory is that by providing the consumer with this ability, it promotes demand for the products because you can buy these products and then have a very high degree of confidence. Many of you will recall that when computers first started coming out, a lot of people had a lot of bad experiences with computers because they went to the discounters of the world, bought the computers, didn't get any training, had a bad experience, and then told everybody what a bad product it was. That doesn't do anything for the manufacturers' goodwill or to increase demand for the product.

So the pro-competitive aspect of it, of resale price maintenance, is that it provides dealers with a margin to invest in providing services to expand the demand for the product. An economist would typically tell you that when you expand the demand for the product, you increase aggregate wealth in the economy, so it's pro-competitive in that sense.

What it also does.... If you have this type of intra-brand restraint--e.g., I'm a seller of Compaq computers, and I'm going to prevent my dealers from reducing the price of my Compaq computers so there's less competition between vendors of Compaq computers--what that does is enable the retailer to invest in increasing the competition between Compaq computers and IBM computers or Dell computers. So people choose their business model. Dell chooses the no-retail-outlet method of distribution, with service behind the scenes. Compaq chooses the retail-dealer-network method, and they compete through different models.

Resale price maintenance would allow you to engage in that competition. By making it a criminal offence it chills that type of pro-competitive behaviour.

Â (1235)

Also, I have long held the view that this distinction between vertical price maintenance and other forms of vertical behaviour that have an indirect effect on prices is artificial. I can tell you that you have your territory in Ontario and you have your territory in Manitoba and you have your territory in Saskatchewan. What that enables you to do is to be relieved of certain pricing pressures if there were two dealers in Ontario or two dealers in Manitoba. Now you're the only dealer for my product.

It effectively has the same impact as price maintenance except that it's in the regulations. So why would we want to distinguish in the law of the land between a non-price vertical restraint and a price restraint that has at the end of the day basically the same impact?

Hopefully that answers your question.

I have just a couple of other things.

The Vice-Chair (Mr. Walt Lastewka): We're going to have to wrap it up, Mr. Crampton. I want to share with everybody else. We will be back.

Mr. Kennish.

Mr. Tim Kennish: I would just add a word on price maintenance. I think what we're looking at here is really the difference between the criminal provision we now have and an alternative that might replace it. Currently, price maintenance is prohibited absolutely as a matter of criminal law, with penalty consequences and the potential for damage recovery, etc., on a per se basis.

I just don't agree that criminal prohibition is warranted, especially where there is no requirement for demonstrating adverse effects on competition. They have to be presumed. From what Paul has mentioned, there are many potential circumstances in which there are pro-competitive benefits that come from it.

In the vertical situation we're not talking about controlling the price of a product among all the competitors. We're talking about controlling perhaps the pricing and positioning of the product from one supplier, which is going to be disciplined by other parties in the marketplace if in fact it's not dominant.

So it seems to me that what is called for here is a civil treatment--namely, look at this and judge its effect on the marketplace on a civil basis along with other reviewable practices we have, and if it's determined to have deleterious consequences on the facts, yes, prohibit it going forward. But I don't see that it's so obviously unlawful in its application that you would just continue to prohibit it as a criminal matter with the severe penalty consequences that come out of it.

In addition, I know from my own practice life--I've been dealing with price maintenance for years--that it isn't extensively enforced, at least these days. The fact that the bureau, as noted in proceedings from last week, had some success in securing convictions under the provision is not necessarily a good reason for keeping it.

Thank you.

The Vice-Chair (Mr. Walt Lastewka): Thank you.

Mr. Strahl.

Mr. Chuck Strahl (Fraser Valley, PC/DR): Very quickly, Mr. Ware, you mentioned that you felt there was perhaps too much discretion on behalf of the tribunal. You liked the idea of this total surplus being the criterion. You felt there is too much discretion left for the tribunal on efficiencies and therefore it's not clear exactly what kind of weight they'll put on that. But is there a counter-argument that, what the heck, the tribunal hears all these things and has to weigh pros and cons, and by building a body of jurisprudence, this would be the best way for everyone to come out the other end with some proper balance?

The tribunal is full of experts. They have to give reasons for their decisions. Over the course of time, perhaps this is a better way to determine what is the proper balance than it would be if we tried to write it in a statute.

Mr. Roger Ware: I have some sympathy with that view. Certainly building up case law is desirable, but it's not necessarily helpful if the case law that you build up is internally inconsistent in the sense that one panel makes a decision based on one criteria that they happen to think is important at the time, and then another panel might arrive in a different case and put a lot of weight on some other criteria.

Just to kind of hammer it home at this point, I am not in favour of competition law being used as an instrument to affect the distribution of income. I think the distribution of income is something that the government is rightly concerned about, and we have lots of taxation instruments and various other instruments that are able to impact and target distributional issues. So I don't believe it's an appropriate role for competition law to try to take that on.

