INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 25, 1999

• 0912

[English]

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

I am very pleased to welcome here today the Competition Bureau and the commissioner of competition, Konrad von Finckenstein; Mr. Don Mercer, deputy commissioner of competition; Mr. Harry Chandler, deputy commissioner of competition, criminal matters; and Mr. André Lafond, deputy commissioner of competition, civil matters.

I'm very pleased to have you here today. I'd like to preface our meeting by first apologizing to you, Mr. Commissioner, and expressing my deep disappointment with someone on this committee who has chosen to ignore the memorandum they all received on November 22 to treat the report as confidential. It was to be tabled here at this morning's meeting. Regrettably, there is an article in one of the newspapers this morning, the Ottawa Citizen, quoting parts of the act and having a couple of conversations with members of the committee who do not quote the report, but their report is quoted. I apologize for that. We'll have to decide as a committee whether or not we can handle confidential matters in the future.

With that, I hope the rest of the meeting has a better tone. I turn it over to you, Mr. von Finckenstein.

Mr. Konrad von Finckenstein (Commissioner of Competition, Competition Bureau): Thank you, Madam Chairperson.

As you recall, last April, following your deliberations on Bill C-235, the industry committee made a resolution to review the anti-competitive pricing provisions of the Competition Act and the bureau's enforcement procedure. As a contribution to this review, I promised to commission an independent study of these provisions, and I shared the terms of reference with you.

It is my pleasure today to table with you the report of Professor Anthony VanDuzer of the University of Ottawa, who made an exhaustive report of these provisions. As you mentioned, advance copies have been given to members of your committee and there are additional copies available, if need be.

This is a very complicated matter. As you know, the pricing provisions and questions are those dealing with price discrimination, price maintenance, predatory pricing, and, to the extent it concerns pricing as an anti-competitive act, the abuse of dominance.

[Translation]

We asked Professor VanDuzer, of the University of Ottawa Faculty of Law, four questions about anticompetitive pricing provisions:

1. Are the pricing provisions of the Competitive Act adequate in light of today's economic forces?

2. Regarding the Bureau's interpretation of these provisions:

- is this interpretation appropriate?

- is it consistent with international practice?

- are the Bureau's enforcement guidelines on price discrimination and predatory pricing adequate?

- is there a need for additional enforcement guidelines?

3. Have the Bureau practices, procedures and guidelines led to appropriate administration and enforcement of these provisions?

• 0915

4. Are the Bureau's case selection criteria sufficient to ensure that an adequate number of cases are pursued?

Professor VanDuzer was given unrestricted access to all of the Bureau's material and personnel. He also conducted interviews with stakeholders to get a good cross-section of views.

[English]

In short, we have nothing to hide. Professor VanDuzer had unlimited access to our bureau and he has done an exhaustive report. He completed his study in collaboration with his colleague, Professor Gilles Paquet, and you have the report before you.

First and foremost, the report makes it clear it's not an easy subject and there are no easy answers. The essential problem is that it's fundamentally difficult to distinguish between pricing practices that are truly anti-competitive and pricing practices that are a normal part of healthy and rigorous competition.

Moreover, even if one succeeds in setting all criteria that will sort out the pricing behaviour that is anti-competitive, one still faces challenges enforcing the law—how to gather the evidence one needs and how to provide the proper relief quickly and efficiently.

In addressing these principles, Professor VanDuzer points to a number of shortcomings in the current pricing provisions of the Competition Act—shortcomings rather than serious gaps in the adequacy of the law. He goes on to suggest alternatives to address the shortcomings, but he's careful not to gloss over the difficulties that these alternatives raise in themselves.

Let's go to the key findings of the report. The VanDuzer study covers a lot of ground. I'd like the opportunity today to comment on six salient findings. These are the essential points of the report.

These deal with the choice between criminal and civil provisions, the scope for adding new guidelines and making changes to existing guidelines, the number of cases the bureau litigates, the selection criteria, and the communication policy of the bureau.

Starting with the pricing provisions, Mr. VanDuzer believes the civil review process would be better than the current criminal process for all pricing provisions, apart from horizontal price maintenance. There is no doubt that some of these provisions do work better in a civil context, and it's a position we endorse for price discrimination.

Indeed, you will recall that when we discussed Bill C-20, we originally proposed repealing the price discrimination of the act. However, we have encountered significant opposition from the small business community, and we feel it should not be repealed unless small business is on side for such a repeal.

Generally, however, we do not favour shifting completely away from criminal law. We believe a proper mix of criminal and civil provisions is required for the anti-competitive pricing provisions, for a number of reasons.

First of all, criminal law is really appropriate for the most egregious offences. That is what Professor VanDuzer has in mind when he makes a distinction between horizontal and vertical price maintenance. If somebody deliberately wants to drive somebody else out of business and engages in a practice to that effect, I think criminal law is the proper way to deal with these offences.

Second, while criminal provisions may be harder to prove, they act as a powerful deterrent. They result in fines and imprisonment, while civil provisions only result in injunctive relief.

Third, section 36 provides for a private action based on criminal conduct. If there were only civil provisions regarding pricing, there would be no access for private parties to go to court on the basis of anti-competitive pricing.

For those three reasons, we think one should retain criminal provisions.

[Translation]

Second, Professor VanDuzer makes two recommendations about the guidelines.

As you know, we already have guidelines on price discrimination and predatory pricing, an invaluable tool to help clarify the law, especially in the absence of a large body of jurisprudence.

The report recommends new guidelines for two areas, one for guidance on how the abuse provisions apply to anticompetitive pricing practices, and a second on the relationship between the horizontal price maintenance and conspiracy provisions.

• 0920

We agree these would be helpful. Indeed we are already drafting enforcement guidelines for abuse of dominance and will take Professor VanDuzer's comments into account. The relationship between these provisions which address horizontal agreements is something that could be considered in our overall review of the conspiracy provision.

[English]

Third, he suggested we should revise existing guidelines, especially the guidelines on price discrimination and predatory pricing. We are already engaged in looking at these pricing guidelines, and it is our intention to bring them up-to-date, taking into account his comments.

