INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, December 7, 1999

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I now call the meeting to order pursuant to Standing Order 108(2), consideration of anti-competitive pricing practices and the Competition Act.

We are very pleased to welcome here this afternoon, from the University of Ottawa, Professor Gilles Paquet and Professor Anthony VanDuzer.

I'll turn it over to you for opening comments.

Professor Anthony VanDuzer (University of Ottawa): Thank you very much, Madam Chair and members. I'm very glad to be here today with my colleague Gilles Paquet.

As you know, we have had the responsibility over the last couple of months of putting together the report on anti-competitive pricing practices and the Competition Act that was tabled before this committee on November 25, 1999. What I thought I would do in a few minutes is to describe the work we did in the report and to describe some of what I think are the most important findings. I hope that will provide a useful context for your questions, which I welcome.

As you all know, the genesis of this report was the private member's bill, member McTeague's Bill C-235, which was considered by this committee last year. At the conclusion of the committee's deliberations, a resolution was passed that provided that the committee would conduct a review of the provisions of the Competition Act dealing with anti-competitive pricing. The Commissioner of Competition, Konrad von Finckenstein, who testified before you on November 25, 1999, engaged Professor Paquet and me to prepare this report, the report you now have in front of you, which we prepared over the course of last summer and the earlier part of this fall.

What we tried to do in the report was to start by looking at the three main types of anti-competitive pricing practices that were the subject of the review—that is, predatory pricing, price discrimination, and price maintenance. We started by looking at the economic theory that has been developed to try to define the circumstances in which these kinds of practices actually have an anti-competitive effect. Once we did that, we turned to look at the statute itself, its interpretation and enforcement by the bureau, as well as the very limited case law dealing with anti-competitive pricing in Canada. We sought to compare the case law and the statutory provisions with the kind of regime that our economic analysis suggested was appropriate.

The last part of the report was a study of the actual enforcement experience of the bureau. We conducted, for a five-year period ending March 31, 1999, a review of virtually all the completed files the bureau had dealing with anti-competitive pricing in the three areas I mentioned. We conducted interviews with officers from the Competition Bureau, as well as various stakeholders who appeared before the committee during the Bill C-235 hearings.

So that was our approach. What did we find? What I'd like to do to summarize that is simply to refer to each of these three categories of anti-competitive pricing practice separately, because I think they do raise rather separate and distinct issues.

If we look at price discrimination first, we'll see that in the act there's a criminal prohibition, and the prohibition extends to charging a price to one buyer when you don't make available to another buyer the same price terms. It's only an offence in circumstances where the buyers compete with each other and they're buying the same quality and quantity of goods. So it's basically a per se offence.

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Our concern with the way the offence is structured in the act is that it's not particularly well designed. I think one of the big defects is that it doesn't apply to transactions involving services or intellectual property, which, as you'll all appreciate, is an increasingly important part of the economic activity carried on in Canada on a daily basis.

Our second concern with price discrimination is that the behaviour itself is not inherently criminal. Charging different prices to different people is not a situation that carries with it the same kind of moral turpitude that one might associate with bid-rigging or conspiracies to prevent competition.

The third basic concern we have, and perhaps the most serious, is that price discrimination is not always anti-competitive. That is, whether it is anti-competitive or not is going to depend a lot on the circumstances. Our current rule in the act doesn't permit us to inquire into the circumstances but deals with all kinds of price discrimination, whether it's anti-competitive or not.

I suppose the bottom line is that we felt that because the section was not designed to be an accurate tool to get at anti-competitive price discrimination, it was likely to have an effect in the marketplace of discouraging people from engaging in innovative pricing and discounting practices and therefore was not an appropriate provision in the act.

If we look at the enforcement of that provision, we'll see that over the five-year period we looked at, there were very few complaints, which is rather odd, given how pervasive price discrimination is in the marketplace. There were on average only about twelve complaints a year for each of the five years we looked at. However, I don't think we can conclude from this that the provision is having no impact necessarily. It's a fairly clear provision for which the bureau has gone to some length to set out its interpretive approach, its guidelines. As a consequence, I think it's fairly well understood in the marketplace. Some of the feedback we got from some of the stakeholders confirmed this. So given that it's not an appropriate instrument and it is having an effect in the marketplace, I guess that leaves us with concern about its effective operation.

The second thing we looked at was predatory pricing. This is really by far the most difficult kind of anti-competitive behaviour for which to work out appropriate rules. The basic provision in the act currently is a criminal offence, and it is established where a person is engaged in a business and engages in a policy of selling products at unreasonably low prices that have the effect or tendency of substantially reducing competition or eliminating a competitor, or the pricing policy is designed to have that effect.

I think the main problem with that provision is that it's very vague. It's not at all clear what unreasonably low pricing means. We've had very few cases that have interpreted the provision to provide us with any guidance as to exactly what the provision means. The consequence is it's very difficult to use this provision as a reliable guide to distinguish aggressive competition that results in the reduction of prices from predatory pricing. As a way of addressing this uncertainty, the bureau has issued interpretive guidelines dealing with predatory pricing, and more or less they follow the model that our economic analysis would suggest. However, the guidelines themselves, at least as they're applied in Canada, have some problems.

One of the problems is that they set a very high standard. In order to have prices that are unreasonably low under the guidelines, you have to be able to establish that the party who is the alleged predator, who's conducting this low-pricing campaign, has enough market power that after they finish their low-pricing campaign and either put somebody out of business or discipline them or deter them from entering into the market, they will be able to raise prices unilaterally to a level above the level that would apply if it were a competitive marketplace, and recoup all the losses they incurred during the predatory low-pricing campaign, as well as, obviously, some additional profit.

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The difficulty with that sort of standard is in most circumstances it means you have to make a prediction about how the market's going to work. What is it that the predator's going to do, and if they raise prices what is going to be the response from the other participants in the market? Are new people going to enter and by their competition reduce the ability of the predator to recover the cost that it incurred in the predatory campaign?

In order to make those kinds of predictions, you need econometric evidence. And as we all know, and with no offence to my colleague, it's really impossible to get two economists to agree. As a consequence, it's extremely difficult to prove beyond a reasonable doubt—this is a criminal standard—that this test is going to be met. So that's one of our concerns.

A second concern about the guidelines is that they were published in 1992 and they don't fully reflect the current learning on the situations in which predatory pricing might occur. There's been a lot of economic evidence and a lot of economic analysis to suggest that there is a wide range of circumstances in which a predatory strategy is rational. One of them has to do with the success that a firm might have in establishing a reputation for toughness by predatory activity.

The story goes something like this. The predator engages in the low pricing and establishes a reputation in the marketplace for toughness, meaning that if someone comes in and competes with it, it's going to take the price down to a level where that new entrant can't make money. That sort of story is not one of the things that is addressed in the guidelines, nor are other specific kinds of strategic barriers to entry. And in our view, this is a deficiency because it means that the guidelines are not sufficiently sensitive to all the circumstances in which predation can actually occur.

The other concern we have is that if we look at enforcement we see that over the five-year period we looked at there were 382 complaints about predatory pricing and there were no formal enforcement actions taken, and a relatively small number of negotiated settlements in predation cases. I think one has to be very clear that you cannot draw, and we did not draw, any specific conclusion about that enforcement record, because whether that's a good record or a bad record depends, in significant part, on the relative priorities the bureau attaches to other activities given the budgetary constraints to which it's subject.

We all have to acknowledge, I think, that litigation is a very expensive proposition. Notwithstanding that, we did have some concerns about enforcement.

