INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 9, 2000

• 0909

[English]

The Vice-Chair (Mr. Walt Lastewka (St. Catharines, Lib.): I call this meeting to order pursuant to the committee's mandate under Standing Order 108(2), a review of the Competition Act.

Michael Trebilcock is on his way but has had some plane delays, so we'll begin with Mr. Winter in order to be fair to our witness to provide information, and to have a good dialogue.

Mr. Winter, I would ask you to begin, and thank you for coming.

Professor Ralph Winter (University of Toronto): Thank you very much, Mr. Chairman and members of the committee.

I had been told that we had about 10 minutes each and I thought, given our relative expertise, I should take two minutes and let Professor Trebilcock take 18. But I won't do that, obviously, nor would I really have done that had he been here.

• 0910

Thank you for the opportunity to speak before the committee. The task of amending the Competition Act is of vital importance to the Canadian economy, and I'm delighted to be able to contribute my views to the task.

My own background is in the economic theory and practice of competition policy. I'm a professor of economics at the University of Toronto, where I teach courses ranging from economic theory in the department of economics to competition policy in the faculty of law. I teach the competition policy course periodically with Professor Trebilcock. I also consult extensively with the Competition Bureau, with the Department of Justice in the U.S., and with private clients. That gives me a sense of the implications of the act in practice.

I'm going to try not to take any views that will be the polar opposite of what Professor Trebilcock will express, but I'm sure you know that in having more than one economist speak, there's the risk of the opinions being cancelled out.

It was suggested to me that I address competition policy toward specific pricing practices—resale price maintenance, predatory pricing, and price discrimination—and that I react to the VanDuzer report.

I'll spend a few minutes discussing the economics of resale price maintenance and predatory pricing in turn. Price discrimination cases are a bit less important in practice. I want to keep my contribution, my remarks, fairly focused on two specific practices. Michael and others you talk to will have a broader range of points to make. Let me make several points at the outset.

First, I agree with the central recommendation of the VanDuzer report, which is to move these practices from the criminal section of the Competition Act to the reviewable practices section. I would add, or emphasize more strongly than the report, that a condition should be added to the conditions under which each practice is prohibited, that is, a “substantial lessening of competition” condition—the SLC condition we're familiar with in competition practice.

The practices that I mentioned—predatory pricing, resale price maintenance, and price discrimination—are all practices for which the anti-competitive uses are difficult to distinguish from pro-competitive practices. I will elaborate on that in my discussion.

Leaving pricing practices in the criminal section means a reliance on courts to make the distinction between the anti-competitive and pro-competitive use of practices. We simply need a specialized tribunal to make that difficult assessment. In addition, there's no reason for a practice like resale price maintenance to be per se illegal under a criminal section.

My second point is that I recognize that extending the review process to cover more practices will use resources of the Competition Bureau. The Competition Bureau is already strapped for resources. But criminal rules are a bad substitute for much-needed economic analysis. The economic analysis at the bureau is of high quality, considering the resources the bureau has, but the economic resources are simply not enough. The bureau has, for example, about six or seven PhD economists, compared to close to 200 in U.S. anti-trust government departments.

Application of the Competition Act requires substantial economic expertise, especially as industries in the Canadian economy become more advanced and are more rapidly evolving with the emergence of new technology. Competition policy is fundamentally applied economics and, as economic regulation, cannot succeed without substantial economic expertise in theory and measurement techniques. The delays that the merger review process already imposes on private parties wishing to merge are too long. The bureau is simply too strapped for resources—and I suspect I'm not the first person to have made that point before the committee.

My third and final general point is that the movement of pricing practices out of the criminal section would, as the rest of the act now stands, eliminate the right of private access to challenge these practices. Only the practices in the criminal section can be challenged directly by private parties. This magnifies the need for the expansion of private rights to direct access to the tribunal, which Professor Trebilcock will discuss.

• 0915

Let me turn to the specific practices, starting with resale price maintenance. Resale price maintenance is prohibited under section 60. This is the practice of manufacturers setting a minimum price at which retailers can sell their product. A supplier of jeans, for example, might tell its retailers that they can carry its product only if they agree not to sell it below $30. The practice is puzzling to economists, since once the manufacturer has set its wholesale markup, its wholesale price—let's say a $10 profit per unit—it seems that the manufacturer should want a low retail price so that more of its product is sold.

It's possible for the practice to be anti-competitive. Historically, for example, traditional drugstores pressured manufacturers of the products they carried to impose resale price maintenance. That blocked or delayed the entry of discount drugstores. The same thing happened with the grocery sector in Europe.

The practice can also facilitate a cartel among manufacturers. If these manufacturers find it difficult to agree on wholesale prices and therefore try to enforce their cartel at the retail price level, resale price maintenance can facilitate that kind of cartel by making the monitoring of competitors' prices more apparent. But the evidence shows that in most cases, resale price maintenance is used by a manufacturer operating on its own, not in the context of a cartel and not coerced by powerful retailers.

Resale price maintenance is most often an instrument for encouraging services of all types at the retail level. These services are things like providing advice to customers, keeping enough staff so that cashier lines are short, keeping inventory organized, even being enthusiastic, anything that a retailer does apart from setting the price.

How does resale price maintenance encourage those services? Resale price maintenance protects the retail margin, the difference between the retail price and the wholesale price at which retailers purchase the product. It protects that margin against being competed down in the retail markets, and that encourages the provision of service because it increases the profit per unit that retailers get by attracting customers. Under resale price maintenance, retailers cannot compete in prices so they compete in services.

Why would a manufacturer want to disturb the kind of competition that retailers of its products are engaged in? Economic theory tells us that under quite typical conditions in retail markets, retailers can be biased towards too much price competition and too little service competition from the point of view of the manufacturer. Resale price maintenance is an attempt to correct this, to increase services offered at the cost of higher prices.

From the consumer's perspective, resale price maintenance thus results in more services, which is good, but higher prices, which is bad. If a manufacturer wants to intervene in retail competition to direct the competition towards higher service at the expense of higher prices, it's generally because most of the customers prefer the higher service.

On balance, I would suggest that the decision of how to market a product, how to design a distribution system, should be left up to the manufacturer. Prohibiting resale price maintenance under a per se rule is effectively regulating the manufacturers' decisions on how best to maximize the sale of their products. We don't prohibit high levels of advertising, even when the advertising raises prices, nor should we prohibit, under a per se rule, resale price maintenance.

At the very least, moving resale price maintenance out of the criminal section would allow the bureau and the tribunal to assess the motivation for resale price maintenance in a particular case. There's no reason for this practice to be a crime under the per se rule.

Let me turn to the second practice, predatory pricing. Predatory pricing is the practice of selling a product at a very low price with the aim of driving a rival out of the market so that you can then charge a monopoly price. This practice is prohibited under paragraph 50(1)(c) of the act.

• 0920

I will just cite the sentence here for reference. One is guilty who:

(c) engages in a policy of selling products at prices unreasonably low, having the effect or tendency of substantially lessening competition or eliminating a competitor, or designed to have that effect,

Predatory pricing is rare and very difficult to identify in practice because low prices are what competition is all about. What distinguishes an unreasonably low price in the sense of paragraph 50(1)(c) from a competitive price?

A traditional test of predatory pricing is based on costs. Professor VanDuzer states that economists generally agree that prices below marginal cost charged by a dominant firm tend to be predatory. A reading of the predatory pricing guidelines might be construed to support that view. I think the view is wrong. I think there are examples of predatory pricing, but this set of conditions, price below marginal costs, is not sufficient, even if a firm is dominant.

Consider just one example, Amazon.com. This firm was founded in 1995, has yet to price above cost, and yet has a stock market value of over $20 billion. It's pricing at less than cost, but it's not engaged in predatory pricing. Through low prices, it's investing in a future market share as a new innovator.

The difficulty of identifying true predatory pricing means that the judgment in predatory pricing cases should be rendered by a specialized tribunal and not by courts.

I have a final point on predatory pricing. If I can have one impact before the committee, I hope this is it. We should eliminate four words from this section. These four words are: “or eliminating a competitor”. Competition policy is about protecting competition, not about protecting firms against competition.

The fact that Amazon.com now faces competitors such as Barnes & Noble.com and chapters.ca does not, or should not, suddenly impose on Amazon.com the obligation to set a price high enough to ensure the success of its rivals. No firm should face the obligation to price high enough to protect its rivals. It's enough that we have a substantial lessening of competition condition on prices. The protection of rivals should not be a criterion. Effectively, that is what the phrase “or eliminating a competitor” implies.

A reading of this section of the act leads firms that have been unable to survive market competition into believing that they have a valid predatory pricing claim. It leads to cases that are frivolous from an economics points of view and that will ultimately be decided in favour of the defendant because courts have well-developed predatory pricing cases, at least from U.S. law. The wording of the act is very misleading, and I would suggest it has been very costly in encouraging predatory pricing claims.

Those are my remarks. I did want to focus on the two practices of resale price maintenance and predatory pricing, but of course I'm happy to discuss anything I can offer help on.

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

I will begin the questioning with Mr. Penson.

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

Mr. Winter, this predatory pricing you've been describing reminds me a little bit of another law we have in Canada called the dumping law. I think the concern is the same; we have to be careful that we don't keep in place inefficient businesses by having a law in place that might do that.

I know that in the dumping regulation, they don't only have to show that dumping did occur, which is selling below the cost of production or the cost of your own market area, but that there would be damage caused to the people involved as a result of that—not just damage to that individual company, because they may be a very inefficient company and can't withstand the marketplace in any case. Are there any provisions under this predatory pricing for that aspect of it, or is that what you're referring to by saying we should protect competition and not competitors?

• 0925

Prof. Ralph Winter: In a sense I'm suggesting that under the predatory pricing case section there is provision for damages against a competitor, but the phrase is “or eliminating a competitor”. It's not a condition that's required in addition to substantial lessening of competition. The act is phrased such that this condition, damages to a competitor, is an alternative to substantial lessening of competition. I suggest it should not be.

Predatory pricing should be illegal only where it harms customers. Otherwise we end up in exactly the situation you're describing. We have a law that protects inefficient rivals at the expense of efficiency and economy, and ultimately with the result of higher prices to customers.

When I say this, I'm cognizant of the fact that when cases ultimately get to courts the common law on predatory pricing is well developed enough that I think bad cases would not survive in Canada. When I say the act is phrased unfortunately, I mean that it encourages the commencement of cases that ultimately won't succeed. But if the law really were as the section reads, it would be damaging, it would be inefficient.

Mr. Charlie Penson: To follow that up a little further, it seems to me that this must be an awfully tough area even for a panel of experts, as you described, as opposed to maybe the court to decide, because there are lots of times when a company gets into a situation where they are selling below cost, trying to recover at least some fixed cost during a certain downturn period, and yet that could be seen as predatory.

Isn't it a pretty fine line we're walking here? That company wants to at least get through a period of time in their business cycle when they have to go into a situation where they're selling below cost, but it doesn't mean they intend to be out of business. They're trying to work through a difficult time.

Prof. Ralph Winter: Absolutely. The line between predatory pricing and pro-competitive prices is a very thin line. It's a wavering line; it differs from one economist to the other. We're used to economists having different opinions. Predatory pricing is an area where you can elicit quite a variety.

The focus in law, and first in economic theory, since the early 1990s has shifted from cost tests to a focus on recoupment, the condition of recoupment.

Mr. Charlie Penson: Can you explain that?

Prof. Ralph Winter: Yes. This has come in the law from U.S. cases, a U.S. case called Brooke Group, another U.S. case called Matsushite. Recoupment refers to the condition that a firm is setting prices low not just because they're trying to cover fixed costs but because they're intending to recoup their investment in low prices through monopoly pricing once a rival has exited the market.

There are two aspects of the recoupment definition that are important. One is the temporal one: they're setting low prices now, but their aim is to set high prices in the future so that low prices are paradoxically against customers' interest. Secondly, there has to be a causal link between the induced exit of the rival in the future and their ability to increase prices.

Predatory pricing is pricing that is low and profitable, but only profitable because of the expectation that a rival will be induced to exit the market.

Mr. Charlie Penson: Professor Winter, I'm bringing us back to the other competition law, or trade law, we have in terms of dumping and countervail. I know in the case of dumping there have been situations in Canada where we've had companies from the United States, as an example, that have been dumping into Canada. Therefore, Revenue Canada will go down to Atlanta and audit their books once a month, and there's quite an onerous burden on some of these businesses.

• 0930

Because the Canadian market, for example, only represents a certain percentage, a small percentage, of their business, at some point some of these companies just say to heck with the Canadian market altogether, and they leave it to what could be very inefficient businesses here to have the market to themselves. That's a concern I have, and I'm wondering if this predatory pricing is moving in the same direction or could foster the same kinds of circumstances.

The bottom line is that I'm looking at the consumers' interests. Surely the consumer wants to have a reasonably priced product in the end and we shouldn't artificially keep it up by some methods that encourage inefficiency. That is what I'm saying.

Prof. Ralph Winter: Yes. I think economic policy on dumping is wrong and it would be a disaster if predatory pricing headed in that direction. I don't think it will, but it would be a disaster.

Dumping policy I think is wrong because customers deserve the right to get goods at the lowest prices they can. If a foreign company wants to sell product in Canada at low prices, then more power to them from the perspective of the customer. The exception to that is where dumping has a predatory element to it, where the company dumping is doing so only to elicit the elimination of the Canadian company so as then to raise prices.

