HERI Committee Meeting

STANDING COMMITTEE ON CANADIAN HERITAGE

COMITÉ PERMANENT DU PATRIMOINE CANADIEN

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, March 30, 2000

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[English]

The Vice-Chair (Mr. Dennis J. Mills (Broadview—Greenwood, Lib.)): I would like to welcome our guests. It's always exciting to have the Competition Bureau in committee. This is one of the most exciting sections of machinery in the Government of Canada.

We welcome you. Mr. Lafond, maybe you would introduce yourself. You could take the floor and away we go. We'll hear from you and then we'll have questions.

[Translation]

Mr. André Lafond (Deputy Commissioner of Competition, Competition Bureau): Thank you, Mr. Chairman. My name is André Lafond.

[English]

I am the deputy commissioner of competition, civil matters branch. I have with me Chris Busuttil, the assistant deputy commissioner in the civil matters branch.

[Translation]

I am pleased to have the opportunity to appear today before you and your committee, Mr. Chairman, to provide you with background information regarding the Competition Act and the mandate of the Competition Bureau.

[English]

My intent is to briefly describe the purpose of the Competition Act and the role of the commissioner of competition and the Competition Bureau. I would then like to provide you with a brief overview of our approach in analysing markets where allegations of abuse of dominance have been made. Finally, I will briefly discuss some possible issues regarding competition policy and the Canadian bookselling industry.

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[Translation]

The Competition Act is a framework law whose purpose is to maintain and encourage competition in Canada. It does so by prohibiting certain anti-competitive business practices.

[English]

These provisions of the act are not for the protection of individual competitors in the marketplace; rather, they are designed to promote competition in order to provide consumers with the lowest prices, the greatest product choices, and the highest level of product quality.

[Translation]

The Competition Act is a law of general application covering all unregulated business activity. As a framework law, the Competition Act maintains a clear and targeted focus, and does not deal with other public policy issues such as nationality of ownership, employment levels or regional economic disparities.

The statutory responsibility for the administration and enforcement of the Competition Act resides with the Commissioner of Competition. The Competition Bureau, which is part of Industry Canada, provides the Commissioner with the resources and expertise necessary to fulfil his statutory mandate. The role of the Competition Bureau under the Act is investigative. When we believe that a particular practice contravenes the Act, we encourage businesses to alter their behaviour to eliminate the source of concern. However, the Bureau has no statutory authority to decide the law, control prices, or directly compel businesses to alter any particular type of conduct or policy.

[English]

As an enforcement organization, the role of the bureau is to investigate potentially anti-competitive conduct and, where appropriate, bring such matters to the appropriate judicial body. Under the criminal provisions of the act, the bureau must apply to the Attorney General to have the cases taken to the courts for action. Under the civil provisions of the act, the bureau must establish, before the Competition Tribunal, that contravention has occurred in order for the tribunal to take remedial action.

For actions to be taken against anti-competitive conduct, it must be factually demonstrated that the conduct meets the test and requirements outlined in the relevant provisions of the act. It is necessary to factually establish that the practice has or is likely to have the effect of substantially or unduly lessening competition in the relevant market.

[Translation]

The provisions of the Act apply to a broad range of business practices including abuses of a dominant market position, anti- competitive mergers, conspiracies to fix or maintain prices, deceptive telemarketing and other activities as defined in the Act. Section 79 of the Act is designed to remedy situations where one or more firms are using a position of dominance to substantially lessen or prevent competition. It should be noted that obtaining market dominance through a legitimate competitive process does not contravene the law. Concerns arise when this market dominance is being abused to the detriment of competition.

[English]

Before a remedial order may be obtained from the Competition Tribunal under this section, three essential elements must be found: one or more firms substantially or completely control a relevant market; the dominant firm or firms have engaged in a practice of anti-competitive acts; and the practice has prevented or lessened, or is likely to prevent or lessen, competition substantially in a market.

Where the tribunal concludes that a company has abused its dominant position, it may prohibit the conduct in question or make any other order it deems necessary to address its concerns.

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[Translation]

With respect to the element of "control", the Tribunal has determined that this term is synonymous with market power. The most straightforward example of market power is the ability to profitably raise prices above competitive levels for a considerable period of time.

It is sometimes difficult to measure market power directly. Consequently, the Bureau collects evidence and assesses a number of qualitative and quantitative factors. However, one of the key factors on which the Bureau places great emphasis is market share. All other things being equal, the higher the market share held by a firm, the greater likelihood it will possess market power.

[English]

There are no hard and fast rules as to the relationship between market shares and dominance. However, the bureau's general approach in evaluating allegation of abuse of dominance is as follows. A market share of less than 35% will generally not give rise to concerns of market power or dominance. A market share of over 35% will generally prompt further examination by the bureau. A market share greater than 50% in the case of a single firm will prima facie be considered dominance.