One concern, as I mentioned a moment ago, is the guidelines themselves are not, perhaps, designed to encompass the universe of what we now consider to be predatory pricing behaviour.

Second, the criteria the bureau uses for choosing cases to go ahead with through an informal enforcement process don't refer to some of the indicators of predatory behaviour they refer to in the guidelines, and which our economic analysis suggest might be significant. One is intent. In making their decision about going forward with a predation case, they don't put any weight on whether there's evidence of predatory intent—that is, intent to put somebody out of business or to exclude them from the marketplace. Nor do they consider all kinds of evidence of pricing below cost, but only some kinds of evidence. It's a limited inquiry.

The other aspect of these case selection criteria that causes some difficulty or that can cause some difficulty in predation cases is that they consider—I think appropriately—management considerations. And what that means is they look at the likely cost associated with getting to a resolution in a particular case. If you are contemplating a full-blown contested procedure that's going to take a long time and going to require all kinds of complicated economic evidence, then obviously it's going to be a much more expensive proposition. Unfortunately for predation cases, almost all predation cases fit that profile. That's because, as I mentioned a moment ago, there is this issue always about whether there is sufficient market power for the predator to recoup its investment in predation. That's one problem.

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The other problem is that the law, as I mentioned, is uncertain. It's not at all clear how courts are going to interpret “unreasonably low” in particular circumstances. As a consequence, defendants always have something to argue. So the prospect of actually completing one of these cases without a long, drawn-out process I think is fairly low. As a consequence, on the management consideration side, predation cases are likely to rank fairly low as an enforcement priority.

In these circumstances we felt that additional cases being brought would help to clarify the law, help to expose its weaknesses, and make enforcement a credible threat.

Again, I have to emphasize that this is not an unqualified suggestion that more cases have to be brought. It's simply an identification of some of the factors we identified that tend to militate against cases being brought in the area of predation.

I have one more thing to say, and then I'll yield the floor. I want to make a couple of comments about price maintenance.

Price maintenance is a criminal offence under the act. The offence is committed when any person tries to influence upward or discourage the reduction of the price that anyone else is charging. The current provision has actually been extraordinary for the bureau. There have been a large number of prosecutions in the past, although relatively few during the period we looked at, the five-year period ending March 31, 1999.

The explanation for the reduction in the number of prosecutions is that the bureau has—I think quite appropriately—treated these cases through some kind of alternative case resolution process. That is, they've tried to settle them by getting the person who's engaged in the behaviour to stop it. They may do that simply by providing them with information about the provisions in the act or by visiting them, or in some cases getting them to sign a consent prohibition order, which is in general a much more cost-effective way of securing compliance with the act than going through contested criminal litigation.

So it's been a very successful provision. The only concern we have is that at least in some circumstances it's a bit broad, in the sense that the economic evidence is that there is some category of price maintenance case in which price maintenance will have an efficiency justification. That is, it will be a good thing overall for the marketplace in terms of efficiency that the price maintenance be engaged in.

The classical example that is given is where a supplier requires someone to whom it sells—a retailer—to maintain prices at a particular level as a way of encouraging that retailer to engage in competition on something other than price, usually to encourage the retailer to engage in providing a high level of service to clients or to ensure that the brand image associated with the product is maintained.

So to the extent that there are efficiency justifications for price maintenance, the per se criminal prohibition we have in the act is probably over-inclusive.

That's a summary of the principal things we found in the report. Madam Chairman, I'd be quite happy to take questions.

The Chair: I'm sure there are going to be plenty of questions.

Mr. Brien, any questions right now?

[Translation]

Mr. Pierre Brien (Témiscamingue, BQ): Yes, I have one.

Did you examine how the Consumer Protection Act really works in Quebec? Did you check to see if, in certain cases, it is successful in restricting negative billing?

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Mr. Gilles Paquet (Professor, University of Ottawa): We did not look at the case of Quebec in particular. The fact is that any act that provides support to consumers, or that strengthens the protection afforded to them will have a deterrent effect on some of these practices. Our review primarily sought to examine how the Competition Bureau had worked in recent years, Ours was not a general review of how the act had been implemented differently from province to province.

[English]

I'm going to turn to my colleague for this, but I don't think we've noted anything very specific that would pertain to Quebec.

Prof. Anthony VanDuzer: Yes, that's right. The mandate we had, indeed the mandate in effect that was fixed by this committee, was to look at the Competition Act itself. So we did look at comparable provisions in the United States and in Europe, but because in the Canadian context competition law is exclusively a matter of federal jurisdiction, we didn't look at the initiatives that some of the provinces have taken in these areas.

[Translation]

Mr. Pierre Brien: My other question concerns the definition of what are called "new services". Did you ask yourself about what could be a new service, and did you think about the difficulty of finding a practical definition of what it might include?

I am thinking, among other things, of the whole distribution side of specialized networks, or of television networks that are currently included in the basic package, but could become specialized networks. Are these new services or not? This is only an example. Did you stop to think about the fact that the expression "new services" is not defined. Could implementing that notion create a large number of practical problems?

[English]

Prof. Anthony VanDuzer: I'm not exactly sure I understand your question.

The Chair: Professor VanDuzer, I think Mr. Brien is referring to Bill C-276, which isn't before the committee right now. We're dealing with the report. So I think because Bill C-276 also is amending the Competition Act and there's a terminology in there—

[Translation]

Mr. Pierre Brien: Yes, yes.

[English]

The Chair: —that has not yet defined new service—

[Translation]

Mr. Pierre Brien: Indeed.

[English]

The Chair: I think he's going into that, so I don't know if you want to comment on it or not.

Prof. Anthony VanDuzer: I'm afraid I can't.

[Translation]

Mr. Pierre Brien: Okay. I understand, but if you have an opinion on this issue, you could tell me about it later on.

[English]

The Chair: Okay.

Prof. Anthony VanDuzer: If I can offer one thing that may be relevant, my reference to service in the context of price discrimination was to what I think is an archaic restriction in the act that restricts the application of the price discrimination provision to articles as defined in the act, and articles do not include services. Most of the other provisions in the act don't make that kind of distinction.

[Translation]

Mr. Pierre Brien: I see. Thank you.

The Chair: Thank you very much, Mr. Brien.

[English]

Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you, Madam Chair, and thank you, witnesses, for your summary.

From all your deliberations, one of the things I've been wondering about is the Competition Act and being current. Could you make some remarks on the Competition Act being current? And should the Competition Act be reviewed automatically every so many years, knowing full well that once you start to review the whole act it's a long process? But how do you stay current with technology and so forth?

Prof. Anthony VanDuzer: I think that's an excellent question, although one, I admit, we didn't address directly.

For what it's worth, my view on it is that looking at it from the perspective of the report, which is in relation to pricing, one of the things we found was that there is a constant evolution in our understanding of the way in which the economy works. That is, the learning, if you like, on anti-competitive pricing is continuing to evolve and has changed, sometimes in quite dramatic ways, over the last 10 or 15 years. As a consequence, it's perhaps not surprising that the bureau's enforcement guidelines, which were issued in relation to predatory pricing and price discrimination in 1992 and reflected probably the state of the learning two or three years perhaps before that, don't fully reflect all of the thinking and all of the analysis that has been done since that time.