But that's not the standard dumping case. Dumping is an area where the rights of customers have come directly against the rights of firms and have not succeeded. Firms are subsidized at the expense of customers through dumping policy. I think most economists would agree that dumping is a good thing for the Canadian economy.

Mr. Charlie Penson: Is it not the same theory here, selling below the cost of production, predatory pricing?

Prof. Ralph Winter: If it's selling below the cost of production, yes, but dumping law requires only that you sell below the price in your home market and that is not a condition particularly related to predatory pricing. If we want to clarify the comparison, we should think about the recoupment test, which is much more helpful than cost comparison. You and I would agree, I think, that if a dumping firm sets prices low today only so it can capture monopoly prices later, that's inefficient. But if it sets prices low today because demand in Canada has a higher elasticity than its home market does, that is beneficial to customers and I would suggest it's beneficial to the economy.

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

Mr. McTeague.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you, Mr. Chair. I keep doing this to you. Sorry about that, Mr. Chairman. The extent of time you gave me last time should make me at least have the courtesy of getting it right.

I hope to get the question right, Professor Winter.

I was interested, for obvious reasons, in your comments about predatory pricing and the fact that there is only really one small paragraph devoted to what other jurisdictions really devote entire chapters to on the question of predatory pricing. And with the recent success, in the Jackson decision, in the United States on predatory pricing, it's interesting that Canada can't seem to get its act together. Often situations that are considered wholly illegal in the United States are perfectly acceptable in Canada. It puts a different spin on the mantra by self-interested or vested interests in this county to suggest that somehow Canada should be open to activity that might otherwise be illegal in other jurisdictions because we want to prevent business chill. I think the reverse of that, of course, the logical outcome of it, is that we're accepting things in Canada that might be deemed very illegal elsewhere.

I wanted to focus in on predatory pricing and give you an example of where I believe the shortcomings in the current act exist. Perhaps you might be able to fit those with your comments on pricing. I note that Professor Trebilcock is here with us at this point, and I have certainly read a lot of his views on matters, particularly dealing with conspiracy.

• 0935

Right now in Toronto gas prices are at about 71¢ a litre, as they are here in Ottawa. Two years ago the oil industry came to our region to tell us that margins at retail could be as low as 2¢ a litre because they were selling a lot of ancillaries. We were also told at the time that refiner margins were about 4¢ or 5¢ a litre. That was in 1997-98. We've now seen several major players at the retail level exit the marketplace. We now see margins in the order of 10¢ a litre at the refinery level and about 7¢ a litre at the retail level. We know that four vertically integrated companies now constitute about 90% of all the gas that is sold within the Metropolitan Toronto area.

I'm concerned that the current act, and your proposal to make changes to throw it over to be civilly reviewable and, I suspect, to remove three or four of the words about.... I believe the words you used were “to have the effect of eliminating a competitor”. Is that correct?

Prof. Ralph Winter: Yes.

Mr. Dan McTeague: Do you believe our competition law, particularly as it relates to predatory pricing, could even detect...let alone be able to enforce a regime that would ensure that consumers are not hurt, as we see is so demonstrably clear in Toronto and probably right across the country?

Prof. Ralph Winter: Let me first say that removal of the words “or eliminating a competitor” from section 50(1)(c) would not diminish the power of the section for capturing genuine predatory pricing cases, because we still have the condition of substantial lessening of competition.

The second point, in response to your question, is that I think the issue of retail gasoline prices is more closely related to price conspiracy issues than to predatory pricing. That's the practice, or the section, that I would look to in assessing the evidence in the Toronto retail gasoline market.

Third, I would point out that I haven't personally studied that market in detail, but I do know that the Competition Bureau did a study on a specific episode of gas price increases as of July 1999, and did conclude that there would be no basis for finding a conspiracy. I shouldn't express the conclusion so strongly, but they didn't find evidence of a conspiracy in raising the gas prices.

Let me just add a fourth point, a kind of general recognition of the limitation of competition policy. Sometimes in markets prices are low and sometimes in markets prices are high. We can see high prices because of what economists call tacit collusion, or recognition of the potential of rivals to react to lower prices, even the hope, the expectation, that rivals will go along with higher prices.

Tacit collusion is a very slippery practice. It's a very difficult one for competition policy to capture. In fact, competition policy has not been able to deal with that practice in Canada or the U.S. Without acknowledging that there is tacit collusive pricing in retail gasoline, I would suggest that if there is, it's unfortunate, but it's just an area where government regulation is not going to improve the market.

The Vice-Chair (Mr. Walt Lastewka): Last question.

Mr. Dan McTeague: Yes, thank you, Mr. Chairman.

Professor Winter, a number of us on this side took the liberty of looking at the gas industry in particular, but have now moved on to other industries to demonstrate that once two or three players constitute what is more than just a substantial control of the marketplace, as we see in gas and groceries, and as we're now seeing in various other industries, it's very easy for them to use their wholesale power or their might as a vertically integrated supplier to discipline retailers, although in other jurisdictions there's a line drawn in the sand and a very distinct firewall between retailing and the wholesaling of product. That line seems to have completely evaporated in Canada for a number of reasons and is often and subtly forgotten by most, except that it's not lost on members on this side.

• 0940

In the case of gasoline, for instance, you have a situation where three control the product. You don't need to enter into a conspiracy if you have a rack or wholesale price that is established by one leader in one region on a given morning, and the other ones simply follow. You have testimony from a number of other companies that say “We never lead price; we always follow”, Sunoco being a good example.

My concern is this. Is there anywhere in all of this where we've taken into account that Canada is so highly oligopolistic, or oligopsonistic in the case of the grocery industry, that we have simply forgotten and assumed we live in this atmosphere that says “Oh, there's plenty of competition there, and our point is not to see the erosion of that competition”? Or have we really taken into account the truth of our economy, which is that it is extremely uncompetitive, that the market is highly intensive, and that three or four players may dominate key sectors of the economy? Again, those are concerns I have.

Prof. Ralph Winter: I'm going to answer the question at a general level, an almost philosophical level, as well.

I'm not an economist with a Panglossian view that markets are perfectly competitive and what we see is optimal. But I am an economist who recognizes there are often disruptions and inefficiencies in the economy that simply cannot be corrected by government regulation. We live in a world of second-best, not of first-best.

The common law on conspiracy has shown it's difficult to deal with tacit collusion or practices that might represent collusion or might not. It's difficult to tell firms, “Don't pay attention to what your rivals do. You have to act independently.” You just can't take that dictum and put it into law in a way that's meaningful.

So I would suggest that unfortunately, because of the low density of population in Canada and the economies of scale in various markets, there is a tendency towards more oligopoly than in the U.S., but it's something we have to live with.

Mr. Dan McTeague: I agree.

Thank you, Mr. Chairman.

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

We're now going to have Mr. Trebilcock make his presentation.

Thank you for your endurance.

Professor Michael Trebilcock (University of Toronto): Thank you very much. I apologize for being late, but it was not of my doing; there was a delay in the flights out of Toronto this morning. How long should I speak for, Mr. Chairman?

The Vice-Chair (Mr. Walt Lastewka): Ten to twelve minutes.

Prof. Michael Trebilcock: Thank you very much.

The issue I'm going to speak to this morning is the private enforcement of competition laws. In particular I'll try to make the case for direct private-party access to the Competition Tribunal with respect to reviewable practices.

Currently the position under the Competition Act is that private parties can bring private causes of action or rights of action with respect to criminal offences, which are principally price-fixing but also some of the other pricing offences, in the ordinary civil courts. But private parties do not have a right to initiate proceedings before the Competition Tribunal in respect of a wide variety of reviewable practices, such as exclusive dealing, tying, abuse of dominance, refusals to deal, and so on.

My argument, simply put, is that private parties should be able to initiate proceedings before the Competition Tribunal with respect to all of these reviewable practices, perhaps with the exception of mergers, which are often very time-sensitive.

Let me make the argument as follows. First of all, the role of private enforcement in the competition law area has a long history. Indeed it goes back to the very first statute in the common-law world dealing with monopolies, the English Statute of Monopolies of 1623, which did grant private parties the right to bring civil actions and claim treble damages for unreasonable restraints of trade. For several centuries this was the principal statutory response in this area.

• 0945

In addition, the common law of restraint of trade that grew up from the Middle Ages onwards permitted private parties to challenge unreasonable restrictive covenants, such as restraints of trade in employment contracts, in sales of businesses, and with respect to various guilds, trade unions, and self-regulatory bodies. Again, private parties, under the common law of restraint of trade, had the right to challenge these unreasonable restraints of trade before the courts.

So taking the long view, private enforcement has always been an important feature of this area of law. However, I do want to point out that under the Canadian Competition Act, with the exception of the section 36 civil action for criminal violations of the act, there are no private rights of action currently. And indeed section 36 itself was only enacted in 1976, so for much of the history of the Canadian Competition Act, we have had no private rights of action at all. So historically there's a strong argument for assigning a significant role to private rights of action.

Secondly, comparatively there is a strong argument for assigning a significant role to private rights of action. The Roberts report prepared for the Competition Bureau reviews the experience in a number of other major jurisdictions, and I think all but one, i.e. the U.K., assign a significant and wide-ranging role to private rights of action. So the comparative experience suggests Canada is an outlier in assigning such a restricted role to private rights of action.

A third factor arguing for private rights of action with respect to reviewable practices before the Competition Tribunal is the relative paucity of public enforcement activity in this area. From 1976 to 1986, a decade, only two cases were brought before the predecessor to the Competition Tribunal, a tying case and an exclusive dealing case—two cases in ten years. From 1986 to 2000, the current year, nine contested cases have been brought by the bureau before the tribunal—nine cases in fifteen years. This is not a record of extensive public enforcement. This adds up to eleven cases in 25 years of public enforcement of the non-criminal provisions in the act—that is to say, vertical restrictions, mergers, abuse of dominance, and the like.

Arguments can be made—and I've made them in previous writing—for and against assigning a significant role to private enforcement of the law. I don't know that it's useful to rehearse these arguments in detail here, but for me the clincher is that the very purpose of competition law and the Competition Act is of course to redress the evils of private monopoly. It strikes me as totally incongruous in that context to assign a public monopoly to a government agency in performing this function.

Giving private parties the right of direct access and direct initiation of proceedings before the Competition Tribunal is a way of holding public agencies—in this case the bureau—accountable for the exercise of their enforcement discretion. It's also a way for the bureau, when pressed by private parties in cases or complaints the bureau may regard as unmeritorious, to be able to say “Well, if you don't like our decision not to pursue the matter, take it up yourself.” That is an option the bureau and the commissioner do not have at present.

My general argument then is I would give private parties the right to initiate proceedings before the tribunal with respect to all reviewable practices, with the likely exception of mergers.

• 0950

What remedies should be available to private parties in such proceedings? Well, it should be, first, the same kinds of specific relief—injunctions, cease and desist orders, interim relief—that are available to the commissioner. These forms of relief should be available to private parties, but in addition I would argue, and I recognize that this is contentious, that private parties should be able to recover compensatory damages—that is to say, single damages—in the event the tribunal finds a defendant or respondent has violated any of the reviewable practice provisions of the act.

I know there is resistance in the business and some elements of the legal community to that proposal, but for the life of me, I don't understand why plaintiffs whose complaints have been found meritorious by the tribunal and who have suffered losses should have to bear those past losses and settle only for future relief. There's a loss there, and somebody has to bear it, either the defendant or the plaintiff. Why should the plaintiff, in cases where his or her complaint has been vindicated, have to bear those losses?

I recognize there's some potential for abuse of any private right of action, a strategic utilization of this right, a private advantage that may be incongruent with the public policy purposes of the act—for example, firms facing hostile takeover bids engaging in various strategic uses of the legal process to ward off businesses, and so on, that have nothing to do with competition policy issues. But I think abuse of the process by overzealous plaintiffs can be tightly contained. The commissioner can be given a right to intervene and present his or her view of the merits of the case to the tribunal. There is an amicus curiae role, so the commissioner can put his views to the tribunal in private cases. I think there should be a mandatory summary judgment procedure so that clearly frivolous or vexatious cases can be struck out at an early stage. There should be appropriate cost rules so that unmeritorious cases that fail entail some adverse cost implications for plaintiffs who have brought them.

With some good faith and refinement of these kinds of procedural safeguards, we should espouse enthusiastically a role for private parties in initiating direct proceedings before the tribunal.

Let me close with one point. I notice—I don't know whether it's in some of the private members' bills or in the commissioner's proposals—there's a suggestion that private access to the tribunal be restricted to section 75, refusals to deal, and section 77, the exclusive dealing and tied selling provision. In my mind, that does not go far enough. In every section 77 case that has been argued in recent years, the abuse of dominance provisions have been pleaded in the alternative. That is, in any exclusive dealing or tying arrangement—NutraSweet, Neilson, Télé-Direct—the bureau has argued abuse in the alternative.

I would plead with the committee to recommend that the abuse provisions be included in this regime. On the abuse of dominance provisions, I'm happy to settle for leaving out the merger provisions.

Thank you.

The Vice-Chair (Mr. Walt Lastewka): I will now continue on with questioning.

Mr. Dubé.

[Translation]

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): Before I ask Mr. Trebilcock a question, I would like, as the professor has done, to ask you a question, Mr. Winter. You said that convictions are rare. Can you tell us approximately how many cases have been reported over the years?

• 0955

[English]

Prof. Michael Trebilcock: Let me take an initial shot at that question.

