HERI Committee Report

APPENDIX F

THE ROLE OF THE COMPETITION ACT

This appendix examines the possible role of the Competition Act and the Competition Bureau in the evolving distribution of books in Canada and, by extension, the place of the Act and Bureau in the study currently being undertaken by the Heritage Committee.

There seem to be two "bottom line" questions connected with the study of book selling in Canada. The first has to do with the effects of Chapters (and other large book selling chains and, possibly, new technologies) on the provision of Canadian-authored books to Canadians. The second has to do with the viability of independent Canadian booksellers in the face of new competition. The two are not necessarily related. The Competition Bureau is concerned only with the second, and then only if there is anything unfair, in a strictly legal sense, about the competition from Chapters.

The mandate of the Competition Bureau is to maintain and encourage fair competition in Canada and ensure that Canadian businesses are in conformity with the laws under the Bureau's jurisdiction. The primary law of concern to the Competition Bureau¹ is the Competition Act. As section 1.1 of the Act states:

The purpose of this Act is to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy, in order to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competition in Canada, in order to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and in order to provide consumers with competitive prices and product choices.

The emphasis is on competition, and by competition the Bureau means the process of competition. Instead of trying to safeguard a place for the established, small and medium-sized players in an industry, the Competition Bureau will try to curb any anti-competitive behaviour by large firms that would put smaller players -- whether established firms or potential entrants -- at a disadvantage.

Anyone wishing the Bureau to intervene in an industry must be able to prove that anti-competitive behaviour is present in the industry. It is not enough to point to the large size of a market participant and argue that the firm could abuse its position (although the Bureau will certainly watch the practices of a participant whose market share is large² and growing).

The Competition Bureau, constrained by the Competition Act, concerns itself with both criminal and civil matters. Those that could be relevant to the book industry are listed in table 3.2 below

Under 1999 amendments to the Competition Act, misleading advertising can also be considered a civil matter, which involves an easier test for the existence of an offence.

Again, mere size in terms of market share is not enough to indicate abuse in an industry. Firms can and do become large in an industry by being dynamic and innovative, two traits that the Competition Bureau would like to foster in an industry. On the other hand, a large firm could become larger by squeezing smaller firms out of the industry, a possibility addressed by the Competition Act. Of the concerns listed above, critics and competitors of Chapters most often point to the possible abuse of dominant position as the pressing concern.

For abuse of dominant position to arise, three elements must be present³:

1. One or more persons substantially or completely control a class or species of business in Canada or any area of the country;

2. such person or persons have engaged or are engaged in a practice of anti-competitive acts; and

3.the effect of the practice is to lessen, or is likely to lessen, competition substantially in a market (section 79).

Section 78 of the Act contains a list of specific acts considered anti-competitive, but this list is not exhaustive, so the Bureau has scope to examine any practice of a firm for a possible negative impact on competition. Because abuse of dominant position is a civil matter, proof is based on the "balance of probabilities," rather than "beyond a reasonable doubt" as would be the case for a criminal matter. Note that for element 3 above, the focus is on the substantial lessening of competition. It is possible for an entrant in an industry, by being more efficient, to drive out many incumbents; this is certainly a substantial effect on those firms that are driven from the industry, but there is no immediate presumption that the cause has been an abuse of dominant position.

¹ The others are the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marketing Act.

² The Competition Bureau often uses 35% as the market share that would trigger concern.

³ This discussion is from Margaret Smith, Mergers and Abuse of Dominant Position, Library of Parliament, Current Issue Review 91-3E, revised 10 September 1998; and Robert S. Nozick, The 2000 Annotated Competition Act, Toronto: Carswell (Thomson Professional Publishing), 1999.