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It's also the case that the underlying activity changes dramatically. One of the things we did talk about in the report was the fundamental changes that are sweeping the Canadian economy in the areas of new technology, increased pace of innovation, and these sorts of things, which have direct implications for how you think about competition law, dominance in a market, low-pricing strategies, and things like that. So I think certainly the work we've done would confirm your observation that there is a need to continually be thinking about these issues in terms of how effective our competition law is going to be.

In terms of what kind of process you put in place to do that, that again is not something we thought about in the report, but I think the bureau itself has taken some initiatives in setting up an amendments unit that is, in effect, engaged in a continuing consideration of the need for changes.

Another thing they've done—which, again, I think is a useful exercise—is in the mergers area. In the last set of amendments they included some of the provisions in regulations, which can be changed much more easily to reflect particular conditions in the marketplace than the legislation itself.

Gilles, do you have anything to add?

Prof. Gilles Paquet: You have to recognize that any law of this sort, in the same way as in the Bank Act, where we have a revision every ten years because it is felt that the change in the industry is quick enough that there's a need to review these things.... Probably what I read behind your comment of a need for a sort of regular review of the law is not entirely unreasonable, because we have new.... I mean, underestimating the cleverness of the marketplace is always a mistake.

We cannot handle, for instance, these days the most sophisticated pricing strategies of the airline industry. They have randomized pricing. If you really wanted to know what the best way for you to get the best price on a flight from A to B is, you would have to be busy at it 24 hours a day. They have an extraordinary capacity to offer a wide range of what seem to be very different services.

So you will probably sit on a plane with somebody who has paid a fraction of the price that you paid to travel, and yet there's nothing one can put his finger on that would hint at some sort of strategic practice by a firm that would seem to exploit the consumer. Yet, we know that it's a sophisticated process that ends up this way.

So in some ways, probably as you suggest, a regular ten-year review of the nature of the act might turn out to be a way to at least update in light of new practices.

The Chair: Thank you, Mr. Lastewka.

Mr. Jones.

Mr. Jim Jones (Markham, PC): On these three different types of pricing offences, whose responsibility is it to trigger the incident? Does somebody always have to complain to the bureau, or does the bureau take the initiative to do something about it?

What I'm talking about in particular—and I believe that it was predatory pricing—was the Microsoft case in the U.S., by the U.S. Attorney General, the suit against them. And 19 or 21 states also launched a suit. Why did the Competition Bureau here on behalf of Canadian consumers not also launch the same suit? Or did they have to get somebody complaining about the incident?

Prof. Anthony VanDuzer: I can't speak directly to the Microsoft case, because I don't have that kind of knowledge. You'd have to ask the bureau about that.

In general, the way the act is structured, there are multiple ways in which matters can come to the bureau. It can be initiated by the bureau. Complaint is by far the most common one, because that's the nature of the statute. It provides a framework for marketplace activities, so when somebody feels that there's marketplace behaviour that is inconsistent with the act, they complain.

I think that's by far the most common way, although the complaints don't always come directly into the bureau. A number come through members of Parliament, through various ministers offices, or through other branches of government.

It's also possible for the bureau to self-initiate, in the sense that they can, and sometimes do, take the initiative in connection with matters that become issues of public record. So they have the capacity to do that.

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I'm not sure I can give you any more detail on the way they do that, because that wasn't something I looked at in the context of this work.

Mr. Jim Jones: When you looked at these different complaints, were any of them initiated on their own behalf by the Competition Bureau?

Prof. Anthony VanDuzer: I did have the opportunity to review a lot of their files, and there were some that were taken up by the bureau on the basis of an identification of something in the marketplace, not specifically a complaint by someone who was being hurt. I couldn't give you a number on that, but certainly in the review I did come across those.

Mr. Jim Jones: I just find it strange that in this particular case, when they took their browser down to zero, they were out to harm Netscape, and yet our government did nothing on behalf of the industry to look at it, at least.

Prof. Anthony VanDuzer: I'm afraid I can't really respond to that. I just don't have the information about the way the bureau might have taken that into account.

Mr. Jim Jones: What was your definition again of “price maintenance”? I missed that.

Prof. Anthony VanDuzer: Under the act, “price maintenance” is defined as any attempt to discourage the reduction of anyone else's price, or to encourage their increase.

Mr. Jim Jones: Thank you.

The Chair: Thank you very much, Mr. Jones.

Now we turn to, Mr. McTeague, please.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you, Madam Chair.

Welcome, professors.

Professor VanDuzer, you and I have spent a considerable amount of time over the summer talking about the fine points of the Competition Act. I'm interested in some of your conclusions, obviously, that dealt with the three areas of price discrimination, predatory pricing, and vertical price maintenance.

I note, however, the terms of reference limited you from being able to deal and to probe the vexatious area of price fixing. I have a number of concerns, which I raised with you, and which I have raised with this committee in the past. Mr. Jones made some very interesting comments as to why certain events occur in the United States and not in Canada. We have a number of instances, right or wrong, where it would appear that the enforcement guidelines and the act say a lot, but they're practically impossible to enforce.

It's on that basis, Professor VanDuzer, that I'm really interested in learning from you that you have suggested under the belief of over-inclusiveness, particularly in relation to section 61 and other per se offences, that we shift to a civil review model, which I must clarify and classify first and foremost as being one that has no injunctive application and does not have an in rem or general application to everyone.

So I'm interested in why you've suggested we go the far route, given your concerns about the resources available to the Competition Bureau and that there would appear to be some concern about the number of cases suddenly being brought forward to the bureau, if they're able, in fact, to enforce those.

I frankly believe, Professor VanDuzer, certainly in the area of price maintenance, that there has been ample jurisprudence in this area. Most recently, the bureau has been successful in launching a number of convictions.

Perhaps I could cut right to the chase here. Do you believe that by making these anti-competitive acts subject to civil review, the bureau will be able to adequately provide protection for competition? Or do you believe there is some room for improvement over and above providing civil review for the bureau in relation to these activities?

Would you support further improvement by creating a general right of private action, that is to expand section 36 so that we are able to allow other people to have damages awarded, so that in that same process those who might be indirectly injured by this might also be able to receive some degree of remedy?

Would you support the introduction of triple damages, as they have in the United States, notwithstanding what the Canadian Bar Association has suggested?

I realize those are tough questions, but I think they're nevertheless important in a continental economy where we talk a lot about the importance of having trading partnerships with the United States. Our business community certainly has for some years advocated a strong relationship with our American partners to the south, but by all accounts it is practically.... There is obviously a significant difference in the way the act's enforced.

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Prof. Anthony VanDuzer: Okay. Let me start with the notion that these three forms of anti-competitive pricing should be dealt with in a civil context. I think in order to really address that, you have to separate out the three types.

If he's talking first about price discrimination, I guess.... First of all, I think the reason some of these were set up as criminal offences in the first place is that the basis for the legislative competence to enact the Competition Act was for a long time thought to be exclusively criminal law. So partly for that reason, historically, a lot of the act dealt with anti-competitive behaviour through a criminal law approach. It's now clear, I think, based on the more recent constitutional jurisprudence, that's no longer necessary. So that historical explanation would seem to be no longer compelling.

The second thing is that generally, with respect to price discrimination, it isn't, in my view, an inherently criminal activity, as I suggested at the outset. Charging different prices to different people might have anti-competitive effects in some cases, although the economic literature, as we tried to describe in the report, is not very clear on how you identify those anti-competitive effects.