I think the bureau reports several hundred complaints in the last ten or fifteen years of predation. From my recollection, three or four have led to public prosecutions. There may have been perhaps one conviction, the Hoffmann-La Roche case, although I may be missing the odd case here or there. But you're talking about hundreds of complaints coming in, and one or two convictions coming out.

Mr. Dan McTeague: There's the driving school case.

Prof. Michael Trebilcock: Oh, the driving school case. That was a conspiracy case, wasn't it?

Mr. Dan McTeague: Predation, predatory pricing.

[Translation]

This is an investigation that resulted in the conviction of a driving school company.

Mr. Antoine Dubé: You talk about this famous school. Fine. Therefore, convictions are very rare, although, according to you, there have been hundreds of complaints. Would direct access to the court have changed anything?

[English]

Prof. Michael Trebilcock: At present, of course, what private parties have to do is complain to the bureau, and if the bureau won't take up their complaint, that's the end of the matter.

That is not entirely accurate. The private parties could bring a section 36 action under paragraph 50(1)(c). That involves, though, demonstrating that in effect a criminal offence has been committed. This has to be brought in the normal civil courts. The burden of proof is demanding.

I would say that often in these predation cases what private parties will be complaining of is predation as part of a wider pattern of exclusionary or disciplinary behaviour. The abuse of dominance provision has the kind of flexibility that enables a private party to talk about pricing, along with a variety of other practices—I think NutraSweet would be an example of this, or Laidlaw, or even Microsoft, for that matter—where you're not relying on one thing only for the predatory pricing, but a pattern of contractual and other practices that together, or in combination, support an inference of abuse of dominance. I think the abuse of dominance provision is likely to be a more effective response to these concerns than the criminal predation provision.

[Translation]

Mr. Antoine Dubé: Generally speaking, Criminal Code provisions appear to be more severe. At the same time, however, is there not a perverse effect in that, since it is difficult to prove, it is ultimately less effective than a civil lawsuit?

[English]

Prof. Michael Trebilcock: I think that has been the broader historical experience under Canadian competition law. Members of the committee will recall that up to 1976, everything was criminal—mergers, monopolies. The entire act rested on the criminal law. We know, despite the fact that anti-competitive mergers and monopolies were subject to criminal sanctions, there were in fact, in 70 or 80 years, almost no prosecutions and even fewer convictions. Criminalizing something in an area like this is not a guarantee that this will more effectively deter it. Our experience under the act is that with criminal laws against mergers and monopolies, we in effect had no laws in practice. They were unenforced or unenforceable.

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

Madam Jennings.

• 1000

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you, Mr. Chair.

Thank you both for your presentations.

As you are most likely aware, the Standing Committee on Transport is currently reviewing Bill C-26, which amends the Transportation Act and the Competition Act. One of the amendments of the Competition Act would give the commissioner the authority to issue temporary orders to cease and desist. It's causing the ire of many witnesses who are coming before the transportation committee saying this is unconstitutional; that it goes against a judgment of the Supreme Court of Canada about abuse of search and seizure protections under the Charter of Rights and Freedoms; and that this would be creating a commissioner who was both prosecutor and judge, etc. All of what I would call wildly exaggerated language is being brought to bear.

The competition commissioner, on the other hand, has made it publicly known that not only does he agree with this amendment, but he would like to see a similar amendment to widen his authority so that particular power, which would now exist only in the airline industry, would be expanded to allow him to issue temporary cease and desist orders in other sectors of private industry.

I'd like to know what your views are on this issue.

Prof. Michael Trebilcock: I'm afraid I'm going to disappoint you in this respect, because I share many of the concerns you identified. My colleague Margaret Sanderson, who is waiting to speak to this committee, is going to more directly address our joint views on this. We've prepared joint submissions to the other committee and a short article on the subject.

I think there are serious due process concerns with this approach. At the risk of sounding like a broken record, I would give private parties worried about predation in airlines or grocery stores, or other kinds of abusive practices by dominant players, direct access to the tribunal, including expedited relief of the kind we now provide to the commissioner in the case of mergers. Under section 100, the commissioner can go go the tribunal now. There are amendments that were passed a year or so ago.

Ms. Marlene Jennings: Mr. Trebilcock, in practice right now, how long does it take when the commissioner goes before—

Prof. Michael Trebilcock: He can get a interlocutory injunction in two or three days.

Ms. Marlene Jennings: So you think there are measures that could be brought to accelerate the process and make it more efficient and protective of different sectors' rights.

Prof. Michael Trebilcock: Right. I would do what Parliament did two years ago with respect to mergers, and give the commissioner an expedited procedure for obtaining an interim injunction from the tribunal. But I would not have him issue the order.

Ms. Marlene Jennings: Okay.

Prof. Michael Trebilcock: I'd be quite happy to see that expedited procedure generalized beyond the airlines to all kinds of reviewable practices. In addition, I would not confine it to the commissioner; I would allow private parties to—

Ms. Marlene Jennings: Also have that relief.

Prof. Michael Trebilcock: —go to the tribunal and get interim relief.

Ms. Marlene Jennings: But that's consistent with your view that the private enforcement should be extended not just to one particular section of the Competition Act. It should be generalized.

Prof. Michael Trebilcock: Absolutely.

Ms. Marlene Jennings: Right. That would actually produce a lot more case studies and—

Prof. Michael Trebilcock: More aggressive or vigorous enforcement.

Ms. Marlene Jennings: Right.

Prof. Michael Trebilcock: I would give the private parties this kind of interim relief as well.

Ms. Marlene Jennings: So in that case, you're not in favour of Bill C-26.

Prof. Michael Trebilcock: That's right.

Ms. Marlene Jennings: You would again say it should be up to the private party.

Prof. Michael Trebilcock: No, I would allow the private party or the commissioner to go to the tribunal and say “We have an emergency here, and I need an interlocutory injunction, or interim injunction.”

But we already straightened the act out in this respect a year or so ago on mergers by amending section 100. Nobody, as far as I know, is quibbling with the amendments made there. I'm simply saying—

Ms. Marlene Jennings: Use those amendments.

Prof. Michael Trebilcock: —use those amendments across the board.

• 1005

Stanley Wong, who is going to be speaking to you next, and Margaret Sanderson can both elaborate on that suggestion, because I think it's one they both share.

Ms. Marlene Jennings: Thank you very much.

Do you have anything to add, Professor Winter?

Prof. Ralph Winter: No, I share Professor Trebilcock's views on that, and he's expressed them better than I could.

Ms. Marlene Jennings: If we take away the issue of due process, under the authority now of the competition commissioner the proposed amendments under Bill C-26 would actually not just allow for competition, but protect a competitor. If I've read the proposed amendments properly, it seems to me that's the basic goal. It's not just to ensure healthy competition in a particular sector, in this case the airline industry, it's actually to provide authority to protect a particular competitor.

Prof. Ralph Winter: I share that impression. I should say that Professor Trebilcock and Margaret Sanderson have written on the subject and will address it.

I'm certainly strongly in favour of limiting the concept of predatory pricing to the protection of competition, and not the protection of competitors, whether it's in airlines or other industries. I share Professor Trebilcock's view that it would be appropriate for the commissioner or other parties to apply for interim injunctions, in the way we see that in mergers and in areas of law.

Ms. Marlene Jennings: Thank you very much.

Prof. Michael Trebilcock: Margaret Sanderson can speak to the issue you've just raised on the bill.

Ms. Marlene Jennings: I'll ask my questions again to her then.

Prof. Michael Trebilcock: Right. I've put her on notice.

Ms. Marlene Jennings: You're forewarned.

Thank you.

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

Mr. Penson.

Mr. Charlie Penson: Professor Trebilcock, in response to Madam Jennings' question, on the reasoning behind why you would not have the commissioner be able to put a cease and desist order on, rather to apply to the tribunal, would it just be the separation that's needed, so you're not sort of judge and jury? Is that accurate?

Prof. Michael Trebilcock: That's largely it. This is the way we've organized enforcement here since the beginning of the history of this body of law. The investigative and enforcement or prosecutorial functions are located in one place and the adjudicative functions are located in either the courts—since 1976—for criminal matters, or in the tribunal for the reviewable practices.

That evolution was a long and convoluted one, but I think it makes a lot of sense. I know you can find exceptions to it. The Federal Trade Commission in the U.S. has a mix of functions. The European Commission DG 04 does everything: it investigates, prosecutes and adjudicates. I think this is just contrary to the Canadian legal tradition here. And there's no case for it. If we amended section 104 of the act in the way we've amended section 100, in the case of mergers, the commissioner could be before the tribunal in 24 hours and get an interlocutory injunction.

I think it just strikes lawyers as inappropriate. For example, in other areas of the criminal law we would be affronted by the notion of a crown attorney being the investigator, prosecutor, and adjudicator in criminal law at large. We would be affronted by that notion. This would strike us as a kind of Soviet-style, Stalinist kind of justice, with one official investigating, prosecuting, and adjudicating. This sounds like the gulag.

I'm not suggesting we should think about this in this fashion, because I'm acknowledging how the competition law regimes have integrated these functions. We have chosen not to in this country, as a matter of history. We've divided these functions, and I think there are very good reasons for that. There are no good reasons for departing from that legal tradition, because we can meet this need for expedited relief while maintaining the separation of functions through the amendments to the act I've talked about, extending the section 100 amendments to all other areas of practice, secondly, giving private parties direct access to the tribunal in terms of initiating complaints, and thirdly, giving them the same access to this form of expedited interim relief as the commissioner has.

• 1010

Mr. Charlie Penson: I think that's good advice for the committee, and I thank you for it.

In response to Mr. Dubé, you were talking about predatory pricing, how many actions have come in the last several years versus how many successful prosecutions there were. I guess my concern is that by opening this up into private actions—I think you talked about it a little already, but I'd like to get into it further—instead of hundreds, maybe we're going to see thousands of cases. Your suggestion would be to build in some kinds of safeguards, such as costs that would have to be paid by a party on a frivolous action, that type of thing. So my understanding is that you believe it can be handled by designing some kinds of safeguards. Is that right?

Prof. Michael Trebilcock: Procedural safeguards, yes. I can't imagine that we'd go from one, two, or three cases in the last ten or fifteen years to hundreds. I mean, I think we're probably talking of going from three to twenty. I kept pulling the number twenty out of the air, but we're not talking huge shifts here under almost any conceivable set of procedural rules that I can imagine, and one can have more or less restrictive procedural rules.

You could have quite severe cost rules, that the plaintive, in the event of failing at the summary judgment level or the final hearing, has to bear all the costs of the other side. Or you could have the commissioner have the right to intervene and stay the proceedings. That would be quite a restrictive rule. So the commissioner says “In my view, this is unmeritorious; I'm entering a stay for the following reasons.” I would not support a rule that restrictive, because I don't foresee this kind of catastrophe or floodgate scenario that you describe.

Mr. Charlie Penson: Is that because case law would kind of show the direction so that there wouldn't be frivolous actions?

Prof. Michael Trebilcock: Having co-taught competition law with my colleague here, Professor Winter, and co-authored a forthcoming book in this area with him, I share most of his views on the economics of this. I do not think there are lots of genuine cases of predation out there.

I accept and endorse his concern about the language in section 50, “eliminating a competitor”. We're eliminating competitors by the hundreds every day all over the economy, and we have been since the beginning of time. That's what markets do. What we're worried about is eliminating competition, not competitors.

I think with an appropriate test—it should be the same test whether in a criminal context or a civil context, whether the commissioner brings the action or whether a private party brings the action—and we have good people, as we do, appointed to the tribunal, we will not have crazy decisions. People will know, private parties will know, that if they bring cases that have no merit, they'll fail and they'll end up bearing all kinds of direct and indirect costs.

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

Mr. McTeague.

Mr. Dan McTeague: Professor Trebilcock, I am also concerned about your stated objective of ensuring that competitors are not removed, not eliminated. But you take direct aim at the cease and desist provisions of my Bill C-472. You suggest that somehow the amended section 100 could be placed as a good example of providing an interim injunction should the Competition Bureau require the necessity to implement it.

It's nice to say that, but obviously as it currently stands, you know as well as I do, and I think the lawyers in this room know, such orders and such relief can happen only after the commissioner has conducted an inquiry and has filed an application with the tribunal. It's not 24 hours. It's more like three months, maybe six months, maybe two years.

Whatever the case may be, it defeats the very purpose you're trying to achieve. And I would submit respectfully that during this period of investigation it is conceivable—and I've seen this in many industries first-hand—that the complainant has been driven from the bloody market.

• 1015

I know that during this process, if the tribunal has made a decision, the person who is subjected to the order may also apply to the tribunal for a variation or rescission of the order. I also understand that the Competition Bureau is not in the position of acting as a gulag, as we've seen in the Soviet Union, but is indeed enforcing a statute of Parliament. I have trouble with your stated objective of ensuring that effective competitors remain in business but somehow dismissing the importance of cease and desist.

I'm not convinced that section 7.... The law society and the bar will certainly do their very best to make sure this matter comes before the courts, should it be passed, but I'm not convinced that under these kinds of qualifiers I've just given you, a court of law is necessarily going to throw this out.

Prof. Michael Trebilcock: I understand your point of view and sympathize with what motivates it. I'm trying to achieve the same objective; that is, I think there should be expedited relief in a wide range of circumstances. I believe the political and legal traditions in Canada in this area from 1889 onward have been to separate the investigative and enforcement functions in one set of institutions and the adjudicative functions in the other. We've done it for 100 years, so we shouldn't be totally dismissive of the reasons we've done that in this area. I'm not suggesting you are.