The report suggests there may be a divergence between the guidelines and the law and suggests one alternative to correct this inconsistency would be to revise the guidelines to more closely match the law. Who can disagree with that? Of course, the guidelines ought to be working according to the law.

Removing possible inconsistencies will be part of our legislative and policy development. However, we also believe that if the law is found to be flawed, no guidelines can fix it, and our first choice will be to fix the weakness in the law.

[Translation]

Fourth, Professor VanDuzer suggests that we litigate more cases. He recommends a more aggressive approach to enforcement in predation cases, although he recognizes that resource constraints are a factor in setting priorities and that predation is particularly difficult to prove.

I would caution you against measuring the Bureau's effectiveness in terms of the number of cases it brings before the courts or the Competition Tribunal. Formal cases are only one element in a continuum of instruments used to encourage compliance and success is reflected in the level of competition in the economy, not in the number of cases that are brought to the courts.

Certainly with revisions to our predatory pricing guidelines there may be more scope for referral to the Attorney General. We will revisit our selection criteria to see whether we should give more attention to predatory pricing cases, which brings me to a fifth finding from the report.

[English]

Pricing practices tend to score low on the selection criteria. That's what Professor VanDuzer found. Of course, like any law enforcement agency, we have to assign priorities to put our limited resources to the best use.

In the discussion of the bureau's selection criteria, the report concludes that pricing practices tend to rank low. We will examine those case-screening criteria. I want to emphasize, however, that the impact on competition will continue to be an important criteria. It's our fundamental premise that we should go forward with those cases that have a significant impact on competition. That's what our case selection criteria is meant to do.

Finally, the report also talks about our communications strategy and concludes that we should develop a more effective communication strategy. Who can quarrel with that? I can assure you, I am very much committed to improving communication. If you visit, for instance, the bureau's web site, which you can find at www.competition.ic.gc.ca, you will see that we provide the latest information on all our activities. We also provide the outcomes of our investigations, whether they are positive or negative.

Explaining the factors in an investigation is an excellent way of improving public understanding of the competition law—how it works, why it's needed, and what it achieves. Furthermore, better understanding of the law helps business to be compliant in conformity with the law.

We also realize that communications work both ways. We have to listen to our clientele to understand their concerns, and we have to work in partnership with other agencies and other players in the economic realm in order to respond to new challenges. We will be looking to stakeholders and the general public for their views on priorities for legislative reform in the next round of consultation.

[Translation]

In conclusion, in this report, Professor VanDuzer provides a good survey of the pricing provisions of the Competition Act and lays out the complex issues involved in enforcing them. The fundamental problem is that it is hard to distinguish between vigorous competition and predatory pricing practices and there are no easy answers to this problem. Whichever direction we take will involve tradeoffs that have to be carefully weighed.

• 0925

[English]

It's important to remember that the Competition Act's goal is to encourage competition. It is easy to slip into the mistake of looking at the impact on individual competitors, but that does not necessarily mean that's a good way to measure the impact on competition.

Communication is an integral part of encouraging conformity with competition law. By speaking to stakeholders, by educating the public, and by listening in terms of their concerns, we will bring about conformity with the law.

I welcome your review as part of this process, which I hope will lead to a better understanding of the role of competition in the marketplace.

Of course, if you wish, I am pleased to answer your questions, with my colleagues, and we would be pleased to come back to testify before you another time once you have heard other witnesses on the report.

Those are my opening remarks, Madam Chairman.

The Chair: Thank you very much, Commissioner.

I'll now begin with Mr. Schmidt.

Mr. Werner Schmidt (Kelowna, Ref.): Thank you very much, Madam Chairperson.

Thank you very much, Mr. von Finckenstein and cohorts. It's good to hear you and good to see you. Also, I'm very pleased that this report has now seen the light of day. I think it's good.

One of the points I want to really emphasize is the last point you made, Mr. von Finckenstein, about how the issue is competition in our economy, not so much for the individual competitor, but competition generally, and having a fair, flat playing field so that it's open, transparent, and so on.

My questions really have to do with your contention about the distinction between criminal and civil law and its application to competition. I hear you loud and clear: criminal law is probably better suited to the egregious cases and civil law to the others. So my question, then, is this. How would you determine the difference between an egregious case and any other case?

Mr. Konrad von Finckenstein: You'd investigate and look not only at the economic impact and what happened, but also at the intention of the parties. Was this done with a deliberate intent to drive somebody out of business? Or was this done with the intent to maximize profits to gain more market share, etc.?

When we do an investigation we look at all the records of the company, we interview the persons, and we may put some under oath. You get a good feel of what's driving it. Is this really honest competition where people are trying to compete or is this where somebody says they have to drive this other person out of business? If the latter is the case, you make a calculation as to what you will do once you have succeeded, because you are, I assume, a rational player and you want to recoup the amount of money it cost you to drive somebody out of business.

Those are all the factors you consider. But you're lucky, because I have with me Harry Chandler, who's the head of criminal investigations and who actually does this work. I'll let him talk about it in more detail.

Harry.

Mr. Harry Chandler (Deputy Commissioner of Competition, Criminal Matters, Competition Bureau): I'm not sure what else I can add. If you look at the Competition Act as it is now, in deceptive marketing practices, for example, there's a civil track and there's a criminal track. The criminal track is distinguished by this element of intent that Mr. von Finckenstein—

Mr. Werner Schmidt: May I stop you right there?

Mr. Harry Chandler: Sure.

Mr. Werner Schmidt: I think the primary issue here is intent and to establish intent. VanDuzer makes the point here. How in the world do you track intent? Where do you look to determine what intent is? How do you go about actually coming to a conclusion of yes, indeed, the intent was this and not something else?

Mr. Harry Chandler: That is a difficult process. There's no question about it.

Under the Competition Act we have extraordinary powers, such as power of search warrant, power to subpoena evidence. In the past, we have found evidence of intent. The Hoffmann-La Roche case of some years ago was a predatory pricing case in which the court convicted on the basis of the evidence of intent that we brought forward. But it's a very good question, because it's not a simple matter to get to that evidence.