It's certainly not the case that all price discrimination is anti-competitive, and it's certainly not the case that it's always bad. Because of the difficulty of defining when price discrimination is anti-competitive, it seems to me that as with some of these others, proving beyond a reasonable doubt that these things are anti-competitive is going to be extremely difficult. While I don't disagree with you at all that it's very useful, in principle, to have a criminal provision as a deterrent, it's only going to be a deterrent if it's enforceable. If it's not enforceable, then it's not much of a deterrent.

Mr. Dan McTeague: On that point, Professor VanDuzer, if the civilly reviewable model you're proposing is also impossible to enforce—because it requires looking at almost every single example without a general application—wouldn't you find that the same effect might be, in terms of your remedy, no better than the purpose you're trying to resolve?

Prof. Anthony VanDuzer: Well, as I understand your question, what you're referring to is the way the civil provisions in the act work. First of all, they're only enforceable by the commissioner. And secondly, the result of an enforcement action is an order that is directed against only the particular person who's been engaged in the activity that the director has sought to challenge. That certainly is how the system works.

In my view, there's a significant deterrent effect that arises as a consequence of decisions in those cases. It's not directly applicable to other people, but it does show the circumstances under which the director is willing to take action and the circumstances under which the competition tribunal is prepared to grant a remedy. And the remedy typically is an order prohibiting the behaviour.

I think lawyers who are advising on the application of the civil provisions scrutinize the relatively small number of cases that have come through the system quite closely, because they are of the view that the law of general application is being defined in that forum.

Mr. Dan McTeague: Given that there's no general opprobrium, that there's no general application, couldn't an effective lawyer easily counsel that the risks of getting caught here are one in a thousand? The balance of probabilities and preponderance of evidence test is that if you are so named by the tribunal and only the director is recommending that this go to the tribunal, and if the tribunal finds that there's a problem, then and only then is it ordered against the person that's been so affected. It carries with it no opprobrium. There's no application to the general industry. It sends the wrong message.

When we refer to civil, with our trading partners in the United States I could take the matter to a court, the FTC could work on my behalf, or the Attorney General could work on my behalf. I'm just wondering if we're now really putting everything on the axis of a very fine and narrow outcome in which there actually will be no enforcement and the probability is that you'll be able to get off scott-free and that we're sending the wrong message to the business community in the changes you've proposed.

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Prof. Anthony VanDuzer: Just to be clear on the recommendations, as I said, the approach we tried to take in the report was to do a sort of report card. We didn't spend time really thinking a lot about exactly how changes would be implemented in order to correct some of the problems we identified. We didn't identify doing that as being our particular mandate.

On the point about deterrence, it does seem to me that, as I mentioned a moment ago, the decisions of the tribunal in abuse of dominance cases—the main place in which the tribunal has been active so far—have had a very significant impact on clarifying the effect of the application of section 79. I think it has had a significant impact on the way in which people interpret their responsibilities and the ways in which lawyers interpret the law. Indeed, my own view would be that the tribunal has had just as much impact as any judicial decision dealing with predatory pricing.

One of the advantages the tribunal has is that it's composed of experts and that they're capable and well versed in economics. They're able to deal with the somewhat complicated economic evidence that is commonly presented in these sorts of hearings. As a consequence, we tend to get fairly lengthy and well-reasoned decisions. You can't always count on the generalist courts—and I'm not being unduly critical of them in this way—to produce that kind of analysis.

The Chair: Thank you, Mr. McTeague.

Mr. Riis.

Mr. Nelson Riis (Kamloops, Thompson and Highland Valleys, NDP): Thank you, Madam Chair.

Professors, thank you very much for your summary, the recommendations, and the background you provided to the committee.

I wonder if I can turn this around a little bit. You've often referred to the complicated economic evidence that's required in these cases. I know you're here as professors, and excellent professors you are. I wonder if I could ask you to slip your caps off for a moment and just be regular persons. Not that you're not regular persons to start with, but just be citizens who, like us, look at a sector of our economy called the oil industry, and look at gasoline pricing.

If there's one thing that we hear from our constituents, it is that the Competition Bureau and the Competition Act are not working very well because of what they, the constituents, experience daily by the tens of thousands, based on the hundreds of phone calls we receive. I know we're talking very specifically here, and whether it's civil or criminal or whatever are appropriate initiatives.... As a citizen, when you buy gasoline, do you think the Competition Act is working?

Prof. Anthony VanDuzer: Certainly as a citizen I'm conscious of in particular the price spike we're currently in the middle of. Let me resist putting that hat on for a moment, though, and keep the hat on I came in with.

Obviously part of the genesis of this report is the concern people have had historically about gas. However, in doing the report, we tried to maintain a general focus. That is, we tried to look at all industries. While we were sensitive to what went on in the gas industry, we looked at the material that was presented to this committee in the context of the Bill C-235 hearings, as well as other reports that have been put together to deal with gas. That was one of the ways in which we tried to inform ourselves about the effectiveness of the act in general. We didn't attempt to reach nor did we reach any specific conclusions about the effectiveness of the Competition Act vis-à-vis gas.

One of the limitations to which we were subject and to which Mr. McTeague has referred is the fact that we weren't looking at the conspiracy provisions. As I'm sure you're quite aware, the concerns that have been articulated by people about gas prices have often been focused on a claim that there is some kind of a conspiracy among the major integrated oil companies, and that's why we're suffering from the prices we currently labour under. That was really outside the purview of our inquiry.

• 1615

There are allegations about other kinds of pricing practices in the gas industry. Again, as Mr. McTeague mentioned, price maintenance has been something that has been the subject of at least two successful prosecutions that I'm aware of in the gas industry, and there was a new one initiated against Irving Oil at the end of September by the bureau. The concern in those cases has been attempts by gas companies to get together and basically to agree to maintain the price, or at least an issue by one person to get gas companies to maintain the price.

I think there's no question that this kind of what I might call horizontal price maintenance is something to address, perhaps. The question from Mr. McTeague that I didn't get a chance to answer was something that should continue to be addressed criminally. I think there's no question about that. It's a fairly black and white issue. Certainly there's nothing in our report to suggest any change that would make it more difficult for the bureau to do that with respect to price maintenance cases, and I wouldn't like to see such a change.

There have also been concerns in the gas industry about predatory pricing, although the impact of that on the consumer—which is what really underlies your question, I take it—in the short term at least, is lower prices. So if the concern is the price spike, predatory pricing is certainly not causing that. The concern on the predation front is that, as a consequence of predation, the allegation is that independent producers will be forced out of business and in the long run we'll be suffering from a much more concentrated market that is likely to have higher prices. That's the analysis, but again that was really outside the purview of our report.

Mr. Nelson Riis: Now put your civilian hat on and tell us what you think about the situation regarding gasoline pricing.

Prof. Anthony VanDuzer: What I think about is that I get grumpy when I go to fill up my car. I sympathize certainly on that level, but I haven't seen a demonstration anywhere that it's a competition problem that's creating this. So while I'm frustrated and lots of Canadian citizens are frustrated with the price hikes, my own view is that there isn't a competition issue that is driving this, except perhaps for the fact that there's a foreign cartel called OPEC that is operating to constrain supply and is jacking up the international price.

The Chair: Professor Paquet.

Prof. Gilles Paquet: Let me be more imprudent than my legal colleague, who is by definition more prudent.

Competition has never guaranteed that you'll get a low price. Competition is a process by which supply and demand is supposedly playing as freely as one can possibly get it. We know that in the gasoline business the large gas companies or oil companies could wipe out the independents in three minutes if they decided to do so.