I think you and I share the same objective: there ought to be an effective procedure for expedited relief, not only in the predation area but in a variety of other areas. The only question is who provides the relief. Is it the tribunal or the commissioner himself, by issuing these temporary orders?

You say he can't invoke section 100, which of course currently is limited to mergers, but I would expand it to other areas of the act, as I've argued and as Ms. Sanderson and Mr. Wong will argue further. You say he has to do some investigation first, but that doesn't strike me as inappropriate. To be issuing interim orders just because he wakes up one morning and.... This morning he was delayed on a flight from Ottawa to Toronto. If he zips out an order by way of venting his frustration without any investigation, this would strike me as—

Mr. Dan McTeague: Professor Trebilcock, I think the concern is that somehow this is arbitrary and could be subjected to a rather flippant exercise by the bureau. I think the question that really has to be put on the record here, despite those who will defend the status quo, is that indeed an inquiry can take forever.

The concern I have is that on the one hand you want to go beyond my bill. I don't disagree with you on that. In fact, I've cited you on many occasions to deal with matters of application before the tribunal. But if I don't have the might and the weight and the power of the bureau to bring my case to, it's entirely conceivable—in fact it's practically the case, save and except those who are usually vested interests that act on behalf of the large corporate clients—that individuals have fallen under.

Almost every previous economist who's come before us has said that the damage is too little, too late. While there may be a legal concern with cease and desist, the evolution of our law since City National Leasing has been that we've gone from the criminal more toward the civil. I don't think anyone would disagree that we are in the process of a serious metamorphosis in comparison to other jurisdictions.

You've just cited and put on the record a number of other jurisdictions that don't have any trepidation with cease and desist. Because we have some kind of legal background in Canada, we ought to ensure that we defend those. As parliamentarians, we write the laws and we want to make sure the laws are effective. If people have concerns about the cross-germination between adjudication and prosecution, yes, that may be a concern. But does the end justify the means? If people are losing and competitors are losing, why should we call this the Competition Act? It's a farce without this kind of power.

Prof. Michael Trebilcock: At some point you and I are going to have to agree to disagree on this. I don't want to leave you with the impression that I'm sort of a timorous soul on these issues. I have taken a lot of heat over the last several years on these private enforcement proposals from many of the same people who are critics of your proposals. They think these go much too far in contemplating a more vigorous and aggressive approach to the enforcement of the act.

• 1020

Mr. Dan McTeague: But we know where they're coming from, Professor. We know where those critics are coming from. The system has allowed that.

Prof. Michael Trebilcock: I just wanted to ensure that you don't have me categorized with them because of the concerns I share with them in some cases over these particular cease and desist proposals.

I think with an expedited interlocutory, injunctive remedy of the kind we now provide through Parliament.... This was Parliament's best judgment in the context of mergers under section 100: generalized reviewable practices plus individual party access to the tribunal, not only for cease and desist orders but also interim relief and, in my case, damages. You say there's nothing there when the damage is already done. I would have damages available to these private parties. Start the practice for the future to the extent that damage has occurred up to this point and then it should be compensable.

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

We will now switch to Madam Jennings.

Ms. Marlene Jennings: I just want to come back to the issue of the cease and desist proposal under the amendments to Bill C-26 and what is being proposed by Mr. McTeague's private member's bill.

One of the arguments is that in Canada we have a tradition of separation of the investigative functions from the adjudicative functions. That's not quite accurate. We also have a tradition of commissions in different areas, administrative bodies, that have combined the powers of regulation, powers of investigation, and powers of adjudication. One only has to look at the area of law enforcement. The first administrative commissions were actually created back in the late 1960s. They combined all three functions, so we also have a tradition of combining those functions. I just wanted to underline that.

Thank you.

Prof. Michael Trebilcock: Do you want me to react to that?

Ms. Marlene Jennings: If you wish.

Prof. Michael Trebilcock: I think that is a fair comment. In various other areas of administrative law and regulation, we do observe in Canada this fusion of functions. I acknowledged in my earlier comments that in the anti-trust area in other jurisdictions, we observe this fusion of functions. My point was a more limited one: the legal tradition in Canada in the anti-trust or competition law area for a hundred years has been not to fuse those functions. I think there are respectable reasons for maintaining that separation of functions.

For example, Ms. Sanderson and I were recently in Thailand at the behest of the World Bank, advising the Thai government on setting up its first competition regime. I was concerned to note that they have all these functions fused in one body: investigation, enforcement, adjudication. On this body sit senior politicians from the Thai cabinet, senior deputy ministers, representatives of the chamber of commerce and various trade associations, and alleged independent experts. There are 15 politicians, bureaucrats, lobbyists, and technical experts performing all of these functions. At some point this is not a sensible way to design an institution. One has to think carefully. What is an appropriate division of labour here?

The tribunal has very little work to do. I sat on it for two years, and for the first two or three years we didn't get a case. I gave you the numbers; they get a case a year. So it's not as though, if we gave them this interim relief task, they would say “We'll be run off our feet; we'll be run ragged.” They can easily handle an expansion of their responsibilities.

• 1025

Ms. Marlene Jennings: Thank you.

Mr. McTeague raised an issue about your suggestion that the powers given to the competition commissioner be simply expanded in terms of mergers to get the expedited process, to get an interlocutory injunction. He raised the issue that the way in which that process now works, the competition commissioner has to have completed an investigation before the commissioner has the authority to apply for that expedited relief.

Would you be in agreement? Because his amendment, through his private member's bill, is to attempt to address the issue, or stop whatever damages may incur, in order to allow the commissioner to complete an investigation and to make a final determination. Would you be in agreement that this particular process be open to the commissioner prior to having conducted or completed an investigation?

Prof. Michael Trebilcock: I have to say I'm nervous about that, as I said to Mr. McTeague.

Ms. Marlene Jennings: But wouldn't you have confidence that...? The tribunal, as you said, doesn't have much work to do, and I'm assuming, if the members who currently sit on that tribunal, or will in the future, are of your calibre—and I'm not trying to just curry favour—that if the competition commissioner applied for that relief prior to an exhaustive or an in-depth investigation, there would at least be prima facie grounds for.... He would have to at least show, prima facie, that the allegations are serious, and that on the face of the application being made there seems to be grounds, to ensure that those damages don't happen and to allow him the time to do the investigation.

Prof. Michael Trebilcock: I think that's an interesting suggestion, that he applies to the tribunal for this interim relief prior to completing the investigation. Presumably he has to show something, though—

Ms. Marlene Jennings: Yes.

Prof. Michael Trebilcock: —some prima facie evidence of violation and irreparable harm.

Mr. Wong, I think, is perhaps better equipped to address this. He is a practising lawyer, and he's appeared in a number of major competition cases. Whether he feels one could structure an interim relief procedure before the tribunal prior to completion of the investigation, which is your concern, subject to some demonstration of a prima facie violation, I think it's an interesting suggestion.

Ms. Marlene Jennings: Thank you.

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

I would ask the witnesses if they want to have any closing remarks before we suspend this portion of the session.

Mr. Winter.

Prof. Ralph Winter: No, I think I've made the points I wanted to, thank you very much.

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

Prof. Michael Trebilcock: I have no other points to make.

The Vice-Chair (Mr. Walt Lastewka): Then thank you very much for being with us today.

We'll take a short break and then we'll get into the next session.

• 1028

• 1034

The Vice-Chair (Mr. Walt Lastewka): We'll reconvene our next portion of this morning's proceedings.

I would welcome Ms. Margaret Sanderson, vice-president of Charles River Associates, and Mr. Stanley Wong of Davis & Company.

I would ask Ms. Sanderson to begin.

Ms. Margaret F. Sanderson (Vice-President, Charles River Associates Canada Limited): Thank you.

I would like to begin by thanking the committee for the invitation to speak here this morning. It's always a pleasure for me to return to Ottawa, having lived here for 11 years. It's a particular pleasure to be talking about a subject that's dear to my heart, that being competition policy.

I would like to preface all of my remarks by saying that I have tremendous respect and appreciation for the work of the staff at the Competition Bureau. I think they do a tremendous job in often quite difficult circumstances. When perhaps voicing concerns about particular proposals, I don't want it to appear that there would be any concern about their ability to perform their functions in a highly professional manner.

• 1035

I will briefly give you my own background. I'm currently a vice-president at Charles River Associates. We're an economic consulting firm with a staff of about 300, with offices primarily in the United States. I run the Toronto office for this economics consulting firm. A large amount of the work we do is in the area of competition work, crossing the full range of various business activities.

Prior to that I was at the Competition Bureau, where I worked for ten years. Prior to that I was at the Department of Finance. While at the Competition Bureau I worked primarily in the economics and mergers branches. At the time I left the Competition Bureau, a little more than a year and a half ago, I was head of the bureau's enforcement, economics, and policy division, the group that is responsible for the internal economic advice that would go to cases, regulatory interventions, and policy work at the Competition Bureau.

I was asked specifically if in speaking this morning I could deal with mergers, which I will do. Then toward the end of my remarks I'll speak about the proposals in respect of interim relief, or Bill C-472.

In respect of merges, I guess that isn't an issue that's really being considered in the context of private members' bills, although there is a little bit of activity going on in the merger front, which the Competition Bureau is actually leading to some extent.

Briefly, the substantive test employed in Canada for reviewing mergers is a very well-regarded test. It's economically sound. It ensures that the reason mergers are potentially blocked or prevented is when they will substantially lessen competition as opposed to being in the interest of protecting particular competitors.

The current issue around efficiencies is generating a little bit of debate. The law is quite open in this respect in terms of the wording of the law and is open to a number of different interpretations. It's certainly possible for the competition commissioner to change his policy perspective in how he wants to approach efficiencies and merger review. If he chooses to do that, as long as it's announced there's absolutely no issue. The business community can certainly adjust.

Procedurally, there are a number of proposals for amendments to the Competition Tribunal Act that I think will be very helpful in the context of improving the process for merger review—in particular, improving the role that the Competition Tribunal has played.

One of the lessons we've learned over the last ten years in the context of enforcing the new merger provisions of the Competition Act is that the tribunal has played a very marginal role in the process. As Professor Trebilcock indicated earlier, very few merger transactions have gone to the Competition Tribunal on either a contested or consent basis. I think that's unfortunate.

I think one can ask why that has necessarily been the case. The reasons probably lie in many different areas across all three of the interested parties that would be bringing forward merger cases, that being the bar, the bureau itself, and the tribunal itself. A number of procedural squabbles have occurred before the Competition Tribunal that have been a tactic of delay, which makes it very expensive for the individual parties.

I believe it's the case that Justice McKeown, along with the commissioner and other parties, is working toward trying to streamline the process before the Competition Tribunal. Some hearings before the tribunal can be quite extraordinary in their costs.

The commissioner has recently commissioned a report on the actual cost to the bureau of launching these proceedings before the tribunal. I believe the average cost to the government is about $1 million. Private parties would typically spend much more than that, because typically the rates at which outside legal counsel and outside experts are retained by the government are reduced rates relative to those they would obtain if they worked in the private sector. So it's an expensive process.

• 1040

It doesn't have to be this way. It's quite interesting to look at the Microsoft case in the United States recently. One could not argue that's not going to have profound repercussions on our day-to-day lives. The trial judge in that instance was very upfront with the parties in limiting the number of witnesses. Each side was limited to twelve witnesses. The commissioner in the recent propane case called over eighty witnesses before the tribunal. Surely there's a happy medium here somewhere and we could move ourselves away from extensive procedural squabbles with large numbers of witnesses to a more streamlined process.

Professor Trebilcock and I have talked about the considerable irony in the fact that the bar and other parties that go forward to the Competition Tribunal and are insisting on their full rights of due process are ultimately having a somewhat perverse outcome. What's happening is they're driving businesses, who want to get on with their business, away from the Competition Tribunal, away from a process that would be more open and more transparent, and primarily the Competition Bureau is the body that makes decisions on the vast majority of mergers.

While the Competition Bureau certainly does its job in the way it follows the instructions of Parliament outlined in the Competition Act, there are no rules of due process, for instance, on how an investigation is handled within the Competition Bureau. In fact I'm sure one would argue that to introduce such things would be difficult and would potentially expand considerably the length of time mergers would take to be reviewed, something no party would ultimately desire.

The perverse outcome is that by insisting on extensive due process rights before the Competition Tribunal, one has lengthened the process so much that now we're finding most mergers are reviewed within the Competition Bureau, where these rights are not actually available. The commissioner is certainly committed to transparency and to certainty, but if these objectives are not achieved for some reason, private parties have no recourse in a merger context if they disagree with the decision of the commissioner.

In this respect I actually would go farther than Professor Trebilcock has this morning on the question of private rights of access. Many people will come before you, and probably already have, talking about the fact that you could never have private access in the context of mergers. It's just going to lead to frivolous and vexatious litigation. In fact if we look at the jurisdictions that have private access on questions of mergers but have similar cost rules to Canada, have similar proceedings in the context of class actions and in the context of whether contingency fees are a primary component of compensation, and do not have treble damages—so if we look to Australia and New Zealand—we find these jurisdictions have full rights of private access for mergers.

In the case of Australia, they've gone back and forth as to whether interim relief is available to private parties. Divestiture relief is available to private parties. In New Zealand there's no divestiture relief, but there is interim relief. Not a lot of cases have been brought in these jurisdictions under mergers.