• 0930

Mr. Konrad von Finckenstein: In all criminal cases, the court tries to determine intent from two sources: one, the testimony of the witnesses, and two, things inferred from the circumstances. That same thing applies here. To the extent that you have direct evidence, you will lead it. To the extent you don't, you draw inferences from the facts, which can only lead you to one conclusion.

Mr. Werner Schmidt: There is another question related to this, which is perhaps an easier question to answer. I did find myself somewhat confused in regard to the content of the report where VanDuzer makes the observation, I think, that businesses seem to have difficulty with this whole area of determining whether they would run afoul of the provisions of the Competition Act. It's the prosecution under criminal law that frightens them.

Would it be easier to comply, to be competitive in their pricing policies and practices, if there wasn't this threat of a criminal investigation in each case? Is that why there are so few prosecutions? What kind of point was he trying to make here? He seems to think it would be easier for businesses if it was under civil law rather than under criminal law and had something to do not so much with the prosecution but with the actual operation of business. I didn't quite understand what he was trying to do here.

Mr. Konrad von Finckenstein: I think he was principally talking about the price discrimination provisions—

Mr. Werner Schmidt: Yes, he was.

Mr. Konrad von Finckenstein: —in paragraph 50(1)(a).

Mr. Werner Schmidt: Right.

Mr. Konrad von Finckenstein: As you know, as I mentioned in my opening remarks, we actually feel that they are outdated and should be repealed. If they are difficult to interpret, they are...this verbatim reading of it, I mean, price discrimination...of course you don't sell to every customer at the same price. But you say you will have different prices, so...these provisions have been a source of a lot of legal opinions for lawyers, because companies want to comply and want to make sure. In VanDuzer's view and in the view of other critics, it does impose an unnecessary burden on the economy. As I've said, we feel they should be repealed.

Mr. VanDuzer is going to be appearing before you and you can ask him yourself. I don't want to speak for him. All I'm saying is that I think he basically feels that on price discrimination they should either be civil or be abolished. I feel the same way. I don't think criminal law is the proper tool to deal with price discrimination.

Mr. Werner Schmidt: I wonder if I could ask Mr. von Finckenstein to distinguish with regard to price discrimination and tied selling. How do these work with each other? How do they relate to each other?

Mr. Konrad von Finckenstein: Tied selling basically implies two goods. One is a best seller and one is a loser. You want to buy the best seller and the producer says yes, but you have to buy the loser too. The two products are tied. You can only get the one provided you buy the other. That's the essence of tied selling.

In price discrimination, you don't have two products. You only have one product, but you sell it to different customers on different terms. In effect, you discriminate between them. Now of course you can have perfectly legitimate discrimination, such as volume discounts. If somebody buys one hundred articles rather than one article, you may be prepared to give him a price break, etc. What the act has to address is price discrimination that in effect has no legitimate basis other than to hurt competition.

Mr. Werner Schmidt: Using that kind of logic, then, wouldn't tied selling be a beautiful camouflage to get around price discrimination?

Mr. Konrad von Finckenstein: Tied selling is an offence under the act. If you engage in tied selling, you are definitely running afoul of the act. It can be prosecuted civilly.

Mr. Werner Schmidt: So it could work one way or the other. It seems to me that the act needs to have a major revision in this particular area. While on the one hand it's obsolete, as you say, on the other hand I'm not at all convinced that the business of deliberately underpricing one element in order to sell another one so the total package becomes a profitable venture...I think it's a pretty significant question.

• 0935

Mr. Konrad von Finckenstein: Tied selling is addressed under the present act. I'm not quite sure about the links you make between tied selling and price discrimination. To my mind, they're two quite different things. In price discrimination you have one product and in tied selling you have two, but what you're really trying to do is move the non-selling product.

Mr. Werner Schmidt: Okay, but price discrimination allows for bundling of products. It's not one product; it could be a number of products. It could be a number of services. It could be volume discounts. A whole lot of things can happen here.

The Chair: Mr. Chandler.

Mr. Harry Chandler: The price discrimination provision is really quite unique. What it says—and it says it in a lot of words and in a lot of terms that are sometimes hard to define—is essentially that a supplier can't sell to competing purchasers of like quantity and like quality at different prices. It doesn't have a competition test in it. So it is a quite unique and unusual provision, and in some ways it's a misnomer to call it price discrimination. But that's the provision that was put on the books in 1932.

Mr. Werner Schmidt: I understand that. But we really have to get into this bundling and packaging, if that is an issue.

Mr. Harry Chandler: If I could add one additional point, it's restricted to articles, so it doesn't include services. It is a fairly narrow provision.

The Chair: Okay, we'll have to move on for now. Thank you, Mr. Schmidt.

Mr. Malhi, please.

Mr. Gurbax Singh Malhi (Bramalea—Gore—Malton—Springdale, Lib.): Thank you, Madam Chair.

Could the Competition Act not be modified to distinguish between pro-competitive and anti-competitive price maintenance?

Mr. Konrad von Finckenstein: Are you asking me whether it could be? Undoubtedly you could make such a distinction, but the way it works right now, if there is a price maintenance that's pro-competitive, on what basis would we prosecute? You wouldn't bring it for prosecution. You wouldn't be able to. For price maintenance, you have to prove that it has a negative effect on the competition. You wouldn't when it's pro-competitive.

The Chair: Thank you, Mr. Mahli.

Mr. McTeague.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you, Madam Chair, and thank you, gentlemen, for appearing before us. Madam Chair, thank you for allowing me, as a non-member of this committee, to ask some questions that have been a source of concern for a little while.

A number of things have been suggested in the VanDuzer report. But since I have both the civil and criminal divisions of the bureau here, I want to ask right off the bat why the wisdom of not keeping price discrimination and predatory pricing within the criminal, but moving it to a per se offence as you have with respect to bid-rigging and agreements of financial institutions, would not have been first considered given the track record of the ability not to enforce this legislation?