I speculate about this. I have no study that we've done on this. You're asking us to act like civilians. I don't own a car, so I'm not grumpy. I only look at it from a distance. But I'm saying that if they do not wipe out the independents, it means they are making less money. It's therefore hardly surprising that they would seize upon the right occasion, before a key weekend or before a long holiday period, to jack up the price to try to recoup some of their high profits if they can. The independents, who have no reason to believe there's any loyalty in the gas business, will follow automatically. Does that mean there is a conspiracy? No.

As Professor VanDuzer mentioned, we know there is fairly healthy competition there. There is always a willingness on the part of independents to move in if they can make any money. But if you have the appearance of competition, if you have all the reason in the world to believe these independents can thrive, and one group at some stage, on the basis of the increase of crude oil on the world market, raises the price by a few cents and everybody follows, is it conscious parallelism or is it conspiracy?

• 1620

I would not want to be the one in the Competition Bureau who tries to prove that, because it would be very difficult to make any case against the large companies. One starts, and everyone follows. Was there a conspiracy? Could you ever prove it? I don't think you ever could.

This is part of what we call the new clever practices by the firms. The fact is that they are able to deal with business in a new way in many cases, when people are driving. We called it predation in the old style. If you tried to drive the price down because the more you produced, the lower your costs of production, especially when you were in a business in which market share was going to get you to dominate the standards and dominate the market....

Mr. Gates has been able to impose on us an anterior product vis-à-vis what Apple and other people were doing because he got most of the market share. Why we bought it, I don't know, but we did. And now that we have bought it, we're trapped. In some manners, selling at a lower price was a competitive device. It was not something that could be seen to be destructive, because he was in a position to lower the price if he could get a high market share.

So some of these things, as Professor VanDuzer mentioned, depend on the context. This is why one of our recommendations has not been that the bureau is not competent at the industry level, but that it requires a bit of monitoring of the industry practices on a very close basis, because they are extraordinarily clever at developing new ways of doing things. If you are dependent on a textbook in economics, you're dead. So they need an intelligence that is going to be much more difficult to maintain with low resources when we know there is a great amount of creativity on the other side.

The Chair: Thank you very much Mr. Riis.

Mr. Pickard, please.

Mr. Jerry Pickard (Chatham—Kent Essex, Lib.): Gentlemen, I know the gasoline issue is the high-profile issue today, but the process in competition now is concerned with regard to an issue I became familiar with over the last year.

A Canadian company was producing a product—I'll leave the names out so that we don't get tied up with the company—and charged an American corporation with dumping in Canada. The American corporation was found to be dumping. A tariff of 66% was placed against the corporation, and a challenge was made by the American corporation to a Canadian tribunal. The arguments were listened to, and the tariff was reduced to 25%. After the recommendation from the tribunal went to the minister and the minister confirmed that to be the case, the Competition Bureau felt it was not appropriate. The Competition Bureau then challenged the Canadian government's decision. You had the Canadian Competition Bureau challenging the Government of Canada to open up to an American company to bring products into Canada when that company has already been charged for dumping and has been found guilty, clearly.

The problem I have with that process is that when a Canadian company is dealing with a product, it's playing a fair ball game. Another company can come into Canada, can do all kinds of things when found guilty, and the Competition Bureau defends the foreign company even though they know the dumping has been going on. Can we not improve our system or change the system somewhat so that we don't have that in effect?

Prof. Anthony VanDuzer: Well, that's an entirely reasonable question, but not one we considered in our report, I'm afraid. I can respond if you'd like, although it's not something that was really part of our mandate in our report.

Mr. Jerry Pickard: I'll be as straightforward as I can. The Canadian Competition Bureau challenged the Canadian government in an international tribunal. That's wrong, in my opinion.

• 1625

Prof. Anthony VanDuzer: In terms of the report, we didn't deal with the advocacy role the bureau plays under its statute, not just before tribunals but also generally in the regulatory process. That is part of—

Mr. Jerry Pickard: It's beyond that. It's a NAFTA challenge by the Competition Bureau against the Canadian government, against a Canadian corporation. To me, it doesn't make any sense.

Prof. Anthony VanDuzer: Again, it's not something we dealt with in the report, but the bureau's concern is about the level of competition in the Canadian marketplace. I don't know the facts of this particular case, but I know one of the things that has an impact on competition in the Canadian marketplace is the access for foreign competitors. If the result of the dumping action was the imposition of a duty that restricted the access and created, in effect, a tariff wall behind which a Canadian business had an effective monopoly.... Again, I'm not saying that is your case, but if that is the situation, that's a competition concern and a concern that is motivated by the objectives of the Competition Act to protect the public interest. So I can see how that could happen.

Prof. Gilles Paquet: If I may just speculate, I don't know the case either, but the Bureau of Competition has—

Mr. Jerry Pickard: Heinz-Gerber is a case for you.

Prof. Gilles Paquet: Okay. The question is, if the Competition Bureau is worried only about competition and not about the competitor.... It's not the job of the Competition Bureau to protect the Canadian firm, to protect a competitor, but to protect the competition process. If in fact, as Professor VanDuzer mentioned, the government has allowed itself to create a barrier that prevents competition, but is very profitable for a Canadian competitor, it is easy to understand why the Competition Bureau might not agree with the Canadian government. The Canadian government may be quite interested in protecting a Canadian firm. The Competition Bureau's job is not that.

The big problem with the law is that very often people will complain about a small firm in Canada being squeezed out, but the job of the Competition Bureau is not to protect one competitor but to make sure that the process is relatively fair. I would say it is probably unnatural that the two Canadian entities are fighting it out in the open, but if in fact one is interested in savaging a firm, a competitor, and the other one is interested in the competition process, one can easily understand why they might disagree.

Mr. Jerry Pickard: Maybe I can refocus a little bit on Heinz-Gerber.

The challenge was made. Gerber was found to be dumping in Canada. Gerber had pulled all its production out of Canada five years earlier. The Canadian corporation had no protection from dumping outside the challenge.

When Gerber was found guilty and the penalty was laid at 66%, they went through a tribunal. Obviously you both know that a tribunal is supposed to give answers with regard to a process by those who know what's fair. They came up with the decision that a 25% tariff was fair.

At that point, Gerber had a choice. They could take the lump because they were really being unfair. They're a huge corporation. They're not little guys at all. They're a hell of a lot bigger than Heinz by something like ten times, in that particular market. They could easily drop a day's work in, and that would satisfy the Canadian market for six months. The fact is, though, that they decided not to sell product in Canada because of a 25% tariff, yet they were dumping it at a much lower price before that. So they could do that, and they could do that in the market. But in order to bring the Competition Bureau into it, they said we'll send no more product into Canada. So the Competition Bureau went to bat in an international scene for a foreign company. To me, if they were doing it—

The Chair: Mr. Pickard, we're starting to stray far from the report.

Mr. Jerry Pickard: I agree that I am off the report, but it's to the fundamental purpose of the Competition Bureau and where they're going and how they go there, because it does the other side of what's being said here.

• 1630

The Chair: I'll allow you to finish, but just so you know, we didn't ask Professor VanDuzer or Professor Paquet to comment on the entire act, just on what they had prepared. But if they would like to make some comments....

Mr. Jerry Pickard: I excuse myself for going off topic, but I think this is the mirror image of what we're debating here.

Prof. Anthony VanDuzer: Again, this is stepping fairly far outside anything we dealt with in the report, but the dumping process itself is one that isn't really about fairness to the Canadian economy. It's about whether there is dumping, on the one hand, and whether it's causing an injury to a particular Canadian business. That's the only issue for the Canadian International Trade Tribunal to decide. So as a general rule, they don't take into account the sort of broader public interest. There is a mechanism by which they can do that, but it's rarely exercised and they don't do it as a matter of course.