That's why I like total surplus. It's a clean criterion; it weights a dollar that, let's say, goes to a farmer in Saskatchewan who uses propane equally to a dollar that's taken away from a shareholder who happens to own shares of propane. It weights both of those to look the same.

I really am concerned at the possibility that the tribunal may get into debates about whose welfare matters the most. I don't think that's really an appropriate forum for those debates.

Â (1240)

Mr. Chuck Strahl: Thank you.

The Vice-Chair (Mr. Walt Lastewka): Thank you.

Mr. McTeague.

Mr. Dan McTeague: Thank you, Mr. Chairman.

I obviously have a great deal of interest in the area of efficiencies As most of us can probably recall, some time ago the decision by the tribunal was, notwithstanding the fact that the decision by Superior Propane would be to lessen competition substantially in Atlantic Canada, in many other local markets the efficiencies defence was used for the first time in this case to perhaps obtain a monopoly. I think, from a public perspective, that's simply not on.

Mr. Crampton referred earlier to my Bill C-248, which is now, as we know, votable before the House and may very well find its way back to this committee, so your comments here are both timely and appreciated.

Mr. Kennish has suggested that perhaps we simply rid ourselves of section 96. I wonder if I could get comment from all three of you, to be more specific as to whether or not we could introduce perhaps a limitation. I've suggested, Mr. Crampton--and this may be interesting to you, because it's the Treaty of Rome, which I'm not going to cite it in its entirety--that under article 85 of the Treaty of Rome, there is a clear limit to the efficiency defence: the elimination of competition. Therefore, even if the parties can prove the agreement would bring about high-efficiency gains, these efficiencies are not able to justify elimination of competition.

I wonder if, as opposed to simply throwing the baby out with the bath water.... I know some of you are concerned about what this would do in cases where there may be efficiency, and I'm not just talking about an economist making an argument about two companies coming together creating a 100% monopoly and the gains going in a redistributive manner simply to the owner, the new entity, but could we also consider what was once considered--and Mr. Crampton, you may be more familiar with this than I--the limitation also being that those efficiency gains would have to go to consumers or to businesses that happen to be within that industry?

Mr. Paul Crampton: I can try to respond to that.

The U.S. has this idea in its approach of requiring the merging parties to share with consumers or to pass on their efficiency gains. Basically, the way it works is nobody is expecting them to be benevolent, so the approach down there is that as a result of the cost savings and other efficiency gains, the profit maximizing level of output for the merged entity, which may be a monopolist, corresponds to a price that's at or below the pre-merger price. The monopolist, the merged identity, has no incentive to raise prices to a level above the pre-merger price. In that economy, which is generally considered to be about ten times larger than our economy with ten times more mergers per year over the last ten years, I'm not aware of a single case that met that standard. It's a very difficult standard to meet.

My point is simply that if we haven't had much success with a business-friendly standard, we're not going to have much success with a standard that requires merging parties to pass on those gains. Obviously, they're not going to be benevolent, and if you don't have enough competition left to prevent a substantial lessening of competition from happening, then you're not going to have enough competition left to force them to pass the efficiencies on.

I wouldn't want to create a regulatory structure that required them to pass the efficiencies on, so really, the only way to have a high degree of confidence that they are likely to pass the efficiency gains on is if you adopt this U.S. approach, which requires the efficiency gains to be so great that the monopolist wouldn't find it in its own interest to pass those gains on.

Is that helpful?

Â (1245)

Mr. Dan McTeague: I was just wondering, if you use the analogy of the United States...and of course some of us here have some concern about the United States being used as a model. That's why I carefully didn't use that as an example, and that certainly wasn't contemplated in Bill C-248. The United States is a very asymmetrical market with which to compare concentration as we've seen it in Canada, and certainly to the degree we are dealing with a monopoly, the creation of a monopoly as we've seen or a virtual monopoly as admitted in the Superior Propane case....

Is there not a way of ensuring that rather than simply saying we're going to dispose of the efficiencies defence--which may or may not have validity in of itself, as you probably know from your experiences--would we not simply qualify that and say, why not at least consider if, of necessity, we are going to wind up with a monopoly here for a variety of reasons? Some of it may be force majeure, as is contemplated in section 93. Then would we not at least want to ensure that a mechanism or an order by the tribunal or by whomever would ensure that the resulting savings are passed on to consumers? Very simply....

Mr. Paul Crampton: I'm certainly very sympathetic to having some kind of a mechanism to allow the Competition Tribunal to permit a merger even where it is likely to substantially lessen competition, even where there might be a monopoly, because it may be a declining industry. We just saw this bookstore case. They took these proceedings and required them to divest, and they couldn't find anybody to divest the stores to. Then the trustee couldn't find anybody to divest the stores to.