I guess this is first to you, Mr. Chandler. More importantly—I understand we are not looking at price fixing, yet it does deal with the matter of pricing—why is the word “unduly” not removed or perhaps not allowed to find an alternative? Why words like “practice” under price discrimination and other words like “substantially lessening competition”, which finds itself in the civil? I'll get to that in just a moment.

Second, on the civil side, I think it's important for the committee to understand that when we're dealing with the word “civil”, the recommendation in the VanDuzer report does deal with civilly reviewable, transferring them to civilly reviewable so that an action may be taken before a tribunal at some point by the bureau.

I wonder if we could perhaps get from you, Mr. Mercer or Mr. Lafond, remarks about the fact that it's not accurate to characterize reviewable trade practices as practices that are prohibited with civil sanctions, that there is no injunctive effect, that an individual or yourselves would have to do it on a case-by-case basis, and that it might be impossible to have a general application in law. More importantly, are we looking at the possibility at some point, given that we have a continental economy, of perhaps dealing with unequal laws between ourselves and the United States, particularly with respect to the Clayton Act, which allows some modicum of private right of action, as opposed to you gentlemen having your resources used to bring these matters to the attention of the tribunal?

• 0940

I realize those are several very important questions, but I want to ask the questions and also clarify the words in the nomenclature here, because I think it's important for the committee to understand that civil is not civil but actually civilly reviewable. There's an exceptionally important distinction that, by the track record, demonstrates that it's almost impossible to get your man.

Could I perhaps ask several of you to respond?

Thank you, Madam Chair.

Mr. Konrad von Finckenstein: Let me answer in reverse order.

First of all, in terms of civilly reviewable, you're quite right, the effect of civilly reviewable means that if we are successful in a case, an injunction will be issued regarding conduct by that particular person regarding it, and there are no damages and no right of action to a person. This is one of the aspects of the act that has been heavily debated.

When the act was brought in, in 1986, the civil provisions were brought in. As you know, the underlying philosophy of the civil provision is that it's an activity that may be outside the act or not, depending on what the effect is. So for a lot of these questions, it may be rigorous competition or it may go over the line. It's not something that is clear. That's why it's reviewable. You review the contract, you review the facts, and you measure the consequences. If you find they are anti-competitive, then you bring it before the tribunal. The tribunal orders it to stop.

That was the fundamental trade-off that was made in 1986, giving, in effect, the monopoly for civil prosecutions to the then director of the competition bureau, now the commissioner, providing for no private-party access.

We are of the view that the act should be amended. On several occasions I've stated publicly that I thought there were certain issues such as tied selling, refusal to sell, and so on, that should be a private line of action. It shouldn't be—

Mr. Dan McTeague: To the tribunal as opposed to a court?

Mr. Konrad von Finckenstein: Yes, to the tribunal, and I think these are essentially issues that are between opposing merchants, a producer and a supplier, and so on. Really, there's no overwhelming state interest. They have a dispute, let's say a refusal to sell. I want to buy from you and you have a product you're not willing to sell to me, notwithstanding that I'm.... It may be an issue of my credit or it may be that you're discriminating against me, or whatever. Let's take it to the court and let the court rule. But we go further and say there should be no damages; it should be just an injunction. In effect, if I'm right, the court is saying, you shall supply.

Mr. Dan McTeague: Madam Chair, could I ask Mr. von Finckenstein—

The Chair: You've asked several questions.

Mr. Dan McTeague: But it's on that point.

The Chair: You're not going to get answers to your other ones before the time runs out.

Mr. Dan McTeague: That's fine. I think what he says is very good, very interesting, and very revealing.

Mr. von Finckenstein, I have one question. If an individual has come before you and you have taken the matter before the tribunal, if you are successful as ordered only against that individual, it does not prevent the practice from occurring by the same company unless it's within the order. Is that correct?

Mr. Konrad von Finckenstein: The court can only deal with the facts before it, and in the facts before it, there was a refusal to supply to that company. Of course, like all such orders, they have a deterrent effect. If you've gone through that process once and you're the supplier, are you going to run the risk again? I assume that people are in the business in order to make money, not in order to engage in lawsuits and incur legal costs. So having learned the lesson once, the next time around, should a similar situation apply, they would supply and would not force us to take them to court.

That was one part of the reviewable....

On private action—I'm sorry you've asked so many questions—I think one of your questions was regarding criminal offences and why we don't have a per se offence and why we don't make a distinction between criminal on a per se basis and civil.

Mr. Dan McTeague: And why the words “unduly” and “practice” are also inserted there.

Mr. Konrad von Finckenstein: Harry, would you answer the question, please?

Mr. Harry Chandler: Just so we understand our terms, “per se” basically means a practice is prohibited or an offence is committed when that practice is done without any further inquiry or further evidence being put to a court that this has an effect of lessening competition. That's how I understand “per se” to be meant.

So there is a per se provision, for example, in the prohibition against bid-rigging in the Competition Act.

• 0945

The difficulty with the other anti-competitive pricing provisions we're talking about today is front and centre in what Mr. von Finckenstein said in his statement, at the start and at the end. That is that it is difficult to distinguish between vigorous price competition, which is in the consumer's interest and in the economy's interest, and the type of price competition that becomes predatory, which has an anti-competitive effect. Because of that difficulty of distinguishing and judging which is bad and which is good, if you want to put it that way, it's difficult to have a per se prohibition.

Mr. Dan McTeague: It doesn't create a problem for the United States, where there's a three-line enforcement policy that allows them to distinguish between Robinson-Patman and Clayton and Sherman. To take on the argument made by Microsoft, for instance, yes, they were super-competitive, and this is just the reality of the business.

I'm just wondering if we should first look at possibly amending the problems within the criminal section as opposed to simply throwing it over something that people believe is civil but is in fact civilly reviewable and practically unenforceable.

Mr. Konrad von Finckenstein: As I said at the outset, we don't believe you should throw it all to civil to begin with. Some of the criminal ones lend themselves to per se defence. We're not talking here today about price fixing, section 45, but there's a whole school of thought that feels there really is no saving grace to price fixing. Price fixing should be per se. We could argue about that.