So in that situation, I think it's quite possible that you could see a situation where the Canadian International Trade Tribunal, given its narrow focus, could say yes, there's a Canadian industry here that is getting hurt by these imports coming into the market.

At the same time, I think it's also quite feasible to think it might be the case that the Competition Bureau, in looking at it, might come to the conclusion that it's true that the Canadian business is getting hurt, but the competition is good for the marketplace overall, because in the absence of that competition there might be a monopoly or strong market dominance.

Without speaking directly to the facts of the case, I guess I can see, given the nature of the two institutions, how there might be conflict. So it doesn't surprise me that this occurs, nor do I think, in my own opinion, it's a particularly bad thing.

I think one of the problems we have as Canadians is the application of dumping laws in the United States. The dumping laws in the United States, if anything, are much more focused on protecting the domestic industry, and it's the focus on protecting the domestic industry that, in a way, creates the problem.

The Chair: Thank you.

Thank you very much, Mr. Pickard.

Mr. Jones or Mr. Riis, do you have any more questions? No? Then Mr. McTeague will be next, followed by Mr. Malhi.

Mr. Dan McTeague: Thank you, Madam Chair.

I'm glad to see we've come full circle back to the issue of gasoline. In my remarks, as a result of this committee's allowance of my standing here, I have deliberately decided not to talk simply about gasoline, but in the past three or four years of work on this issue it has become apparent that all roads lead to Rome. All roads lead to the Competition Act.

And with what is true of the problems inherent in the gasoline industry, with its potential for predatory pricing, its position of dominance, of abuse of dominance, with the comparison of the United States before us, and with what has happened right now—for instance, Pen Dragon Prints in British Columbia can't afford to put its product on the shelf of some of the major pharmaceutical companies in this country, some of the drug chains, when it comes to the grocery industry and its ability to exercise an enormous amount of leverage—it seems that what is true of gasoline and the views of gasoline are true of many other industries.

You have been somewhat restrained, I would say, in your ability to look at the overall Competition Act. I think my first analysis of coming before here on Bill C-235 was the recognition that many of my colleagues were not comfortable with their understanding of the Competition Act. Indeed, if you had asked me three years ago if this was something I would begin to specialize in, I would have said you were out of your mind—except for the fact that when something goes wrong the public expects us to come up with the answers, and the most obvious, of course, is the comparison between ourselves and the United States.

You have done a comparison, an analysis, and I've read some of it, with the United States with respect to the application of their law and our counterparts in terms of the FTC, of the justice department, the ability for someone to seek remedy before a court—which sounds rather interesting, given that if one has a problem with a medical opinion in the United States one can seek a remedy or an opinion elsewhere, whereas in Canada one cannot.

I wonder if in examining U.S. competition law you have identified some of the failings in our Competition Act and how we could obtain the level of competition protection available in the United States, particularly given a slavishness by our bar association to be pro-defensive as opposed to being pro-competition.

• 1635

Prof. Anthony VanDuzer: There are several obvious differences, and again it depends a bit on which area of anti-competitive pricing one's talking about as to what exactly the differences are. As a matter of process, as you indicated in your remarks earlier, one of the key differences is that there is a right to seek civil relief. In the American sense that means basically that you can initiate a lawsuit and go before a court and claim relief if you're a victim of predation or you're a victim of price discrimination or you're a victim of price maintenance, which is something you have limited access to in Canada.

Under section 36 of the Competition Act there is a provision that allows parties to seek relief directly. The major distinction then between section 36 and the provisions of the U.S. Clayton Act that allow you to seek civil relief in these areas is the level of damages. As you are undoubtedly aware, in the United States it's possible to make a request and it's provided for in the statute that you can obtain three times the level of damages to which you would otherwise be entitled, whereas the provision under section 36 only deals with single damages.

In terms of process, in addition to the antitrust division of the Department of Justice in the United States, there's also the Federal Trade Commission. It's sort of a combination of the Competition Tribunal and the Competition Bureau in the sense that it both initiates investigations and issues cease-and-desist orders with respect to anti-competitive practices.

One of the problems we've identified in the predation area is the lack of certainty in the law. One of the ways of addressing that issue would be to find a way to encourage more litigation. We suggested some of the ways in which the approach taken by the Competition Bureau might be revised in relatively small ways to encourage the identification of appropriate cases for them to bring and to seek a criminal prosecution.

If the bureau is able to initiate more cases, that would have a leveraging effect on private litigation. If they were able to exercise that sort of leadership role and initiate a greater number of cases, that would undoubtedly bring out of the woodwork a larger number of private sector actions under section 36.

Mr. Dan McTeague: Mr. VanDuzer and Professor Paquet, I'd like to get you both into this. I have conclusions here by certain people who have looked at this issue eminently and who have concluded in certain areas that Canadian law has the effect of allowing and legalizing in Canada certain conduct that would be criminal in the United States.

Given the limitation, it seems that your hands have been tied by what you can look at here. Rather than tinkering with the Competition Act, and recognizing that our economy is changing at a very rapid rate, that industry is being increasingly characterized by one or two dominant players, that the conclusion is not necessarily price or the elimination of competitors but something of a mix in between, I'm wondering if we should in fact be looking at an overhaul of our entire Competition Act. Perhaps we should make it more relevant, make it more user friendly and make it more harmonious with other industrial nations that seem to have a much more effective and more vigorous means of enforcing competition and protecting, ultimately, consumers' rights in terms of prices.

Prof. Anthony VanDuzer: One item that should be on an agenda of that kind is private access to the tribunal. I know that when the commissioner was here before you a couple of weeks ago he talked about his interest in having private access to the tribunal, at least in a limited category of cases.

Mr. Dan McTeague: But why the tribunal? Why wouldn't you simply allow it to go to any court of competent jurisdiction, as they do twenty miles south of the border here?

Prof. Anthony VanDuzer: Let's be clear. If you have four of the existing criminal provisions, which are essentially the ones we looked at, under the current act you can do that. You can go under section 36 to the court, right?

Mr. Dan McTeague: That's very narrow, is it not, professor? And it's been very seldom used.

Prof. Anthony VanDuzer: It has been very seldom used, and it wasn't really part of our mandate to look at why it wasn't.

Mr. Dan McTeague: Yes, I understand that.

• 1640

Prof. Anthony VanDuzer: A fairly comprehensive study was done in 1996 by Professors Roach and Trebilcock at the University of Toronto in which they detailed exhaustively the differences between the two systems. Their conclusion at the end of the day was that not only should section 36 be overhauled in order to improve its effectiveness, but also private access to the tribunal should be permitted. So that was their recommendation going forward.

In the report they had some concerns about moving, say, to a full treble damage regime because of the extent to which it might encourage strategic litigation—that is, litigation designed not really to seek relief but more to cause problems for a competitor. They mentioned some qualifications in their endorsement, but at the end of the day they did conclude that section 36 needed an overhaul and that private access to the tribunal should be permitted.

Mr. Dan McTeague: It goes back to what Mr. Jones was saying. The effect of not having that allows Microsoft in the United States to be deemed a monopolist. In Canada there is probably no answer in terms of even the latest round of price-fixing with Hoffmann-La Roche, where Canadians are in fact receiving some degree of protection by proxy as a result of the U.S....