The Competition Bureau has commissioned an extensive report by Professor Jack Roberts on an international comparison of private rights of access. If you look to the sections on Australia and New Zealand, you will see that in the case of Australia I think two cases have been brought under mergers, whereas the total number of complaints is slightly over a hundred for all issues of private access over a five-year time period. A similar number, a very small number, is found in the context of New Zealand.

• 1045

So I would strongly support the private members' bills in the context of expanding private access to the Competition Tribunal, and I would encourage the committee to consider extending those in the manner Professor Trebilcock spoke of earlier. Certainly they should apply to a broader number of sections of the act, and potentially even apply to mergers.

I certainly recognize the political strength of the defence bar and corporate counsel in scuppering amendments to the Competition Act. They have been very successful in that regard in the past and no doubt would be able to launch effective arguments in this course. However, it is something worth considering. Certainly if it's not considered here or by the commissioner, it's unlikely the Chamber of Commerce is going to propose it.

In the context of private rights of access, I also would agree with Professor Trebilcock that full rights of interim relief should be available to private parties and that private parties should also have available to them the right to seek compensatory damages or single damages. They currently have the right to do this under section 36 in the criminal context, and it's unclear to me why on the civil side we would not have those rights, particularly if at the same time we're going to move pricing practices out of the criminal provisions into the civil provisions—a move I would endorse.

If we move the predatory pricing and other price discrimination and that type of procedure out of the Criminal Code into the civil side of the law, it's unclear why parties would lose rights of private access in the course of doing that, because that will be one of the outcomes of moving those provisions to the civil side of the law.

The Vice-Chair (Mr. Walt Lastewka): Could I ask you to conclude?

Ms. Margaret Sanderson: I'll close by saying generally it's unfortunate that the role of the tribunal has been diminished in the context of mergers. I feel uncomfortable with any moves that might further diminish the role of the tribunal. It plays an important role in the process, and part of my concern over Bill C-472 is that it could see a diminished role for the tribunal. I think there will be questions on that, so I'll await those questions rather than speak on that issue now.

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

Mr. Wong.

Mr. Stanley Wong (Individual Presentation): Thank you, Mr. Chairman.

I thank the committee for inviting me to speak. If I may say so, as a private citizen, I applaud the industry committee's efforts in trying to come to grips with a very important piece of legislation in our country.

Let me just give you a little bit of my background. I was a professor of economics for eleven years at Carleton University before I became a lawyer, and I've been a lawyer now for sixteen years. I understand Mr. Shaw was a student at Carleton when I was teaching there. Thankfully for him and for me, I guess, he was not one of my students.

Voices: Oh, oh!

Mr. Dan McTeague: We're thankful too.

Voices: Oh, oh!

Mr. Stanley Wong: Although I keep coming across many bureau officers who are former students of mine.

For the last sixteen years I've been working primarily in the area of competition law, first in Toronto and then with Davis & Company in Vancouver. I've worked on both aspects—that is, both in litigation and in advising businesses and so forth in mergers and various other types of business practices.

I should add a few caveats. I'm involved in too many things, so I guess I should put on the record that my comments are strictly my own. Not only have I acted for private businesses, but I acted for the government, as some of you already know, for what was then the director of investigation and research, for a total of eight years on the Southam newspaper case. I'm sure we'll talk a bit about that. I also advised him in respect to the National Post and Sun Media mergers. I think those are all the newspaper mergers that have taken place, although I guess there are more in the wings.

I'm a member of the executive of the National Competition Law Section. Of course my remarks are not those of the section.

And thirdly, I'm on the Bar/Tribunal Liaison Committee, trying to reform its procedures, and I'm going to comment a bit about that. Again, these views are my own and not necessarily those of the committee.

Enough caveats.

• 1050

Copies of some of my notes have been circulated. I'm going to jump around and highlight items. Some of it is quite detailed, and I'll leave that for you to read. I'd be happy to respond to any concerns and comments made today.

With regard to merger law, there have been only three contested cases: the Southam newspaper case, which I'll comment on; the Hillsdown case; and the present case that's before the tribunal involving Superior Propane.

Merger analysis review is very difficult. I think the committee should very much appreciate that when you look at a merger, you're crystal-gazing. You're looking at what are the likely effects of the merger. Keeping that in mind, it is right that the Competition Bureau is hesitant about intervening, because you are looking at a crystal ball.

One also should be reminded that there is a three-year period for the commissioner to challenge a merger that he has not certified under the advance ruling provisions.

In sum, my view is that merger laws are fine in the sense that there's no need to change a statute. I think if you change a statute a lot, it leads to a lot of uncertainty, and we end up in a lot more scraps about what this section means. We lawyers are trained to look at those things. So there is no reason, in my view, for amending the merger laws.

With regard to the tribunal process, the tribunal, unlike the civil courts, has always been engaged in trying to manage its docket, even though it has had very few cases. Starting with Madam Justice Reed of the Federal Court trial division, who was the first chairman of the tribunal, the tribunal has always been very demanding in keeping to its schedule. For people who are experienced in the civil courts, usually when two opposing counsels and two opposing parties say, let's not go to court, or, let's adjourn this motion, it's adjourned. The tribunal will not allow you to do that. So counsel who are not experienced in the tribunal process have met with a very rude awakening when the tribunal says, no, we're not going to consent to that adjournment.

So the tribunal is very much sensitive to that, and unlike the civil courts, it tries to manage its docket. I'll come back to the process in a moment.

One area of concern, and I may be alone in this, is that I think the appeal rights in the Competition Tribunal Act should be altered in a dramatic way. I say that having been counsel for the director in the Southam case, which went to the Supreme Court of Canada.

Just to give a brief overview of the Southam decision in the Supreme Court of Canada, the Supreme Court of Canada said that when you have an expert body like the tribunal, a court sitting as an appellate court and reviewing decisions should defer to decisions involving the expertise of the tribunal. That's in effect what they've said, and this is the leading decision in the area of administrative law.

If we take that seriously, then I think it's important to look at the need to change the automatic right of appeal. The sum of subsection 13(1) of the Competition Tribunal Act, which is reproduced on page 2, is this: questions of law and of mixed fact in law can be automatically appealed to the Federal Court of Appeal. Questions of fact require leave. But any skilled counsel can turn almost any question to a question of law and mix fact and law. You can't blame people who do that. That's what is in the statute.

Now, in the Southam case there are aspects of it that I'm proud of and other aspects I'm not proud of. The newspaper mergers took place in May 1990. There was no pre-notification, because there were a whole series of small transactions. The Competition Bureau filed in November 1990. There was a constitutional challenge, so it went to the Federal Court trial division and to the Federal Court of Appeal. Then there was a hiatus. At that point the tribunal said, we want six months. We started the hearings in September 1991. We had 40 days of witnesses and so forth.

The long and short of it is that the Competition Bureau lost the main part of the case but won a smaller part of it. We appealed to the Federal Court of Appeal and won everything. We went to the Supreme Court of Canada, and they reversed it and went back to what the tribunal did. It took seven years. That's not the end of the story, because after seven years, not surprisingly, people said we should vary because the circumstances have changed. So we had another round of hearings. Finally, after eight years my retainer was over.

We all know about government rates for lawyers, so I won't say that was a remunerative one, but it was a challenging one, and I'm proud of having handled the case.

• 1055

The point of all this is that it takes far too long to get a case adjudicated. I've given an example in paragraph 15. Typically, the bureau will take about six months to investigate a case and decide a challenge. That's not unreasonable. So you go in, and the tribunal has a rule that you have six months to get into the hearing. Now, that's 12 months. You take a couple of months to actually do the hearing, and that's 14 months. The tribunal operates on a rule of thumb with six months to render its decision. That's 20 months. You can't hold up a merger for 20 months. That's the problem in here. Something is wrong here.

I know that Professor Trebilcock and some of his colleagues have been extolling the virtues of the European system, but after my cursory examination of it, I think it is a regime that is far more administrative and far less transparent. So I don't think we should be leaping in and saying the good thing about the European regime is that it's quick. We know that there's also swift justice that is unfair justice.

With regard to streamlining the tribunal, the tribunal has been engaged, through this bar liaison committee, in proposing changes to streamline it. I've just summarized it in paragraph 16, and I won't touch on it. It deals with non-mergers, as a way of forcing the director to deliver his case upfront and requiring full disclosure upfront.

What I would urge the committee to do in its report is to support the efforts of the tribunal in streamlining its process. I think it's a matter that should not be legislated. It should be by way of rules and regulations. I think the tribunal and the members of the bar involved in the committee in general support moving the process along. Sometimes you say, I want to take the commissioner on, but I'm not prepared to recommend to the client 20 months of litigation to get it resolved.

Some of the suggestions and private members' bills—I don't know about yours, Madam Jennings—were proposing to have references. I think this will speed up the process. We have far too few cases in Canada. Too much is decided between the commissioner and private parties. We need more law. We need the light of day on these kinds of questions of great importance. One of the reasons there are so few competition lawyers is because everything is in our heads. You can't say to a colleague, “Read these cases.” There are no cases. Everything comes from your dealings with the Competition Bureau. So in many respects competition lawyers are really oligopolists, if you will, because there are not a lot of people who know how to deal with the bureau.

Mr. Dan McTeague: No kidding. Hear, hear!

Some hon. members: Oh, oh!

Mr. Stanley Wong: On the temporary order powers, I know we're going to come to it, but let me just identify a few things and talk about the lay of the land. On the criminal side there's section 33. Section 33, the interim order, is one where if the commissioner believes somebody's doing something directed toward the commission of an offence, he can apply to a superior court for an order. I've dealt with those orders on behalf of the responding party. It's not unusual. There's nothing wrong with it.

I think what's at the heart of the proposal Professor Trebilcock has mentioned, which I support, is that we need something similar on the reviewable matter side. What we now have is section 104, which is available to all applications in the reviewable matters. After you start an application—and we took the first one in Southam, and I know how that works—section 100 is only available for mergers. It has been used only once, that is, before the legislation was amended last year.

Frankly, I was surprised when the commissioner took that case to the tribunal, because they'd been investigating for eight or nine months, they applied for this interim order, and it took less than a week to have it heard. They were unsuccessful. Then they filed the next day, virtually the next week. Nonetheless, the legislation was changed, because it read very poorly. I appreciate the frustration of the Competition Bureau over the lack of effectiveness of the provision.

There's no reason an interim provision cannot be drafted for all matters under subsection (8), which I think addresses all the concerns. Courts are used to dealing with injunctions. With intellectual property cases, which I have a lot of familiarity with, we can go to court and get an interim injunction in a matter of hours or days.

I really don't understand the rationale for the airline industry. I looked at Mr. von Finckenstein's October 22, 1999, letter to Minister Collenette when he made this proposal. The transport committee adopted it. The minister said, if everybody wants it, we should have it. But I have yet to see the reason for it. I've looked at the regulations he has promulgated about defining an anti-competitive act, like somebody providing service below avoidable costs. Do you think he can do that on a whim? He's going to have to do some studies.

He has already been studying the issue. It's not something that's going to happen...when you see somebody cut prices, you don't immediately say that must be predation. You have to look at the context. You have to use your judgment.

• 1100

I say, take that judgment, go before the tribunal, and ask them to make a decision. Otherwise, I think we're going to be tied up in the courts for a while with that provision.

I'll stop there, Mr. Chairman.

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

We will begin the questioning with Mr. Penson.

Mr. Charlie Penson: I'm just trying to understand this. In regard to mergers, what would be wrong with the idea that companies can merge whenever they want, but if they engage in anti-competitive behaviour they will be disciplined? Instead of prejudging it, wait to see the result.

Mr. Stanley Wong: Do you want me to answer or Margaret?

The Vice-Chair (Mr. Walt Lastewka): Either or both.

Ms. Margaret Sanderson: Right now the way the law reads is that the merging parties may not be able to close any time they want. They may have to pre-notify if they meet certain conditions, and then there's a waiting period and they have to provide information. If it's a large transaction, typically they extend the waiting period beyond what's actually legally required in order that the bureau can complete its investigation.

Let's say we have a merger that does result in a substantial lessening of competition and we now want to untie it. We can do that. The commissioner has certainly tried to do that. That's what the Hillsdown case was. The parties had closed. In the recent Superior Propane case, the parties had closed, so if there's a ruling by the tribunal they'll have to untie the transaction.

It is very difficult to do that. Even if you hold separate arrangements in place, there's bound to be.... If you hold separate agreements, it means that the parties have to hold the assets separate, and there's a number of restrictions on how the one party can influence the behaviour of the other.

As Stan was just saying, we're talking about a lengthy time period here. If we have 20 months over which we're going to have, in essence, this regulatory regime preventing one party from dealing with another, there's bound to be leakage, there's bound to be a deterioration in that agreement over time. Once the eggs are scrambled, so to speak, it's very difficult to pull it all apart to then have an effective remedy at the end of the day.

I think that the existing regime is an effective regime in the context that there is pre-notification. There is a waiting period. The commissioner has the time to do his investigation, and at the same time he has a three-year window following completion of the transaction.

Mr. Stanley Wong: I think your question is a little different. I think your question is, why do we want to prevent people from creating monopolies? Let's only deal with the consequences of monopolies. I think that's part of it.

First of all, let me say that every competition law regime in every industrialized country has a dual problem; that is, they have a process for preventing the creation of a monopoly and a process for monopolies that already exist or grow to become a monopoly, to unwind them. There's nothing illegal about it. That's what Microsoft is about...and the United States' monopolization.