Here we're talking about price competition, price discrimination, predatory pricing, and price maintenance. In all of those areas there is quite a difference, as Harry said. This conduct can be very pro-competitive and can in effect give consumers more choice, or it can be anti-competitive and can ruin competition. I don't think you can treat it on a per se basis.

Mr. Dan McTeague: Thank you.

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

Madam Jennings.

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

I wanted to ask you some questions concerning the mandate you gave to Professor VanDuzer. For instance, nowhere did you ask him to look at section 45, the price fixing issue. Secondly, if I understand correctly,

[Translation]

you asked Professor VanDuzer to determine if the pricing provisions of the Competitive Act are adequate in light of today's economic forces regarding price maintenance, price discrimination, etc. but you did not ask him to examine the whole debate to which the Bureau took part on the issue of the civil right of suit by a party or an individual,

[English]

the right of private action.

I'm wondering why. I look at his report and I look at the statement you've just made about the dwindling resources in the Competition Bureau and how you have to create orders of priority where you're going to get the best bang for your dollar in terms of ensuring competition and that kind of thing.

I notice as well in the VanDuzer report that for some of the issues he looked at, he states that on the criminal side there's basically no jurisprudence because no criminal action has been brought. Even in terms of moving it over to being civilly reviewable, it's running on empty; it's a tank that's running on empty, let's say.

When I look at the issue of private right of access, one thing that strikes me is that by allowing that, it would in fact create a bank of jurisprudence that could be useful. Obviously it would be civil, but it could also be useful in terms of certain notions on a criminal side. The only difference would be that the standard of proof would be much higher on the criminal side.

• 0950

On the issue of private right of access, my understanding is that was one of the amendments that the Competition Bureau recommended in 1995. I understand it was withdrawn at some point. I'm not clear as to the reasons. If you're making the recommendation that there should be an amendment to allow that, what were the reasons? If that was well founded, why did the Competition Bureau change its mind? I'd like to have that explained to me.

I'm really curious about why the mandate given to the professor was not encompassing enough to address that issue. I think it is an important issue in terms of advancing competition and dealing with the difficult balance of possibly dwindling resources for the Competition Bureau, dealing with issues of competition or anti-competitive practices.

Mr. Konrad von Finckenstein: I completely agree with you that there are many issues—

Ms. Marlene Jennings: That's wonderful.

An hon. member: You're having a great day here.

Mr. Konrad von Finckenstein: —that need to be addressed, such as private access, such as our resources, etc.

Let's go back to how this all started. Bill C-235 was before you, which dealt with the reform to predatory pricing and abuse of dominance. At the conclusion of that hearing, the committee made the following resolution:

That at its earliest convenience, the Industry Committee review the anti-competitive pricing practices within the Competition Act and any related enforcement guidelines and operations of the Competition Bureau.

Those were the results; that was your resolution.

Ms. Marlene Jennings: Yes.

Mr. Konrad von Finckenstein: As a result of that, I drafted the terms of reference for Professor VanDuzer to assist you in your review. You will clearly set the anti-competitive pricing practices of the act and the enforcement guidelines. I shared those guidelines with the committee here when I made my second appearance on Bill C-235 pursuant to that.

The focus was what was before you: Bill C-235, which is implicit for the assumption that the act was insufficient to deal with predatory pricing and the appearance of dominance and that the practices of the bureau were deficient. You said let's have a look at it. That's what you stated and that's why I gave them the mandate.

Ms. Marlene Jennings: May I just interrupt for a second?

Mr. Konrad von Finckenstein: Sure.

Ms. Marlene Jennings: I apologize, but you're absolutely right. I'm very pleased that you pointed that out. In fact, the mandate you gave to Professor VanDuzer was based on a resolution adopted in this committee.

Am I to understand then that if there were a resolution adopted in this committee to do a review of the Competition Act in terms of looking at the issue of per se infractions on the criminal side, at a wider number of dispositions, looking at the issue of civilly reviewable, looking at the issue of private access, that the Competition Bureau would welcome that?

Mr. Konrad von Finckenstein: I am on record as saying that the act is a framework law. It needs to be updated to correspond to the changes in the economy. We have a whole process for changes, and as part of that we will have consultation.

You asked me about private access, why it was proposed before Bill C-20 and why it wasn't part of Bill C-20. We put out a paper where we suggested it. We struck a consultative panel, which had lengthy discussions with experts from all across the country. They essentially felt that the issue of private access needed further study.

You very eloquently pointed out the opposed side of private access. There is a downside. The downside is that private access can be used for strategic litigation. It can be used to tie up companies. It can put an enormous burden on doing business because you have to fend off all these unmeritorious lawsuits that take time and money to deal with.

If you look at what's happening in the United States, where you have a lot of litigation on anti-trust, the Americans have a term for it. They call it “greenmail”. Basically, people sue you in order to be paid off to go away. That's where we don't want to go, so we approach the whole issue of private access very cautiously. We see all reviewable practices. By the way, there are a lot of them that we feel we should have the monopoly of in effect overlooking.

But there are some areas, and we identified four of them.... These are tied selling, refusal to supply, exclusivity, and price maintenance. Those are the four areas for which we feel a private right would be in here. I have to say that in the next round I'd like to have this issue be consulted on, and also point out what are the pros and what are the cons.

• 0955

I think there should be no damages so that people who come forward really have the problem. You don't sue because you hope you're getting paid off. You're suing because you want this conduct stopped. Secondly, there may have to be a threshold that you have to meet, a prima facie case before you get the right to sue. But it is an issue that should be addressed, and we will address it.

But that was not part of what your committee wanted us to look at, and that's when we commissioned Mr. VanDuzer. We restricted him to the terms that are before you.

Ms. Marlene Jennings: Thank you very much.

The Chair: Thank you, Madam Jennings.

Mr. Schmidt.