I'm familiar with Trebilcock and Roach and the concerns they have, but it seems to me that if we're going to deal with civilly reviewable on a case-per-case basis, you're going to damn well flood the tribunal. How are you going to be able to provide people with some measure of understanding that they're going to be able to seek or have justice heard if it's only one tribunal dealing on a case-by-case basis?

Prof. Anthony VanDuzer: If we're dealing with the act as it currently exists, the tribunal's mandate is to deal with the things under the civil review provision, which don't currently include—at least not in the express way they are referred to in a criminal provision—predation, price discrimination, and price maintenance. Those are all criminal provisions. Those are all matters for which you can go to court under section 36. Admittedly, there are some limitations on your ability to do that, and some of them are inherent in the substantive provisions themselves.

So access to the tribunal under the present scheme means access in relation to the offences that are in the civil section of the act: abuse of dominance, tied selling, exclusive dealing, market restriction, and there are several others.

In order to respond fully to your concern, I need you to clarify which particular behaviours we're talking about.

Mr. Dan McTeague: I'm reading from Robert's Rules of Order, 1992, where it says:

There is no private right of action for damage resulting from violations of civil review provisions.

I'm also reading from Nozick, 1999, which says very clearly:

This minimizes the likelihood of private enforcement of the Competition Act, even if amendments should be passed allowing for private initiation of proceedings before the Tribunal.

Each of these individuals is suggesting that with the resolve you have and the remedy you're seeking it is going to be impossible to ensure that we have an effective Competition Act. Certainly it doesn't work in terms of the criminal provisions, in that we can discuss whether it should be, per se, naked offences that are considered. What you're proposing here, without considering the real ramifications of what is “civil” as opposed to “civilly reviewable”, puts us in a situation where we're probably not going to be anywhere near as effective—and predictably, the outcome will be as useless as the current status quo.

Prof. Anthony VanDuzer: We need to be clearer on what it is we're talking about. And if we're talking about price discrimination, again, I guess I'm not really troubled by that, because in my view it's not inherently a criminal activity. The American criminal provisions dealing with price discrimination are, as a matter of course, not enforced and they are routinely criticized by anyone who looks at them.

Mr. Dan McTeague: You're referring to the Robinson-Patman Act in the United States over the question of groceries.

Prof. Anthony VanDuzer: That's right.

Mr. Dan McTeague: I'm interested in that too, but that's perhaps for another time, Madam Chair.

If you're saying there's only one aspect of this that doesn't seem to create any problems for you and that perhaps we could transfer that over, I agree with you, let's transfer it over. But let's understand that when we're moving from the criminal model we truly understand that the civil model, as most people in this country would understand, is not a civil model at all but in fact a very restricted, very narrow means in which you can seek remedies and have justice prevail at the end of the day.

• 1645

Prof. Anthony VanDuzer: I don't disagree with your characterization of an application to the tribunal as leading to a limited remedy. Just to be clear, there is no right to damages. The only thing you can get, as it's currently set up, is an order directing that the party cease and desist from the behaviour.

It may be that some consideration would have to be given to the remedies available before the tribunal, if it's to be effective as something that can be accessed by private parties directly.

Mr. Dan McTeague: That's for another day, Madam Chair.

The Chair: Thank you very much, Mr. McTeague.

Mr. Malhi, please.

Mr. Gurbax Singh Malhi (Bramalea—Gore—Malton—Springdale): Every time gasoline prices go up people call into the constituency office, as my colleague mentioned earlier, and sometimes they blame the federal government. What role does the Competition Bureau have to play in these circumstances?

Prof. Anthony VanDuzer: Again, our report wasn't specifically focused on the gas industry, but really on pricing practices, generally, and indeed only on a subset of those.

When people have concerns about pricing they phone the Competition Bureau, and there's no reason why they shouldn't phone the Competition Bureau, because there are at least some circumstances when some of those allegations touch on issues related to the jurisdiction of the bureau.

There was a decision released recently, for example, dealing with gas prices in Saskatchewan. A six-resident complaint had been made, and a whole range of competition law issues were canvassed. A lot of allegations were made and the bureau in its response assembled a factual explanation of what was going on. Based on that factual explanation of what was going on, they then assessed the potential applicability of the provisions of the act. It is the bureau's job to do this, and they did it in that case.

The bureau has actually spent over the last twenty years an enormous amount of time investigating the gas industry. A group of people in the bureau spend almost all their time dealing with gas complaints. So I think it's something the bureau takes seriously. They've looked at the problem. And as the commissioner candidly acknowledged when he was here before you on November 25, to date they just haven't found a competition problem. That doesn't mean that high prices aren't a problem generally in the economy; it just means the source may not be a competition problem.

Mr. Gurbax Singh Malhi: In other words, when some people complain about that, they cannot suggest it's the provincial government's job to set the prices?

Prof. Anthony VanDuzer: It is a question of direct price regulation, and it then becomes a matter of provincial jurisdiction.

The Government of Quebec has adopted a regulatory regime, and they have one in Prince Edward Island. Other provinces, including Ontario, have looked at it and have decided not to go in that direction. It is the Ontario provincial jurisdiction that is the relevant one if we're talking about a scheme to actually deal directly with regulating the prices.

Mr. Gurbax Singh Malhi: Do you have any idea why the Ontario government didn't want to go there too? Is there a specific reason?

Prof. Anthony VanDuzer: I don't have any particular idea why they didn't, no.

Mr. Gurbax Singh Malhi: Thank you.

The Chair: Thank you, Mr. Malhi.

Mr. Jones.

Mr. Jim Jones: In your investigation you compared it to the U.S. competition act. What is their act called? Is it similarly called a competition act?

Prof. Anthony VanDuzer: No. Unfortunately, it's not so straightforward. They have a bunch of acts, which are named, in general, after the people who proposed them.

Mr. Jim Jones: Would it be fair to categorize that the Competition Act and the bureau are more in the complaint-driven mode versus acting on fairness and trying to be preventive of seeing unfair competition in comparison to the U.S.? Looking at what is reasonable, if the U.S. starts to investigate and sees something that looks unfair, they will initiate the action, instead of waiting for somebody to complain about it. And we're just more complaint-driven.

• 1650

Prof. Anthony VanDuzer: It's a little bit difficult for me to answer that question. With respect to the bureau in Canada, there's no question that a very large portion of their resources in the pricing area is devoted to dealing with complaints. That's the primary way in which market intelligence, if you like, about pricing practices is gained by the bureau. And as I mentioned before, the complaints aren't just from people in the marketplace; they may come indirectly through people such you, members of Parliament, ministers' offices, and so on.

There is a possibility—and I know it does occur in some situations—that the bureau will actually take action in a pricing complaint on its own initiative. In other areas of its activities, which may tend to be higher-profile areas, it may be more likely to initiate an action. I'm thinking primarily of mergers, where if they find out there is some merger activity going on, maybe because they've read about it in the financial press or some other industry source discloses it to them, then they may take action directly on their own initiative in those sorts of situations. But in the pricing area, it's probably fair to say it's primarily reactive.

Although in the last few years, they've done an enormous amount of work to implement a communication strategy to try to explain what they do and what their services are, to outreach to in particular the small business community and consumers with a view to eliciting complaints—people coming forward and telling them about problems they're having—as well as to explain the kinds of things the bureau can do and the kinds of things it's more appropriate for other agencies of government to do.