If you had blocked that merger, you would have seen all these people being thrown out of work and these stores being shut down instead of having this safety valve of recognizing that in some cases.... I'm not suggesting that was an efficiency case, but had it been an efficiency case, it would have provided a safety valve to allow that type of a merger, a merger between the last two buggy whip manufacturers or a merger within any other declining industry, to go ahead. I wouldn't arbitrarily prevent the Competition Tribunal from allowing a merger resulting in a monopoly to go ahead in certain types of cases.

As to other types of limitations, I think I've already addressed that. If you try to require them to pass on the gains, the only way you're going to achieve that is either by creating a new regulatory structure, one in which the commissioner would monitor whether the gains are being passed on or not and actually force them to pass the gains on, and if they didn't, bring them to tribunal for breach of an order, or by requiring that the gains be so great that it wasn't in the monopolist's own interest not to pass them on.

Mr. Tim Kennish: Yes, I've been watching the efficiency situation since it was introduced in the act, and I guess I've become a real pragmatist: half a loaf will be fine with me. So a prohibition on recognizing efficiencies trumping a monopoly would be okay too.

In the U.S., I guess the Heinz decision kind of concluded that a merger to duopoly is probably over the limit of what efficiencies can do to salvage a merger. But I think the real problem here is that efficiencies aren't being considered at all, and I don't want to get into whether they should be available to help out a monopoly. I'd like to have them considered in terms of the total context.

I think in a close case, efficiencies ought to be there to have a look at. You know, is this something we should allow to proceed? We're not absolutely certain it's anti-competitive, but there are efficiencies here that will make us feel more likely that it won't be, and in that kind of case give the nod to a merger that is not clearly anti-competitive but is close to the boundary and yet it provides a lot of benefits from an economic point of view.

That's really what I am proposing by suggesting that we forget about this defence. Instead, go at it more like the U.S. Take it as a factor. Like evaluating entry, it can have an important effect on how you look at a merger, but it isn't necessarily decisive in every circumstance. I think efficiencies are sort of like that. They ought to be considered, and I don't think they're being considered now. In fact, under the way the act is written, I don't think they can be considered under section 93.

Â (1250)

Mr. Roger Ware: I would echo with emphasis what Tim Kennish is saying, that the real problem is that efficiency is not being taken into consideration at all right now. But I'm not quite ready to settle for half a loaf. Perhaps I haven't been working as long as Tim has in this area.

Let me make two points in response to your two questions.

One is that I'm not in favour of enshrining any statement as to the effect of elimination of competition in the act or anywhere else, because I don't believe that monopolies are easy to identify. Usually, when one thinks one has found a monopoly, it's not really a monopoly.

We can find many examples of industries that are dominated by one or two firms. It's very hard to find an industry where one firm has 100% of the market. Of course, what this would create would be an industry of attorneys, who would ply their trade and try to argue that this industry doesn't have 100%, it has 99%. That's obviously not of any social value.

The Vice-Chair (Mr. Walt Lastewka): We'll now go to Mr. St. Denis, and then Mr. Bagnell. If there's time, we'll have one more question from Mr. McTeague.

Mr. Brent St. Denis: Thank you, Mr. Chairman.

Thank you, gentlemen. Having listened to you, based on this and the bit I've read prior to this, I'm more inclined to believe that if we had to choose between having the use of efficiency either at the back end as a defence or at the front end as a consideration, we should have it out in both cases.

I'd like your comment on it as either half a loaf or a full loaf. When you consider that in an efficiency argument the players to a merger, if they wanted to argue that it was a good thing or they wanted to argue with a view to being successful, would want to argue that the consumer is going to either have a better price, a better choice, better availability, or better service, if they don't make that argument, they could only argue that the shareholders are doing better, or, possibly, that if we don't do this deal and get bigger, we're going to be taken over by somebody who is outside the market.

Therefore, is there any point in having an efficiency defence, or the consideration of efficiency at the front end at all if it isn't just based on the consumer? In other words, is there any argument in support of any case where you would make an efficiency defence if it was only about the shareholder value, or only about protecting your place in the marketplace from an outside competitor?

The Vice-Chair (Mr. Walt Lastewka): Would anybody like to comment?

Professor Ware.

Mr. Roger Ware: I'd like a shot at that.

In a sense, the total surface approach specifically weights the gains and losses to all parties--consumers, shareholders, and anybody else who is affected by a transaction. And it weights those gains and losses equally. It's certainly possible. There are approaches that go beyond just looking at the consumers, and they certainly do take into account their shareholders.