Mr. Werner Schmidt: Thank you, Madam Chair. I'm glad, Madam Jennings, you asked that question because it was my question as well. I think it's a good question. The other question I have is with regard to the business of deciding where you will examine or review, either civil or criminal, where to lay the charge with regard to predatory pricing, or price discrimination, or price maintenance. I'm thinking here in particular about the various ways in which the huge corporations operate. There are the vertically integrated companies and the relationship that exists there at the various levels, the production level, the wholesale level, the distribution level, the seller and the reseller, and the ultimate retail level. There can be price discrimination and price maintenance, and these kinds of things, at every one of those levels. So at which of those levels do you choose to review, to prosecute, or whatever the case might be? How do you determine where you will go?

Mr. Konrad von Finckenstein: We don't look at the relations inside a company or a group of companies. We look at the relationship between that group of companies, whether we have a vertically integrated one or a group of companies that effectively together represent the integrated process, and the outsider. At one level—either it's at the top, the middle, or the bottom—they interact with somebody else, selling to him or her or buying from them. That's the activity we look at.

By law we are restricted to dealing with a company that interacts. So if you are talking about a company that produces a product, then refines it and sells it, and if at the wholesale level they also sell it to others, then clearly you look at the wholesale company. If it's a retail company and they engage in an activity vis-à-vis the consumers, then we would go after the retail company. It depends on where the interaction with the outsider takes place. That's the level at which you would prosecute.

Mr. Werner Schmidt: What if it happens at all of those levels with the outsider?

Mr. Konrad von Finckenstein: Then you would have multiple prosecutions.

Mr. Werner Schmidt: And you would do that?

Mr. Konrad von Finckenstein: If the evidence was there, clearly. We have essentially two problems. One problem is always having the evidence. A lot of allegations are made wherein finding the evidence...or there may be no evidence; that's one. The other one, of course, is resources. You have to decide between competing cases what is the best case to bring and what is the consequence on competition. How worthwhile is it?

I should mention that you are all focusing on the prosecution side. The bureau has what we call a continuum of activities. It starts with education, with warnings, with information and convincing people to discontinue activities and to adopt voluntary codes, to giving them warnings, to then investigations, and then at the very tail end it's prosecution and conviction. I assume business people are in business to make money, not in order to run afoul of the law. So we will always start with trying to convince them to do the right thing before we force them, unless of course, as in some cases, it becomes immediately clear upon investigation that, yes, you are dealing with criminal activity so there's no sense in trying to educate them. But in most cases we try to take the appropriate spot in the continuum in order to change behaviour.

• 1000

Mr. Werner Schmidt: Sure. I agree, and I use prosecution as the end thing. Clearly prosecution is the end of a process, and you've gone along here. It seems to me that if there was this intense and extensive integration, and a lot of benefits with the outside world and within the company, and they were doing predatory pricing in certain areas but not in other areas, yet because of the multiple prosecutions that might take place, or the multiple education that may take place, or the multiple offences that can take place.... Simply because of the multiplicity of all of these things happening from one level to the next level, to the next level, so much gets lost that in fact evidence that might exist at one level disappears.

How do you handle these situations? These become highly complicated and very interrelated.

Mr. Konrad von Finckenstein: Harry, do you want to answer? You're in charge of criminal investigations.

Mr. Harry Chandler: I'm not sure the evidence will be lost, because what we'll be looking for is the impact on competition in particular markets, even if it's more than one market. A lot of the information we would get is from the players, the other businesses in those markets. They have the information that gets us to a threshold that allows us to investigate further. Then of course we're in a position to obtain internal company information.

But I'd like to make another observation. It is that we work from the premise that big is not necessarily bad. You have to look at the facts of the situation. Integrated companies, for example, may have efficiencies that allow them to be more effective in a marketplace. So you don't want to intervene in a situation where consumers are benefiting from an enterprise that has new products, new ideas, and can deliver the products at a lower cost. This is an issue that also has to be taken into consideration.

Mr. Werner Schmidt: Absolutely. The other part of it is that efficiency based on size can in fact become a disincentive to competition in the area. I agree with you completely that size isn't the issue—either big or small—but in neither case ought there to be an anti-competitive situation resulting from pricing practices. I'm particularly concerned—I know you've taken horizontal price maintenance out of this thing, but I think that's precisely where the issue has hit hardest. It does exist in these other areas.

I suppose we could go into individual cases, but that would take us all day and perhaps months or years to deal with.

I was wondering about the principle here, whether you have a problem with any of these areas, with the provisions of the act as they stand now.

Mr. Harry Chandler: I think the commissioner has said that the price discrimination provision—and we proposed it last time—is a strange provision and it probably should be repealed. What I mean to say is that we proposed it in the last round of amendments. But there are issues out there. Some businesses, some sectors of the economy, feel the need for having a criminal provision in that area.

Mr. Konrad von Finckenstein: Madam Chair, if you will allow me, I want to correct the answer I gave to Ms. Jennings.

The sections we are advocating for private access are refusal to deal with section 75 and section 77—tied selling, market restrictions, and exclusivity. I misspoke when I didn't mention market restrictions.

Ms. Marlene Jennings: Thank you.

The Chair: Thank you, Mr. Schmidt.

Mr. Cannis.

Mr. John Cannis (Scarborough Centre, Lib.): Thank you, Madam Chair. Let me also welcome the panel again. I know the focus of our meeting today was to discuss the VanDuzer report and deal with issues of competition. But pricing, and specifically gas pricing, is really the talk around every Canadian table today. I'll quote an article in the paper today:

The oil companies blame the recent surge in gasoline prices on soaring world oil prices, which they in turn blame on a combination of a supply shortage and increased global economic activity.

• 1005

I'd be unfair to the many people who have spoken to all of us, as representatives, on gasoline prices not to ask at least a question in today's committee.

I know of the extensive work, and the proof is with the report. Madam Chair, let me just take this opportunity to also convey my disappointment and support you in your comments this morning on the premature availability of the report.

I would like some comments, if you will, because every day we hear from constituents when we're home: “You guys up in Ottawa take care of the pricing; it's your responsibility”, etc. Maybe I'm doing it also for the purpose of putting certain things on the record.

Certain provincial governments, specifically the Ontario government today, are very aggressive in throwing the ball in the federal government's court.