[Translation]

I would now like to spend a few moments addressing some possible issues regarding competition policy and the Canadian book- selling industry.

The Canadian market for book sales in Canada is both diverse and dynamic. In defining the book retail market, the Bureau would generally consider the sale of trade books, that is, mass market paperbacks and hard-covers, normally sold through traditional bookstores, book superstores and the Internet. Niche players, who only offer a limited number of books, are not considered part of the market; however, their impact, if any, on the market will be taken into account.

Is vertical integration an anti-competitive activity under the Act? The answer is no. Vertical integration is not an anti- competitive practice; in fact, vertical integration can represent a pro-competitive and efficiency-enhancing strategy by a firm. However, should vertically integrated firms engage in an anti- competitive act, the Bureau would not hesitate to intervene.

[English]

The bureau is aware that there have been reports of closures by independent booksellers. In this regard it should be stressed that closure in any industry would only create a concern under the Competition Act if such closures are the result of anti-competitive activities in the market and not due to the ongoing pressures of operating in a competitive and dynamic marketplace.

The act is intended to ensure that all firms have an equitable opportunity to compete. It does not afford special protection to those who cannot withstand the normal pressure of competitive markets.

In our discussions with some members of the Canadian bookselling industry, the issue was raised as to whether or not the bureau's analysis under the Competition Act included some consideration of cultural concerns. As I indicated earlier, the act is a law of general application with a clear and targeted focus on competition. Consequently, it does not deal with other public policy issues such as, for example, the nationality of ownership or the need to promote and maintain cultural objectives. Such an approach is consistent with the anti-trust approach taken by Canada's major trading partners.

When governments decide that a particular industry requires some form of special or preferential treatment, this is accomplished through the introduction of specific programs or legislation targeted to the particular industry concerned. Those activities of the industry that would fall under direct regulation resulting from such specific legislation would be exempt from the scrutiny of the Competition Act.

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[Translation]

As committee members are aware, the Bureau has conducted an investigation into the creation of Pegasus by Chapters Inc. In this regard, it is important to note that Bureau examinations are conducted in private and that Bureau officials are bound by the Act's confidentiality provisions. Accordingly, I can only provide information which is in the public domain in this matter.

[English]

The bureau has concluded that the mere creation of Pegasus by Chapters does not contravene the Competition Act. The facilities used to establish Pegasus were wholly owned by Chapters before being used to form the wholesale operation. Their transfer to Pegasus, which is majority owned by Chapters, was essentially a reorganization of assets, rather than a change of ownership.

While the creation of Pegasus does not create competition law concerns, any business activity engaged in by Chapters or Pegasus is subject to the Competition Act. Given the significant market presence of Chapters and the evolving business activities of Pegasus, the bureau is continuing its investigation and monitoring developments in the market.

[Translation]

In conclusion, Mr. Chairman, I would like to remind all committee members that the Competition Act exists to promote and enhance competition in the marketplace. When there is evidence of anti-competitive activities that contravene the Act, the Bureau will not hesitate to bring these issues to the appropriate judicial body for remedial action.

My colleague and I will be pleased to answer any questions you may have. Thank you.

[English]

The Vice-Chair (Mr. Dennis Mills): Thank you very much, Mr. Lafond.

Just before I turn the question exercise over to you, Mr. Mark, I'd like to ask Mr. Lafond one simple question: when was the last time Parliament reviewed the Competition Act?

Mr. André Lafond: Do you mean a complete review?

The Vice-Chair (Mr. Dennis Mills): Yes.

Mr. André Lafond: I believe it was 1986.

The Vice-Chair (Mr. Dennis Mills): Okay. Mr. Mark.

Mr. Inky Mark (Dauphin—Swan River, Canadian Alliance): Thank you, Mr. Chairman.

I thank our witnesses for being here today. It's very important that you're here today, because that in essence is the big item with regard to the whole issue of competition in the book publishing industry.

What I'd like to hear from you is what is needed for the Competition Bureau to begin an investigation. In this particular case fingers are pointed at Chapters and Pegasus. I'd like to know how many complaints or allegations were received by the Competition Bureau with regard to the subject we're here to discuss. How long has this been going on?

Mr. André Lafond: The process for the bureau to start an investigation is very straightforward. We act on a single complaint or a number of complaints. As soon as we have a complaint, we start a preliminary examination of the complaint. If we believe the issue being raised falls under some of the provisions of the act, we carry through with an examination. If through this preliminary examination we believe there is an anti-competitive activity taking place, we move to a formal inquiry.