I think the problem with the fundamental assumption in the merger law is that if you give somebody monopoly powers, if you allow people to create a monopoly, they will use it. They're rational. They want to maximize profits to the benefit.... So if you take the view that rational people will exercise market power when they have those market conditions, you're going to have the Competition Bureau tied up in looking at thousands and thousands of cases about abuse of monopoly power if you don't have a merger review regime.

Let us not forget the merger review. Even though there are only three cases, there have been a number of cases where there were consent orders. There are many cases when the bureau has said to the parties that they're going to challenge and they decide not to proceed or they will restructure to meet the conditions.

So I don't think we should be engaging in a bureau-bashing exercise here, because I think one has to look at the volume of work they do. You may disagree whether they're aggressive enough or not, but there are many cases that are restructured.

Mr. Charlie Penson: Mr. Wong, yes, I understand the scenario you're painting, but we also have a less-than-perfect situation when it comes to the competition law looking at mergers in advance.

• 1105

Just look at the Air Canada-Canadian situation, the Canada Transportation Act, where the Minister of Transport essentially asked the commissioner for a fairly narrow view of that merger and the fall-out coming out of that. So which is the better...?

Mr. Stanley Wong: I was not involved with the Air Canada-Canadian merger on any side other than sitting back and looking at it. I consider myself well-informed. I didn't even know that section 47 of the Canada Transportation Act existed. When I looked at it, I was shocked at how it was used. But we have those conditions in our country. It has nothing to do with the weakness in the Competition Act. We have chosen as a matter of public policy to say we're going to have limits on foreigners owning airlines, and that's it and that's where we are.

Mr. Charlie Penson: So my point to you would be that there are many methods of achieving competition. The members around this table have heard my view on it before.

It seems to me that competition law is the least desirable. A proper business environment for lots of competition to take place is by far better. If you can't achieve it, as a last resort you need to have competition law that—

Mr. Stanley Wong: On the contrary, if you look at the Air Canada situation, the problem is that we have created the situation, so now we have to pile exemptions upon exemptions. This is the trouble now. We have exemptions for the banks, and that's a very historical situation. Now we have an exemption for airlines. I wouldn't be surprised if we're going to have exemptions for almost every industry.

Mr. Charlie Penson: My suggestion to you is that it's part of the environment for business to do work. It is not conducive to have the exemptions on foreign investment limits, for example. If that weren't there, there would have been more options available rather than having to use the heavy hand of the law through the Competition Act.

Mr. Stanley Wong: Ms. Sanderson wants to answer this one.

Ms. Margaret Sanderson: There are many ways to foster additional competition. You are quite right in that often the government enacts a number of regulatory restrictions for different purposes. One of the outcomes, whether explicitly intended for that or not, is to restrict competition.

That being said, this does not deny the fact that we do need to have a strong Competition Act in this country because it provides a framework law for basic businesses to operate under.

I think it would be rare for a Canadian to claim that the U.S. business environment is not an extremely competitive business environment. It is a very competitive business environment. Depending upon whatever is happening with the exchange rate, typically people are going down to the U.S. to go cross-border shopping. Why? Because prices are lower, there's greater product choice.

The United States also has probably the world's most aggressive, vigorous anti-trust enforcement. The two are by no means conflicting with each other.

Mr. Charlie Penson: I agree with you completely. I'm saying you can't substitute competition law for a proper business environment. It seems to me that a proper business environment is the most desirable. It's good to have strong competition law there as a guide to know what happens if they don't follow it, but it seems to me that the lack of regulation.... To let businesses operate effectively would be the better method.

Ms. Margaret Sanderson: I think they are complements to each other, and that's how we need to think about them. The two go hand in hand. You're absolutely right that if Canada had a different policy about cabotage or if we didn't have the same interprovincial restrictions on industrial milk quotas or whatever it may be, then it would be easier to deal with a dairy merger, it would be easier to deal with an airline merger. It's not always the case that those policies will completely substitute for competition law.

Mr. Charlie Penson: Those are choices open to government to make. Different parties have different views on that, of course.

Ms. Margaret Sanderson: Yes, there are different mixes of policy.

Mr. Charlie Penson: Can I ask you a question about the airline industry on your paper that we have here? It's in regard to the interim relief provision. You're suggesting here that it's probably not a good method to use, that it would lead to higher prices. Can you just expand a little on that?

Ms. Margaret Sanderson: Yes. I'm not a lawyer, I'm an economist. I share some of the concerns that people have raised about due process, for instance, but that's not my area of expertise.

• 1110

My concern with the airline provision is what the substantive test is for how the commissioner would actually obtain relief. I just want to quote the right section to you. In Bill C-472 it would be in proposed paragraph subsection 104.1(b). This is the test under which the commissioner would be able to obtain temporary relief. That test, which is the identical test in the airline industry, reads if there is:

(i) injury to competition that cannot adequately be remedied by the Tribunal is likely to occur, or

(ii) a person is likely to be eliminated as a competitor, or suffer a significant loss of market share, suffer a significant loss of revenue or suffer some other harm that cannot be adequately remedied by the Tribunal.

All of the items under proposed paragraph 104.1(b)(ii) are all natural consequences of competition. If you and I are competing with each other in a completely fair and open environment, we are pricing above cost and doing all the things we should be doing and we're fairly aggressive about it; if we're Coke and Pepsi or if we're Labatt and Molson, one of us is losing revenue if the other one is gaining it.

Mr. Charlie Penson: It's a natural consequence of business.

Ms. Margaret Sanderson: Exactly. One of us is losing share as the other one is gaining it. So my concern is the way this test is framed. Because of the “or” statement as opposed to an “and”, this provision could be used to protect competitors from just the natural consequences of competition.

You might ask how can that possibly lead to higher prices. Well, that will potentially lead to higher prices by just dampening the aggressiveness with which we choose to compete on price. We may not choose to compete with each other as aggressively on price. If I'm worried that if I do that the commissioner will tell me my prices are invalid, I can't price that way for 20 days, and then there's a possible extension for another 30 days and another 30 days, I may choose to compete in some other realm. We may keep prices relatively equal between ourselves, and now I'm going to compete with you on advertising or something else that isn't as aggressive.

Everybody will know this going into this environment, and ultimately competitors will be less aggressive on price, which is exactly the opposite of what the rest of the air bill is trying to do. Of course, the rest of Bill C-26 is trying to protect consumers from prices that are too high.

The Chair: Thank you, Mr. Penson.

Mr. McTeague.

Mr. Dan McTeague: Just to lead up from that, Ms. Sanderson, say I am successful in my price for dating or driving a price below that of my competitors. In the worst-case scenario I also supply that competitor, but I drive my retail price below my wholesale price and eliminate a competitor, as we have demonstrably seen in the oil and gas industry in various regions. You're from Toronto and I'm from Toronto. We know that the prices cannot be justified by market forces alone.

Why would you argue for a temporary cease and desist that would allow the Competition Bureau to do one of two things? First of all, it would address a situation in a timely fashion that might be occurring on the fly. Several witnesses came before us here on Bill C-235 last year who said “I was done in over a period of time—death by 1,000 cuts”. Number two, it would allow the specialization to ensure there wasn't harm to the competitor that was undue and significant, which would ultimately lead to higher prices. If you didn't have these kinds of orders, if this provision wasn't given to the Competition Bureau with justification—it's very clear their justification is there—how could you defend the argument that somehow not having these provisions would lead to higher costs?

The ultimate example in Canada has consistently been that once the successful predator has done his job or her job, there have been higher sustained prices and less choice. How do you defend that?

• 1115

Ms. Margaret Sanderson: In voicing this concern about this particular wording, I am not saying there is not a role for interim relief in the context of investigations of predation. I would beg to differ with what the commissioner has indicated is required under the various sections, as to when he can actually apply for interim relief. Under the revised section 100 for mergers, he does not have to have completed his inquiry. The purpose of that section for interim relief is exactly as Madam Jennings indicated: it's to complete his investigation.

Furthermore, the commissioner has recently made quite successful use of new interim relief provisions that were brought into force by Parliament in the context of misleading advertising. Misleading advertising is very similar to predation. It's the type of situation where I put out an ad and it's misleading and negative. It's harming you, as my competitor, dramatically and quickly. What do I ultimately want? I want that ad gone as fast as possible.

There were concerns that the commissioner, under the previous legislation, wasn't able to get interim relief in this respect in a quick and timely fashion. Amendments were made, and now we have revised provisions, I believe under subsection 33(1), to deal with this issue. The commissioner put a press release out earlier this year in a very positive fashion, indicating how effectively and quickly these provisions had been used.

My concern is with this particular wording. If this wording said competition was likely to be substantially lessened, I wouldn't have difficulty with it. My concern is that in the way this is currently worded, it is quite open to be used in a way, by competitors, to protect themselves from completely legitimate and fair competition.

Mr. Dan McTeague: Madam Sanderson, I don't believe there is any section here that deals with the overriding concern about someone being able to use it themselves. This is the power of the commission, not of the individual. We're not talking about third-party access here, which is the proposal of several of you.

I think Bill C-472 clearly states “a person”, and as a consequence it means that a person who is part of the competitive firmament and is being subjected to a significant loss may have the option, or the commission may have the option of taking up the person's case, in the meantime, in a very temporary circumstance.

Ms. Margaret Sanderson: You're absolutely right. When I say a person can use this, they're using the commissioner and the complaint process to the commissioner to get the commissioner to take their case. Any complaint to the Competition Bureau in predation comes from a competitor. It's always a terrible story; someone is about to go out of business.

When the bureau examines those hundreds of complaints, as Professor VanDuzer and Professor Paquet indicated, in every one of those instances someone is complaining about an imminent failure. There isn't necessarily harm to consumers, and I think that's the issue. I don't know how significant it's going to be defined, but for instance, there were a number of complaints before in British Columbia, in the context of beer and anti-dumping by beer companies. What were Labatt and Molson arguing in relation to the importing of beer? They were arguing that they had suffered a significant loss of market share, a significant loss of revenue, in relation to Pabst, notwithstanding the fact that together they had more than 90% of the market.

Mr. Dan McTeague: Yes, but it's not the question of losing money. A certain anti-competitive act must trigger the effect of losing money. We're not talking about simply losing money here. Surely you don't believe that what I'm proposing in Bill C-472 simply says “I've lost money, therefore the bureau ought to order a cease and desist.” It must trigger something within the Competition Act in order to give rise to the loss of money that has the effect of eliminating an otherwise effective competitor.

• 1120

More to the point, we have seen hundreds of examples that are really the reverse. While we're here haggling over the question of whether the bureau should do this or not do that, the reality for the wider public beyond the vested interest is that the Competition Act is a toothless tiger, and that unlike the analogies that have been drawn by some, this is a competition act and a commission that do not have the power of policing. That is to say, in cases of serious acts, it doesn't have the ability to arrest the situation at least temporarily until we get it before a court. So why are we arguing this point, other than saying we're hanging on to some legal tradition?

Look, the business world is changing rapidly, and I think you understand that as well as I do. Would you not agree that Canada should come up with its own determination, its own idea, not just the economics but also its own legal reviews of the industry in general, rather than saying, well, we're worried about the wording here; the court might challenge. Why can't we be bold enough to create our own Competition Act that is relevant to big and small players, which ultimately benefits consumers?

Ms. Margaret Sanderson: I think we can be bold. The commissioner can take more cases. I think the commissioner could have tried to take a case under the existing powers for interim relief under predation, which the commissioner has never done.

In the context of an act that would trigger this, you're absolutely right. My concern is that the act that would trigger the way we play this out is that Pabst prices its beer at low prices: Come to my store and you can get cheap beer. Unless the other players match, the reaction is that they're going to lose share; they're going to lose revenue. How do we define what's significant? In the context of the trade hearings, “significant” was defined in a way that was not a very big number.

Mr. Dan McTeague: But not in Canada.

Ms. Margaret Sanderson: In Canada.

Mr. Dan McTeague: But we have seen examples of where we use superlatives like “undue”, “practice”, “substantial”, and of course the word “significant”. All these have always inured to the benefit of the defendant.

My concern here overall is, yes, wording is extremely important in how we provide changes if changes are indeed necessary, but we have not taken into account.... To use your example of Pabst, what if Pabst controlled all the hops in this country or around the world and was able to price in a fashion, as I indicated at the outset of my questioning, that allowed them to sell a product that they're supplying to their competitors at retail, at a price that was lower than wholesale—in fact, in effect, the power of a vertically integrated supplier?

I have no trepidation with a Home Hardware going up against a Home Depot. We cross-germinate and we have a real problem when Home Depot begins to supply Home Hardware and becomes the only means by which they can acquire product.

Where is the test that allows us to say, hang on a second here, the Competition Bureau may not have the expertise of understanding what that private party might understand about its industry? Where do we go?

That's a reality in Canada, by the way.

Ms. Margaret Sanderson: In responding to the questions, I was not speaking about the proposals in the context of a vertical squeeze. I'm speaking strictly in the context of the way that subparagraph 104.1(1)(b)(ii) is written. It's the “or”. If we had “injury to competition that cannot adequately be remedied is likely to occur” and we stopped, if we didn't have little subparagraph 104.1(1)(b)(ii)....

Mr. Dan McTeague: Yes, but that requires a substantial burden of proof, which is the very reason you have very little jurisprudence before the courts. If you're going to—

Ms. Margaret Sanderson: There's no burden of proof in this context. This is the commissioner doing an investigation on his own and then deciding, for whatever reason, without telling the party that's being investigated, “Sorry, I think this is going to happen.” Then the burden shifts. If the other party challenges him before the tribunal, he'll have to come forward and explain his rationale, but....