I'd like your comments on it in terms of pricing—price regulation and price control. I know from a competition point of view there's been a lot of extensive work done, and there's work that is still unfolding and will unfold in the future.

There are many products that are on the market internationally that fluctuate up and down, whether it's vegetables, coffee beans, oil, or what have you, and there are other countries that are facing the same oil pricing per barrel as we are as a nation.

I've been told, and I've seen myself, that there is stability in the pricing at the pump. Is there some venue or some way that this stability could in the future be brought to our pumps, or are Canadians going to be facing, forever and ever, this immediate fluctuation that has existed in our nation over the last couple of years, this maybe hourly, daily, or weekly fluctuation that is causing, I believe—and it's what I hear as well—this anger that exists out there?

Mr. Konrad von Finckenstein: Yes, I'm well aware of the anger out there and the frustration. And as a consumer, I share that anger. These fluctuating gas prices are very difficult to understand.

As you know, oil is a product that is traded worldwide. There is an international cartel on oil production called OPEC, which sometimes works and sometimes doesn't. We seem to be going through a period right now where it works relatively well—from their point of view, i.e. they have managed to control output, which has the effect of raising the gas prices worldwide. That of course, works its way to what you pay at the pump. The effect, of course, is that people feel they always go up, they never go down. They also feel that they go up immediately and they take months to go down, etc.

We have done many studies on gasoline pricing over the last 20 years. The last one we did was when I just became commissioner, and it showed if there was any of what economists call “asymmetry” between the price of crude and the price of retail. You see that they actually do track very closely. They don't track immediately, there may be certain lags at a certain point in time, but essentially they're very tight.

The price is very volatile and it is extremely visible. Every Canadian sees it every day in three-foot high letters when they drive. They can't miss it. I don't think there's another price in Canada as well advertised, so it's something that's brought home right away.

We watch this very vigorously. When we can, we step in. For instance, as you know, last year Petro-Canada tried to buy Ultramar. We effectively stopped it by telling them we would oppose it very vigorously, because we thought it would lead to monopolization of prices in eastern Canada.

We bring prosecutions when we have the evidence. The evidence is very difficult. We just laid a charge against Irving Oil in Quebec, which is being prosecuted right now. Most of the ones we have are a local conspiracy to fix prices. We've never been able to find any evidence that there is a conspiracy to drive prices up or down between the major oil companies. I'm not saying there isn't one; I'm just saying that in our investigations, with all the tools at our disposal, it has not been uncovered.

We watch this market very vigorously, and where there is evidence, we prosecute against it. What you have, really, is what the economists call “conscious parallelism”. You have a mature product that is being sold by competing companies, and essentially, they follow each other in terms of price. But there is no agreement. They just see the competitor raising it up, then they raise it up. If the competitor goes down, they go down. But essentially, prices always come to the same level, which is very suspicious and looks like—

• 1010

The Chair: Commissioner, Mr. Cannis, I would really like to discuss the report that's before us today, so if you have questions related to gasoline pricing that you can relate to the report, I'd be more than happy to entertain them. But I'm not going to get into a discussion outside of the report that's in front of us today. With all due respect, Mr. Cannis, I've allowed this, and I don't want it to go any farther.

Mr. John Cannis: In terms of prosecuting, what you're saying to me, Mr. Finckenstein, based on what the report is saying, is that if the committee set up by the Ontario government brings forth concrete information, then that will give you the means and the tools to pursue.

Mr. Konrad von Finckenstein: Yes, if we have evidence. For instance, I mentioned the Irving prosecution. It is brought under section 61, which is one of the sections that is being reviewed by Mr. VanDuzer, the price maintenance. Our allegations are that Irving Oil effectively engaged in conduct contrary to section 61. Now of course we have to prove it and we have to be successful, but that's when you—

Mr. John Cannis: Thank you.

The Chair: Mr. McTeague.

Mr. Dan McTeague: Thank you, Madam Chair.

I have a couple of things on the question of pricing in general, based on the VanDuzer report. It's obvious we are proceeding to the next stage of discovery in terms of where competition is going. I'm just wondering if I might be able to enter into the record, Madam Chair, for the purpose of helping members of Parliament, that in the annotated notes by Robert Nozick, which I believe the counsel to the chair uses quite frequently, and I saw it during the deliberations on Bill C-235—on page 126 there is a footnote that says:

However, it is respectfully suggested that for those reviewable practices which by their very definition will almost always be competitively harmful, the advantage of civil burden of proof does not outweigh the disadvantage of non-prohibition.

It further suggests that:

A practice that characterizes reviewable trade practice does not carry with it civil damages action under section 36. 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.

Gentlemen, I have a number of documents—and I've shared them with you—from individuals who have suggested that there is, in many respects, a dissembling parallel between ourselves and the United States, and that:

In short, the section 45 requirement of market power has the effect of legalizing in Canada certain conduct that would be criminal in the United States.

I'm wondering if we could really look at the question of dealing with the deficiencies on criminal before we simply shift it over to civil, which is itself quite a red herring.

Mr. Chandler, you suggested that big is not necessarily bad. I agree with you, unless bigness had something to do with creating the act in the very first place, as Mr. Newman has suggested on page 156 of his book, Titans, where the Business Council on National Issues and others had a hand in creating the act we currently have, which is obviously, for many, unenforceable.

I believe the problem that exists, and the question I'm leading to, is a characterization of how the act itself...if it is not enforceable at the criminal side, then would it not be better to deal with the criminal aspects of the act? I appreciate, Mr. von Finckenstein, that the end of your remark to my last question was that price fixing perhaps could be moved to a per se offence—with removal of, I guess, certain words you haven't specified on that.

Given that the Business Council on National Issues, the Chamber of Commerce, and the legal community have resisted virtually any change to this act, how successful, gentlemen, do you believe you're going to be in being able to provide at least some level playing field or a modicum of change to an act that they created in 1986, which is having a devastating impact on the monopolization of this country? It seems to be the blueprint for the monopolization of Canada in many respects.

Mr. Konrad von Finckenstein: Let's start with one point.