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Mr. Brent St. Denis: As important as that is for shareholders to earn value for their investments, should we not just be focusing on the consumer?

Mr. Roger Ware: Historically, competition law has tended towards your view in many jurisdictions. As Tim Kennish has been saying, that's largely the position in the United States.

In my opinion, if we're going to abandon total surplus, which we may well have done already, then I would agree with Tim Kennish. I think the way to go here is to go with something called a price standard, which means that we'll accept something if the efficiency gains are large enough such that consumers benefit. As Tim said, I'd like to put it right in section 93 so that we don't have this juggling game going on between sections 93 and 96.

The Vice-Chair (Mr. Walt Lastewka): Mr. Crampton.

Mr. Paul Crampton: I don't think I would go quite that far. I do see a role for an efficiency defence to allow mergers that don't necessarily benefit consumers in the short term. That's why we would need an efficiency defence at all. Because if we were going to take the position that consumers could never be adversely impacted by a merger in the short run through higher prices or a reduced product variety, then the U.S. approach would be the one to go with, a price standard that just, brightline, if there are any price increases, the merger is blocked.

I think there are a number of situations in which you would want to allow a merger that is good for the whole economy to proceed notwithstanding that it was anti-competitive. That's the whole raison d'être for an efficiency defence. If you reject that as a basic proposition, then you don't need an efficiency defence; you just block all mergers that are likely to substantially lessen competition.

Personally, I'm not there yet by any stretch of the imagination. That's why my proposal attempts to reach a compromise between the high degree of certainty that is associated with what we thought was the state-of-the-art total surplus approach and retaining some meaningful role for efficiencies in merger analysis, which is what my proposal would do.

I don't think that just listing it as a factor would go as far as one would want, because that wouldn't help you in any case where competition was likely to be substantially lessened. Then there would be no jurisdiction for the tribunal to allow the merger to proceed unchallenged. Once a finding of a substantial lessening of competition was reached, notwithstanding the efficiencies factor in section 93, that would be the end of the story.

The Vice-Chair (Mr. Walt Lastewka): Thank you.

Mr. Bagnell.

Mr. Larry Bagnell: Just before I start, I do think there should be some special rules for strategic alliances, because there can be important reasons for those. But let me relate it to efficiencies. In theory it seems to sound good, but I don't see how you would discipline the potential efficiencies.

Let me give you an example--this for anyone who believes in total surplus or efficiencies. It's known in the airline industry, for instance, that there is a 30%, 40%, 60% increase in the price when a carrier has a monopoly over a particular line. If you were to take, for example, Air Canada and Canadian Airlines, where we give a monopoly over a number of routes, there may be some great efficiencies in joining the companies together. No one would ever predict in the tribunal or the Competition Bureau that the price might go up 700%. There would appear to be a net surplus. But how would you ever discipline the price once someone's in a monopoly situation?

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Mr. Paul Crampton: That's why I have reluctantly come to the conclusion that the total surplus approach doesn't have a long-term future in Canada. If you had a merger like Air Canada and Canadian that resulted in huge efficiencies under the total surplus approach, and if the total surplus approach were the test in 1996, the Competition Tribunal would not have been able to block that merger. I think there would have been a public uproar and outcry, and section 96 would have been substantially amended in the wrong environment. We would have wound up with something that would have been much less helpful than some of the things we're discussing here today.

So I think the tribunal needs an approach that gives it flexibility and doesn't box it in when it comes to this type of case, where there are huge efficiencies but also likely to be huge price increases and a very angry public, if it is forced to approve the merger, based on a total surplus approach.

Mr. Tim Kennish: I guess my reason for suggesting what I have derives from the assumption that the Competition Tribunal is going to be uncomfortable with the ability of the merged firm to price above competitive levels and make the consumers just take it, even if they're enjoying some material benefits.

To look at the criminal side of our statute, we forbid people to agree on fixing prices above market levels. Nobody is suggesting that efficiencies should save that situation. The average person would expect the law to protect them against this kind of thing, so it seems to me the efficiencies that count are ones that will have a bearing on how the consuming public is impacted. That's the kind of judgment I think the tribunal has to take into account, in making its assessment.

The Vice-Chair (Mr. Walt Lastewka): Thank you very much. We're going to conclude

I want to thank the witnesses very much, and also for your patience in waiting to get started.

Mr. Crampton, thank you for the many times you've been here with us and for all the reports you've submitted to us as a committee, to make our work a little bit easier. I want to wish you luck in your new position with the OECD. Keep in touch on what you find out, if we can make our laws even better than they are today.

Thank you very much.

The meeting is adjourned until 3:30 p.m. at 90 Sparks Street, with the tribunal, in the Royal Bank building.