Maybe I'm misreading it.

Mr. Dan McTeague: Maybe you and I don't necessarily disagree, but your word “and” is significant because it requires two things. It requires the injury...to demonstrate the injury to himself. He has to conduct an inquiry to that effect, and that it is likely to have the following effects—

Ms. Margaret Sanderson: On competition, injury to competition.

• 1125

Mr. Dan McTeague: In a limited context, because of course the amount of time it takes to go before the tribunal, as was stated a little earlier, is not one day.

Perhaps there is an opportunity to use an ex parte. We can do the same thing as we do in the securities industry.

I guess that really begs one question, which will be my final question for now, Mr. Chairman, and perhaps Mr. Wong would like to comment on this. Would it be more acceptable if we had a notice given by the commissioner to the party to say, “We're about to do this because we think there are some problems here”? That would have the deterrent effect and might also have the ability to warn the person in advance that there is some concern.

Ms. Margaret Sanderson: The only thing I want to caution here, and I'll let Stan speak to the issue of notices, is that we have to remember what the outcome of all this is. The outcome of this is higher prices, not lower prices. We're going to ask consumers to pay more.

Why are we going to ask consumers to pay more? We're going to ask them to pay more to preserve a competitor because we believe in the long run that is ultimately going to lead to lower prices. That's fine if that's what it's going to be, but if all we're ending up doing is protecting a competitor, raising prices to consumers, which we didn't necessarily have to do....

Let's say he did exit the market, somebody else entered, and we had vigorous price competition again. I don't think consumers should have to pay the penalty for that.

Mr. Dan McTeague: And they're not.

Ms. Margaret Sanderson: I'll let Mr. Wong speak to the notice.

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

Mr. Stanley Wong: On the airline context of the notice issue, the way it's set up, the grounds for making these orders are that the commissioner has to start an inquiry. To start an inquiry under section 10, he has to have reasonable grounds that the tribunal will make an order. He has to have that belief before he can go in. Then he issues his order.

Right now, he doesn't have to consult anybody and he doesn't have to do anything. But the reality is that you've seen the airlines out there, because that's the context in which this came out. You know the airlines out there, and you know the prices between Moncton and Toronto have dropped. You know everybody is yelling and screaming. Certainly if you were acting for Air Canada now—and I'm not acting for Air Canada—assuming that the act was in place, you know something is going on and you know there's going to be an inquiry. The National Post today reported that there's an inquiry about pricing in Moncton. If I were Air Canada, I'd probably get my counsel and go and start talking to the bureau.

The bureau says “Look, you guys had better raise your prices, because if you match the prices to WestJet, I'm going to issue an interim order.” So you start talking. Sometimes you can get them to back down, and if not....

The reason there's no notice is that the whole point of it is that he's just issuing it himself. The courts hate it, and part of our judicial tradition is that ex parte applications are very rare.

What we should be doing here...and we're only using it for search warrants, because there are reasons for it, because you want to go in and suddenly surprise people, and there is a rationale for it. But even in the search warrant powers under the act, you can go back and challenge. But remember, the search warrant powers and the order to produce documents, the order to examine questions, are really asking you to give us something you already have. Here we're saying to somebody, “Don't do that, and don't do that for 80 days unless you want to take me to court.”

So the reality of this is that if you change the system to say you'd do it on notice and you go before the tribunal, you can get in on 48 hours.

With the interim provisions under section 33, dealing with criminal provisions, you can go into courts. I've dealt with a number of cases where the commissioners have been investigating, and we're not done yet; we aren't ready to file an application or lay charges, but I want to get interim relief. That can be done. There's no reason it can't be done. We do it all the time in the civil courts and civil lawsuits. There's no reason for unilateral.... The reality of it is that if the commissioner issues an order against my client, I will immediately file for a review. I'll ask the tribunal here tomorrow. Where's the gain? He'd still have to demonstrate why he's doing this. So there's no benefit, really. Why change this regime? There's no reason for it.

The Vice-Chair (Mr. Walt Lastewka): Madam Jennings.

Ms. Marlene Jennings: Thank you, Mr. Chair.

Thank you, Mr. Wong and Ms. Sanderson.

I want to continue the discussion on the issue both under Bill C-26, amending the Competition Act to allow the commissioner to have those extraordinary interim relief powers, and Mr. McTeague's bill, Bill C-472, which would expand the authority of the commissioner in that particular area.

• 1130

You were here when I was questioning Professor Trebilcock and I asked whether he would be comfortable with the commissioner having the authority to apply to the tribunal, not to issue the temporary cease and desist order himself. As it now stands under mergers, the commissioner has to have been already investigating and has to be pretty sure that he is going to be making an application.

Mr. Stanley Wong: I disagree, Madame Jennings.

Ms. Marlene Jennings: You do?

Mr. Stanley Wong: Yes. Why don't we just stop there?

Ms. Marlene Jennings: Sure.

Mr. Stanley Wong: Right now there is the section 104 power, which applies to any application: mergers, abuse, or anything else. You can apply after you start, because you don't want the merging parties to put their business together while it's being adjudicated.

Ms. Marlene Jennings: Yes.

Mr. Stanley Wong: Section 100 only applies to mergers. That's what we're talking about. We need something; I completely agree. I've said in my notes that we do need something interim before application.

The reality is that the commissioner has to do some investigating because he has to start a formal inquiry. One has to understand that in most situations the commissioner does not start a formal inquiry. When you make a complaint, unless it's a six-citizen complaint, they will go through the office and look at it. If he starts a formal inquiry on his own initiative, he has to have reasonable grounds to believe there's a basis for making it. He will have done some investigation, right?

Ms. Marlene Jennings: Yes. You're right, but he may not be sufficiently along in the investigation to be able to make the determination or to have reasonable grounds to believe it will in fact lead to an application following an investigation.

Mr. Stanley Wong: Right.

Ms. Marlene Jennings: The point I'm trying to make.... Let's take the airline industry, for instance, where we know there are seasonal prices. You catch the wave or you miss the wave. This means that if in fact there is activity going on and there are sufficient grounds to believe it may be harmful to competition.... I'm not even going to enter into the issue of a person, etc. Let's just talk about the competition. If the commissioner has to be sufficiently engaged in an investigation prior to being able to trigger section 100, if we extended it throughout the Competition Act for all of the different forms, etc., the wave may have come and gone.

Mr. Stanley Wong: I don't think section 100, assuming it's generalized—

Ms. Marlene Jennings: Would you be in agreement that the extraordinary power to issue interim relief through a temporary cease and desist order be extended? You can at least consider this and you can always answer back at a later date. The commissioner does not issue the order. The commissioner has to apply to the tribunal, but can do so immediately without having embarked on an investigation, because it is temporary. There is also the private right of access, meaning that if the commissioner doesn't act, the individual company or companies can apply. But there would have to be a prima facie case.

Mr. Stanley Wong: I completely agree. I think if you look at section 100 today—

Ms. Marlene Jennings: I don't think it allows that.

Mr. Stanley Wong: I believe it does. If you look at section 100, what it's basically doing is certifying that he has started an inquiry under section 10, which is on his own, that he has reason to believe there are grounds for making an order, that he needs more time to complete his inquiry—remember, inquiry is a technical term—and that there's going to be harm that cannot be remedied by the tribunal.

He can do that right now. He's only done it once under the former section 100. There were some serious problems with the wording of the former section 100. That's why it was amended last time.

Ms. Marlene Jennings: Right.

Mr. Stanley Wong: I'm saying that if you generalize that.... I'm surprised. I've said that to the commissioner directly, so I'm not saying anything behind his back. We should be going toward a generalized power. You get exactly what you want and it will meet all those requirements.

Ms. Margaret Sanderson: I would completely agree with that. I would just add one point. I worked in the bureau for quite a long time. When do different commissioners have reasonable grounds to believe such that they start a formal inquiry? That is not necessarily a high threshold.

Ms. Marlene Jennings: It shouldn't be.

Ms. Margaret Sanderson: It is not a high threshold. Typically, what does it mean to have a prima facie case? It means you have some evidence of market power. Have you done a full market power assessment? No. You basically have an idea that people have pretty high market shares, and you have a rough idea that barriers to entry are not low. And that's all.

• 1135

Ms. Marlene Jennings: Normally if the commissioner's decision is based on a complaint, on the face of it, it is neither frivolous nor vexatious. I mean, normally that's what it is. Then the commissioner would decide whether or not it warrants a full investigation.

Mr. Stanley Wong: Let me give you an example.

When I was acting for the bureau in the National Post case that took place in the fall of 1998, the review was done in almost three or four weeks. Early on in the piece, it was pretty obvious, right? There are only so many newspapers, so it was pretty obvious there was some issue. The formal inquiry was started because one of the newspapers refused to give information voluntarily to the bureau.

Ms. Marlene Jennings: Right.

Mr. Stanley Wong: We asked them to do this, and finally we decided to apply under the section 11 orders, which have the same structure as what we're talking about today. You have to start an inquiry, so you have to have reasonable grounds to believe. And then you have to have reasonable grounds to believe that the responding party has information you need for the purpose of your assessment.

We went in, and we got it. We got the order. So it was very early on in the piece. I agree with Margaret Sanderson that it doesn't take very much to have reasonable grounds, and it's not done frivolously. But again, you bring it to the courts very quickly to have it examined by an independent person.

As I said, I know the competition has been very disappointed with some of the decisions of the tribunal. But for those of us who do litigation, if you're so easily disappointed, you shouldn't be doing litigation, frankly. Some days you win; some days you lose. You have to pick yourself up and get back in there again.

Frankly, the origin of a lot of these powers.... The section 11 powers were not used for a non-criminal case until we did it in Southam. It's been in the books for decades, and the word was, well, if we use it, we might lose it. My answer is that everybody knows you're not using it. You don't have it if you don't use it.

Ms. Marlene Jennings: That's right.

Mr. Stanley Wong: So now it's routinely used. I don't think the bureau has been bolder in taking what is available in the statute and taking it to court to let somebody decide.

Ms. Marlene Jennings: Thank you.

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

Mr. Charlie Penson: What I'm wondering about is where the pressure is coming from to expand competition law.

We've had people here who have told us that the commissioner of the Competition Bureau is already one of the strongest bureaucrats in Ottawa these days, even without the expanded powers we're talking about giving that person.

I guess I don't represent a normal constituency, because I don't hear that there are all these problems out there that would warrant going down that road further. Even in the airline industry situation, we've already talked about different options available to government.

And let's just get into that for a second.

It seems to me that mergers aren't the only way to resolve market issues. Canadian was definitely in trouble, but if it had been allowed to go bankrupt, somebody like WestJet would have picked it up for 20¢ on the dollar and made a commercially viable operation out of it, therefore providing that kind of competition.

I guess the question I'm asking of you folks on the panel here this morning is, are you seeing a big need out there? Are you getting pressure? Are you seeing pressure that would say we don't have a competitive marketplace and we need to get further powers in law?

Mr. Stanley Wong: From the legal side, I think there are a number of issues here. One is that the commissioner did decide in the Air Canada merger, and this is that failing-firm argument, that it is better—and that's his judgment; I'm not saying I disagree with it—to allow the only other competitor to buy Canadian than to let it fail. And that happens. There have been a number of cases where he had to make that judgment. He chose to make that judgment.

Now, of course, as for the political environment, you can't lay off 11,000 or 15,000 people. Many of you wouldn't be re-elected if that happened. That's the reality, and that's the pressure. So we've created a monopoly, and now the commissioner is saying “I've said many times to you, Minister Collenette, cabinet, don't create this monopoly. Allow foreigners to fly.” These are the cards he's dealt with, and now he says “Look, if you want me to protect competition, I want to do these things.” And I understand that in the transport committee they're saying “What would you like? Do you want to be able to do this or that?” If he really wanted to, he could ask for a lot more powers. I think he's exercising some restraint.

There are areas, Mr. Penson, where I think the act needs to be changed. One of the suggestions in Mr. McTeague's Bill C-472 is about rationalizing our our conspiracy law.

• 1140

Right now, this is a very serious area, because there are many areas where it's legitimate for competitors to get together. We have joint ventures all over the map, and strategic alliances. They're all very, very productive. I have a particular intellectual property and you have a different one. It's far better for us to collaborate.

But the trouble is that when people come in and see me to get advice, one of the first things they worry about is the conspiracy section. The bureau has issued a strategic alliances bulletin, saying not to worry too much because that is not the way they'll enforce it. But you have to remember there's also private action on a conspiracy matter, because it's criminal. So there's a need for reform in that area.

In the United States, of course, those areas do not have this kind of criminal versus non-criminal sanction. What we need to do is take out what is called hard-core price-fixing. There is no redeeming virtue of two competitors just agreeing on prices. But all sorts of other collaborations are legitimate, and they're helpful to the economy. We need to streamline it.

And that's that problem—we have been amending the act. The criminal provision has been in for over a century. It used to be in the Criminal Code, section 498. It's been with us. That is the most serious one, because Parliament in the 1986 amendment raised it to a $10 million fine.

Now you see all these wonderful reports out of the commissioner's office. None of them, by the way, are contested. People are pleading guilty and saying “What's the cheque you want me to write, Mr. Commissioner?” All right?

Mr. Dan McTeague: Thanks to the U.S.