First of all, we didn't agree with going to everything civil. That's one of the accommodations of Professor VanDuzer. I made it quite clear in my opening remarks that I don't believe in that. Secondly, in terms of the criminal part, you say that criminal provisions are unenforceable. That's a view we don't share. We do prosecute; we have cases on the go. This year we collected over $80 million in fines under section 45. For an act that can't be enforced, that's quite a bit of money that people—

Mr. Dan McTeague: As the result of the Americans doing the work for you on the same case—international conspiracy.

• 1015

Mr. Konrad von Finckenstein: I'm sorry, that's your interpretation, not mine. We prosecuted on the evidence we were capable of educing and on the basis of putting that evidence to the guilty parties. They chose to plead guilty, rather than prosecute with us, and paid a very significant fine.

In terms of the per se you mentioned, I mentioned there is a school of thought that believes these criminal sections could be made per se subjects in section 45. I didn't offer any opinion from the bureau at this time because we feel this is an issue that is very controversial. There are people who feel very strongly one way or the other. Full consultation on these issues should take place.

Price fixing is a relatively clear-cut case, but when you delve into section 45, it deals with more issues than price fixing. The issues rapidly become much more complex. There has been a lot of discussion on it. The section has been amended several times. You are always trying to find a balance in what the whole act is about. You want to encourage full competitive behaviour—very vigorous behaviour. You don't want to stand in the way. On the other hand, you want to deal with the abusive side, with the people who step over the line into really engaging in conduct that is not competitive, but it is hurtful.

Drawing that line is not simple. We will continuously amend the act. I will not be surprised if at some time we amend section 45, streamline it and make it better, but I cannot give you a clear-cut answer on how it should be amended and where. As I say, it needs to be updated.

Let's not forget that we have had very meaningful prosecutions under the act. We have collected more fines under this act in this last year than under any criminal provision in Canada ever. Let's not forget that. Nobody has ever before paid a fine of $28 million for a criminal act in Canada. We collected that last year. So I just don't agree with calling the act unenforceable.

The Chair: Thank you very much, Mr. von Finckenstein.

Marlene Jennings, you have a final question.

Ms. Marlene Jennings: Yes, I do. I want to come back to our discussion of the issue on the criminal side per se, on private right of access not civilly reviewable, so that the private right of access would allow for corrective justice—punitive measures.

You expressed a real concern that we don't want to see happen in Canada what we're currently seeing in the United States, where frivolous action is being taken. People are taking insurance companies to court, simply on the basis that the insurance companies will pay them to go away because civil litigation is so expensive.

Do you not think that in some ways we could learn from the American experience and build in mechanisms that would ensure if there were frivolous action—first of all, summary court judgment if it were found that the claim had no value, and if it were found to be vexatious or frivolous, there could be punitive damages brought? I like the idea of actually corrective justice.

We already see it in other areas that are dealt with civilly, like discrimination under the Charter of Rights and Freedoms. An employer, for instance, may refuse to hire or promote, or may have discriminatory practices under the Charter of Rights and Freedoms, section 15. They can actually be subject to not only paying damages to the individual who suffered, if they're able to show their damages, but also, if the acts are particularly reprehensible, punitive damages can be added on, to act as a deterrent to that employer and other employers.

If you don't have the answer right now on what your opinion is, I would like you to reflect on it and get back to us.

Mr. Konrad von Finckenstein: We definitely will reflect on this. You're making a trade-off here and a very difficult one. I am with you and Mr. McTeague. I think we should have private rights of access. It would be helpful and would create a lot of jurisprudence. It would give better, clearer understanding.

• 1020

I'm leery of it being abused. I don't want to go down the American road. Once you create those rights, you can never take them back. So you have to be very careful.

Mr. McTeague is absolutely right. We should have more litigation on some of these cases, and private right of access will produce that.

Those four sections I mentioned, it seems to me, are the ones where, really, you cannot make out a very convincing argument that there should be a monopoly of prosecution by the bureau. So I say let's open those up. Have some threshold at the beginning.

At this point in time I am suggesting that you deal with.... The moment you put damages, or punitive damages, as you suggest, you create an incentive for abuse. Of course, you can—and people will try—construct mechanisms to restrain that abuse. These are very difficult, and at the very minimum you're going to have litigation to determine whether or not the damages provisions do apply or not. You do create litigation, and litigation does create overhead burdens for the economy, so we should be very leery of it.

In my view, the first step, if we do actually take those four sections, is to create private access for it, and that is enacted. That would actually make quite a change to the act. It would create a different climate; it would create jurisprudence. There would be more awareness among suppliers and merchants, and it would shift the balance. I think at this point in time that is as far as you should go.

On the experience of that, one might, at some point in time, consider damages. If it doesn't work, one might come—I hope—to the conclusion that we are not the United States; this is Canada, and actually this works and you don't have to go further.

The Chair: Thank you.

Thank you, Madam Jennings.

Mr. Jones.

Mr. Jim Jones (Markham, PC): Madam Chair, I'd just like to go back to Mr. McTeague's comments on BCNI and Peter C. Newman's book. When he mentioned those, I never heard an answer from you.

Mr. Konrad von Finckenstein: Surely the acts are made by Parliament. It's you as parliamentarians who decide, after consultation and on the basis of a project that's put forward by the government. The government has consulted with all players, and of course BCNI was one the parties that was consulted. So was the CFIB. Small business is important. There were consultations with labour.

This was way before my time. This happened in about 1986. Further consultation representative of everybody...I don't know, but the final judgment was made here in this Parliament. It decided that these are the provisions that should be enacted. I can't comment on the role that was played by individual representative organizations and whether it was undue or not.

Mr. Jim Jones: Thank you.

The Chair: Any more questions?

We have no more questions—today.

Mr. Konrad von Finckenstein: Thank you. I love the qualification.

The Chair: However, we may have questions in the future.

I really appreciate you coming before us today, Commissioner, and your colleagues, and we appreciate the report. We have invited Professor VanDuzer to join us at the committee, so we may be interested in hearing some comments again. Thank you very much.

The meeting is now adjourned.