In the United States in general, it operates in pretty much the same way. There are different bodies that you can complain to. There is the antitrust division of the Department of Justice and there's the Federal Trade Commission. In both cases they have the capacity to self-initiate, but my understanding is that most of their work is in response to complaints.

Mr. Jim Jones: I just was disappointed in the bureau in the very publicized case of Microsoft. The bureau did not look at that to see if there was anything wrong from the point of view of protecting other businesses, and to a lesser extent the consumer, in this country by making sure Microsoft wasn't using unfair competition practices. I thought they should have been looking at it to see if there was anything valid so that they could bring charges, or at least say no, everything they're doing is fair game in Canadian competition. I just thought they should have taken the initiative to look into this case.

Prof. Anthony VanDuzer: Well, I don't know that they haven't. I don't work in the bureau. I'm not aware of how they might have dealt with that.

I do know there's a very close relationship between the U.S. antitrust authorities and the Canadian antitrust authorities, and it's increasingly common that they will cooperate in doing investigations. That is something that could have been taken advantage of in this sort of situation.

And again, it may have. I'm just not aware of what the bureau did or didn't do in relation to that particular case.

Mr. Jim Jones: But basically you're saying the bureau spends most of its time on the complaint-driven side versus going out and being proactive, looking for infractions?

Prof. Anthony VanDuzer: That's a fair generalization, yes.

Mr. Jim Jones: Okay, thank you.

The Chair: Mr. Cannis.

Mr. John Cannis (Scarborough Centre, Lib.): I just have one question about what Mr. Jones said. Is it proper for any investigative body to go out and be proactive? Shouldn't a complaint come to, in this case a bureau, the Competition Bureau, and then they would act upon it? I'm just trying to follow the thought of what Mr. Jones said.

Prof. Anthony VanDuzer: The bureau's responsibility, its mandate, under the act, as Professor Paquet mentioned a moment ago, is to ensure the competitive process is alive and well in Canada. Sometimes that means just responding to complaints; sometimes it means taking a bit more initiative.

As I say, in the area of mergers, for example, it's very common that they will take initiative, even though no one has come to talk to them about it. Part of it is the nature of the merger process. So they are looking outward. In the pricing area, it tends to be more reactive, because the issues that come up are situations, often in smaller markets, where people are feeling the pinch, for whatever reason.

• 1655

Prof. Gilles Paquet: Let me just add something there. The Competition Bureau is a very specialized unit. If you only have a hammer, everything starts looking like a nail, and you can then try to look all over the place for things to apply it to.

Keep in mind that in Europe, for instance, many of the behaviours that would be regarded as anti-competitive in North America would be quite permissible. The new economy is leading more and more to forms of joint venturing, actions that look like collusion but in fact are competitive in the broader scheme. The Competition Bureau is forced to be very prudent, because what you may indeed do if you're very narrowly trying to prohibit everything is put North American firms into a very much more difficult position worldwide. So they are forced to react when somebody's hurt, but even when somebody's hurt, it may be that the process is alive, even though this competitor is wiped out.

So the idea of being proactive may be in some cases very useful; you're right. But one could also fear that if you were to proceed as if competition were the necessary and sufficient condition for good things to happen to Canada, it might be leading to excesses also.

Mr. Jim Jones: Can I just comment on that and on what Mr. Cannis said?

What I was talking about is that by issuing a complaint on behalf of a company to the Competition Bureau, the penalty from whoever you're complaining about and the loss you can receive from that are greater than not doing anything at all and letting the infraction continue on. If that's the case, then wouldn't it be nice if you had a body that once in a while looked into things on a proactive basis?

Prof. Gilles Paquet: You're right in principle. The problem is the belief—and it's a North American belief that is certainly not the case in Asia or in Europe—that competition per se is the source of all good things.

In Europe and in Asia they believe a mix of competition and cooperation may turn out to be the right answer. The danger or maybe the hesitation of the Competition Bureau in being proactive is that in some cases, what you may be after is something that looks anti-competitive, but interfering would put North American firms, for instance, in a very difficult position vis-à-vis their world competitors.

This does not invalidate your point that there is obviously a place for unilateral action and proactive work by the Competition Bureau, even if nobody complains about it. You're right.

Prof. Anthony VanDuzer: I just have one thing to add. Before the act was significantly amended, there was the Restrictive Trade Practices Commission, and part of their mandate was from time to time to do industry studies. So if there were concerns about a particular industry, they would do a very comprehensive general study of the industry to define all the problems that might exist in that industry from a competition point of view. Then they would produce a report, which would be filed, and to the extent that that gave rise to particular concerns, enforcement action could be taken.

This mechanism existed under the old version of the act, which we don't have currently, where there was an independent body that actually undertook these kinds of broad-based studies.

Mr. Jim Jones: I would say when you have cases that are almost global in scope and very prominent, such as some of the ones that go on in the U.S., it's just prudent that our authorities here—in this case the Competition Bureau—do a review of the situation to see if maybe there are infractions here in this country, instead of waiting back for some companies or people to come forward to lay the complaint.

Mr. Walt Lastewka: How do you know they're not gathering information?

Mr. Jim Jones: I don't know that.

Mr. Walt Lastewka: Until it's announced, you don't know what they're doing. That's the problem in many cases.

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Prof. Anthony VanDuzer: I would just add that there have been circumstances in the last year where there have been convictions in the United States or action has been taken in the United States and a parallel action has been taken in Canada. In fact there was one case—I've forgotten the details—relating to vitamins.

Mr. Dan McTeague: There was Archer Daniels Midland, and Hoffmann-La Roche I referred to earlier.

Prof. Anthony VanDuzer: Right. In the vitamins case, the Americans basically carried the ball, took the initiative and proceeded, and then the Competition Bureau was able to essentially negotiate a settlement without having to go through a contested proceeding. So not only did the bureau in that case do the kind of thing you're saying, but they actually were able to get a result in a way that was very cost-effective for the taxpayer. So it does happen.

The Chair: I just have one question, and I'd appreciate your comments on it. We're trying to figure out why the Competition Bureau seems to be reluctant to go the civil route with price maintenance and predatory pricing.

Prof. Anthony VanDuzer: Why they're reluctant?

The Chair: They seem somewhat reluctant.

Prof. Anthony VanDuzer: Based on the position the commissioner took when he was here before you?

I read the transcript, and I have not subsequently talked to the bureau about it, but my understanding is they have some of the same concerns I think Mr. McTeague has about the importance of the criminal remedy to be a deterrent for egregious kinds of behaviour. That's mostly focused on the area of horizontal price maintenance, the kind of situation where you have one person who's trying to get his or her competitors to keep their prices up, and on the area of predation, where there is an intention to eliminate a competitor.

My sense from reading the transcript was that those are the areas they felt most strongly should remain in the criminal part of the act, whereas on price discrimination, I think I'm accurate in saying the commissioner ultimately agreed with me that it was something that could be moved to the civil part of the act.

In terms of vertical price maintenance, there really wasn't much of a discussion before the committee about that, so I'm not exactly sure what the bureau's position is on that at the moment.

The Chair: Okay.

Does either one of you have anything to add before we end the proceedings today?

Prof. Anthony VanDuzer: I'd just like to thank the committee for having us to talk about our work.

The Chair: We want to thank you for your work, and we want to thank you for coming here to discuss it with the committee. As you probably can tell, this Competition Act is of great interest to many members of the committee, and it seems in the future we could be possibly going beyond even your study. But that's a determination the committee still has to make.

We do thank you, and we look forward to the possibility of meeting with you again in the future.

The meeting is adjourned.