Mr. Stanley Wong: Yes. Thanks to the U.S. Exactly.

And that's one of the points I want to emphasize. We have very little jurisprudence now. There are many, many areas in which there are no cases.

Misleading advertising is a good example. For many years there's been something called the misleading advertising bulletin. They used to list a litany of cases—for example, So-and-so, the corner grocery store, was cheating its customers. They got small fines and so forth. Now there are no cases.

It's not because they're all resolved. It's that they're saying—for whatever reason—we have no resources, or we don't want to take them on. We don't have cases. I don't like, as a student of competition law, to have everything decided between a party and the commissioner in private. I'd rather take it to the court.

Mr. Charlie Penson: But, Mr. Wong, is it possible that there isn't the big pressure out there that you've suggested?

Mr. Stanley Wong: Oh, there is, Mr. Penson. There is. The most serious thing—

Mr. Charlie Penson: Maybe in your riding. I don't see it.

Mr. Stanley Wong: —is in strategic alliances.

I had the opportunity to speak to the American Bar Association. The United States has just released guidelines on joint ventures and strategic alliances. That's a very important area in which we want to make sure our Canadian businesses are not hampered. And therefore we do need to clean up our act, if you will, in the conspiracy section.

And I generally support the concepts in the section in the proposal in Bill C-472 by Mr. McTeague.

I know my good friend and colleague Mr. Kennish is a little embarrassed because everyone is calling it the Kennish-Ross model. So he's not going to be involved in the commentary on that section.

Mr. Charlie Penson: I don't think that bill has been drawn yet either, has it?

Mr. Dan McTeague: No. The minister... [Inaudible—Editor]. That's why we're having this debate here today, Mr. Penson, notwithstanding the fact that you haven't been able to hear from people on this.

Mr. Stanley Wong: [Inaudible—Editor]...bill.

Mr. Dan McTeague: Absolutely.

Mr. Charlie Penson: I'm just saying the bill hasn't been drawn yet.

So I guess we're studying the proposed contents of the bill.

Mr. Stanley Wong: The proposals.

Mr. Dan McTeague: In fairness, Mr. Chairman, I have a point of order.

The Chair: Mr. McTeague.

Mr. Dan McTeague: On a point of order, Mr. Chairman, I think it's fair to say that in the context of the remarks here, both the study on the question of pricing and, by a large part, the other questions dealing with the minister and the bureau's views emanate from a lot of the work that has been done over the past couple of years, particularly my own. I just want to make sure that was clear to the honourable member.

Mr. Charlie Penson: Yes. I'm quite clear on that. But sometimes I'm concerned that there is so much work done that it has a dampening effect on business as well. We can have the best competition law in the world, but it gets back to my earlier point that you need the proper environment for business to operate.

We're not going to debate that further, but I want to ask a question of the panel. In regard to the proposed bank mergers that were disallowed, it seems to me that sometimes it can have an adverse effect also.

My understanding is that the major banks in Canada get a substantial portion of their revenue from outside of Canada, and they're competing against banks that have merged in other jurisdictions all over the world. By disallowing bank mergers, one of the effects of that now in rural Canada, if you like, is that the banks are closing branches and consolidating. And what's the difference? What's the difference in effect?

The effect is the same. Yet we put a restriction on our Canadian banks from competing effectively in the world market.

Ms. Margaret Sanderson: Speaking on the question of the bank mergers, it is not the case that the bureau has said—nor the Minister of Finance, from my understanding—that bank mergers are disallowed.

• 1145

Mr. Charlie Penson: They're just not allowed to go ahead.

Ms. Margaret Sanderson: The context was that the commissioner indicated that those particular transactions raised significant competition concerns in particular products and services in particular geographic regions, not across the whole board.

The commissioner did not get to the stage of actually discussing remedies with the parties, because there's been quite a bit of debate that, at least in the context of the one transaction, the concerns probably could have been remedied to the commissioner's satisfaction. The commissioner did not get to that stage because of the arrangement that had been worked out with the Minister of Finance—and of course you have to remember that banks are different in that we have special provisions in the Competition Act allowing the Minister of Finance to have powers that other ministers do not normally have when reviewing mergers—and for a number of other reasons he chose not to find those transactions worth considering under the Bank Act, or allowing and authorizing under the Bank Act. Hence there was no point in the parties going forward and negotiating some kind of remedy.

I want to clarify that I don't think it's the case that the commissioner has indicated that he will block any bank merger.

Mr. Charlie Penson: But, Ms. Sanderson—

The Vice-Chair (Mr. Walt Lastewka): Final question, Mr. Penson.

Mr. Charlie Penson: —the point is a more general one, in that by disallowing mergers sometimes it can have a consequence that's just as bad through lessening of services. That's the point I'm trying to make. What I'm concerned with in all of this is that we go so far down the road of strengthening so much policy that it has unforeseen consequences in business practices. That's what I wanted you to react to.

Ms. Margaret Sanderson: I was extensively involved in a merger transaction under a previous commissioner involving a number of flour mills. That generated quite a bit of political interest after the commissioner had rendered his decision. There were exactly the same concerns raised, that this is going to lead to an inability to do business in Canada, etc. It has not led to higher prices for consumers. It hasn't led to reduced services or availability. There has been an effective remedy. There are additional players in the market. They may not be British-owned now, they might be American-owned players. But they're there. They're competing. They're providing services. They seem perfectly willing to invest in the country.

And there's no evidence that there's been significant job loss. You have to remember that in the context of a merger, synergies, efficiency gains, typically mean I can produce the equivalent amount with fewer resources, i.e. less labour. So almost always, in any merger situation, synergy translates into a reduced need for capital and labour. Whether that occurs through the context of a merger or that occurs in the context of somebody just trying to gain those cost savings on their own, it's just reactions to the market.

The Vice-Chair (Mr. Walt Lastewka): We'll go to Mr. Wong and then Mr. McTeague.

Mr. Stanley Wong: I think in response to you, Mr. Penson, I was disappointed that the commissioner.... I appreciate that in a bank merger the Minister of Finance has the final say. I too was disappointed, although I wasn't involved in those mergers, that the commissioner didn't talk about how to remedy the situation; he issued these letters and said here are the concerns.

I agree with Ms. Sanderson that in perhaps at least one of those mergers it could have been fixed. I think the commissioner was, if I can say with respect, too tied to the political process. It was the ultimate decision of the Minister of Finance. Nobody's disputing this, it's the law, but I think the commissioner should have done his normal job, if you will. Typically when you have a merger and you have a problem, either you say to the parties, “No matter what you do, I'm going to block it....” There are three things he would typically do. He would give a no-action letter, and it can sit for three years; or he would say “I'm going to challenge it, I don't care what you guys do.” Or he can say—and that's typical—“I have some concerns; if you address these concerns I will approve it.” We never got there.

I guess Minister Martin said “Well, the commissioner told me that this is anti-competitive.” But he didn't go to the next step, which I think the proper job for the bureau would have been, to say that if they had fixed this in one of the mergers it would have been okay. But that's the reality of the political process, and you know far better than I how it works.

• 1150

Mr. Dan McTeague: Thank you.

Mr. Chairman, there a few axioms in business today. I think this may not be lost on some, but it may very well on others. One is that time is money. Second is that justice delayed is justice denied.

Given the practical reality of margins being very skinny for a lot of industries—and I hear this in the construction industry, the oil industry, I hear this in the grocery industry, I hear it in the book industry, I hear it ad nauseam—it would appear that if someone has taken the time to craft an act that may trigger an anti-competitive behaviour, to discipline or eliminate a competitor, the sophistication by which one prepares for that and is able to execute it even for a short period of time, or one week or two weeks, will probably be lost on your reliance on the belief that we can get an order from the tribunal, even if it's for one week.

I can tell you that in the oil and gas industry, small retail gasoline operators, the likes of which are in Mr. Penson's riding and right across this country, will know full well that one week's margin is about all they're operating on, 2.5%. Is it therefore not of concern to both of you that you do not have the ability to arrest the situation?

As you would see in other areas of law, if a police officer sees an act occurring, he does not have to run to a judge to get a search warrant to stop that from happening based on reasonable grounds that can be demonstrated later on. And of course to some extent it wouldn't be fair to categorize this proposal with the commissioner, because the commissioner has undertaken a form of inquiry, but in order to prevent the far more probable outcome of an eliminated competitor, which hurts the public interest, how can you not support what is being written here?

Mr. Wong.

Mr. Stanley Wong: There was an exchange with Ms. Sanderson concerning the alternatives. I think the elimination of competitive loss of market share and all of those things can be subsumed under the first test. As we say over and over again, the Competition Act is designed to preserve competition. And through the forces of competition some people are going to be winners and some people are losers. That's reality. So I think those tests can be subsumed, by the way, into the general test, harm to competition.

Mr. Dan McTeague: Yes.

Mr. Stanley Wong: It's unlike a criminal situation. If I'm about to beat Ms. Sanderson over the head, yes, you can arrest me, because there is no reason for me to do that. But when you lower your prices, it's not obvious what that means. It really isn't obvious. That's the problem. I've written papers with Professor McFetridge, my former colleague at Carleton, on predatory pricing. It is a very difficult thing to detect.

Mr. Dan McTeague: Yes. I understand.

Mr. Stanley Wong: I think you can go in and get a quick order. The reality of it is that if you go on your bill, and the commissioner issues an order today, and my client gets it tomorrow, I'm going to immediately schedule a hearing in the tribunal the day after tomorrow. What's the problem?

Mr. Dan McTeague: Mr. Wong, if that were the case, it would have already happened. But I can give you a litany of individuals who have gone under as effective competitors because it is impossible to do it in a timely fashion. This industry, the business world, operates far more efficiently than the wheels of our laws.

Mr. Stanley Wong: No. Mr. McTeague, I haven't heard the commissioner say.... If they went under, then why didn't he continue with his investigation and bring an application to the tribunal or bring charges under 50(1)(c)? He hasn't brought anything under 50(1)(c) except for three or four cases. He has only won the Hoffmann-Laroche case, which dates from the 1970s, and the Sherbrooke driving schools case, which had other issues involved in it.

Mr. Dan McTeague: Mr. Wong, I appreciate that.

Mr. Stanley Wong: But he has other powers—I'm sorry, Mr. McTeague—under section 33. He could have used them, but he has not. This is the criminal provision.

Mr. Dan McTeague: The question is a demonstration of intent, intent beyond reasonable doubt. You know that as well as I do. I raised this on Bill C-235 on the very first day I brought this before the committee.

As you quite readily pointed out, and as others have, there was a phalanx of opposition from the Canadian Bar Association, from the Canadian Chamber of Commerce, from this committee, and from the Reform Party with only a couple of members dissenting.

I think we understand there is a problem here in terms of being able.... By the time everyone got around to doing something.... That's all fine and dandy. But if I'm looking at your own questions of mergers, because I've raised the other issues on predatory pricing with, for instance, Superior Propane.... I have documents from two years that are going grey and yellow in my file folder. How long does it take?

Mr. Stanley Wong: Twenty months.

Mr. Dan McTeague: You pointed out the Southam case. Sobey's, Empire.

The Vice-Chair (Mr. Walt Lastewka): We have one minute to leave the room, by the way.

Mr. Dan McTeague: As Mrs. Sanderson pointed out very clearly, once the eggs are scrambled, would it not be prudent to at least avail ourselves of the benefit of the doubt to people who understand the industry in order to make them more relevant, to ensure that we are putting our best foot forward, to ensure that we are not allowing someone to be eliminated due to the question of time constraint and sophistication of business?

• 1155

The Vice-Chair (Mr. Walt Lastewka): A short answer and a short question from Ms. Jennings.

Ms. Margaret Sanderson: The short answer is that with some changes this would be a very effective provision in accomplishing that goal. One of the things we have to be cautious about when a competitor comes forward and complains, and is talking about how skinny margins are, is that margins are skinny for a reason. There's lots of competition. That's the reason margins are skinny. Basically, we normally want margins to be relatively skinny. That's what's good for consumers.

Mr. Dan McTeague: Except if you're disciplining your competitor.

The Vice-Chair (Mr. Walt Lastewka): Ms. Jennings.

Ms. Marlene Jennings: Without going into whether or not the commissioner has availed himself of powers that already exist under the Competition Act and could be just as effective as some that are now being proposed under Bill C-26 and Bill C-472, would you feel more comfortable with the idea of the commissioner having the authority to issue a temporary relief order, or cease and desist order? This was triggered by Mr. McTeague's suggestion of a police officer who proceeds to arrest an individual and detain them, because in some cases the police officer has to release the individual. If not, if he wishes that individual to remain under detention until they appear before a judge, he has to take that individual before a judge within a 24-hour period. Would you feel more comfortable if the authority remained with the commissioner, but the commissioner had to appear before the tribunal within a specific period of time to get it either confirmed—

Mr. Stanley Wong: You asked me a question and you know what my answer is going to be. Of course it will be better.

Ms. Marlene Jennings: Thank you, Mr. Wong.

Mr. Stanley Wong: You're very effective at cross-examination. Of course it would be better, but I think that if you went the route I support, there should be provisions for ex parte applications on true emergencies.

Ms. Marlene Jennings: I think so as well.

Mr. Stanley Wong: You can build that in, and of course courts will accept that if it's truly an emergency.

Ms. Marlene Jennings: Thank you.

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

Thank you, Mr. Wong, and thank you, Ms. Sanderson, for a good, heated debate this morning.

Thank you very much. The meeting is adjourned.