When we are in formal inquiry, that means we can use some special investigating powers. We can subpoena witnesses, we can ask for the production of documents, and we can ask for sworn depositions by witnesses. After our formal inquiry, we either close the file or, if we have a case before us, we submit an application to the Competition Tribunal. We ask them to issue an order asking the firm in question to stop the practice or to take any other measures the tribunal feels appropriate to rectify the situation.

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So we don't need a panoply of complaints. We generally act on a single complaint. Every complaint that is submitted to the bureau is being looked at, at least in a preliminary way, to determine whether or not there is an issue there.

Mr. Inky Mark: In other words, you're saying that their complaint does not have to be accompanied by some evidence. It's just that they believe competition is being infringed.

I go back to my original question: how many complaints have you received regarding Chapters and Pegasus, and how long have the complaints been in existence?

Mr. André Lafond: I cannot discuss in detail the Chapters-Pegasus investigation that is going on within the bureau because of the confidentiality provisions of the act, but I can tell you that it is in the public domain. The investigation started last spring when the Canadian Booksellers Association submitted a complaint to the bureau, and it's ongoing.

Mr. Inky Mark: Through this process, have you consulted with the target, Chapters-Pegasus?

Mr. André Lafond: When we are on investigation, we do carry it out through a variety of sources. We talk to the complainant, of course; we talk to people in the industry; and we talk to the companies against which a complaint is made. We will also use whatever information the bureau has on the particular industry, having had previous complaints or having dealt with such issues in the past.

So we do consult with the industry. We do consult with industry associations and individual companies as well. We have access to whomever we wish in order to carry out our role of investigating a complaint.

Am I answering your question?

Mr. Inky Mark: This also deals with technology change, and that's one of the issues. Do you have any means of monitoring or verifying activity through e-commerce to substantiate your data?

The Vice-Chair (Mr. Dennis Mills): If I understood your testimony, you have complete access to the financial statements of corporations. Is that correct?

Mr. André Lafond: If we require those financial statements, yes, we do.

The Vice-Chair (Mr. Dennis Mills): That's interesting.

[Translation]

Mr. de Savoye.

Mr. Pierre de Savoye (Portneuf, BQ): Mr. Lafond, what you have explained to us is very interesting, and I clearly understand the bounds which apply to your activities. I also understand your implication that we are perhaps not dealing with just an issue of competition. There are perhaps other factors to which the committee should pay attention, if it wishes to ensure that a certain number of cultural imperatives are respected, because these factors are not purely and simply competitive issues.

What I understand you to have said, is that you conducted an investigation and this investigation allowed you to observe a number of facts that are not necessarily infringements of the Competition Act, but which are nevertheless intriguing enough that you wish to continue this investigation, which is what you are doing.

We had the opportunity to hear various witnesses. Everyone knows that it is not easy to obtain precise information. Some witnesses are somewhat hesitant to provide facts. Do you have the same problem? Do you have trouble obtaining factual information from complainants? Do you, like us, have the impression that they are afraid to come forward? I ask you to reply without referring to specifics.

Mr. André Lafond: That is a very good question. It is a question that is certainly in the minds of people who file complaints with the Competition Bureau. To answer your question directly, the Competition Act does contain a section on confidentiality. When we have a complaint, unless the complainant makes the complaint public, the firm against which the complaint is filed does not even know the complainant's name. All the information given to us when we are conducting an investigation and when we are working on a file is absolutely confidential. It is never conveyed to anyone. It remains with the Bureau. If we have to go the marketplace to obtain information, we use the information that was provided to us, but in a generic manner so that the complainant is not identified specifically.

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Of course, there may be certain cases where people would not normally or voluntarily wish to provide us with the information we need. This applies both to complainants and to the firms against which the complaints are filed. In such cases, if we are conducting a formal inquiry, we can obtain a court order requiring that the industry or person in question provide the documents we need or give us a written, sworn deposition in response to our questions. Therefore, if they do not want to provide us with what we need, we can obtain it indirectly by means of a court order. However, all the information that is provided to us is confidential and is not disclosed on the marketplace.

Mr. Pierre de Savoye: I had no concerns about the confidentiality of information provided to you, but rather about the atmosphere, in particular in this case. Do you feel that there is a reluctance on the part of complainants when they are asked to reveal information? What is the atmosphere? It is important for us to know how the industry feels with regard to small players pitted against major players. Do you feel that the complainants are uncomfortable disclosing problems because they fear reprisals? That, basically, is my question.

Mr. André Lafond: Once again, I cannot talk about a specific case. Generally speaking, people may hesitate to speak out or provide information publicly, but they should not have that problem in the context of the Competition Bureau's investigation.

Mr. Pierre de Savoye: You are saying that people may feel that, but that they should not in fact worry because you are guaranteeing complete confidentiality.

I have one last question, Mr. Chairman. You are continuing with your investigation and watching the situation closely. Do you have a time frame to table your report or conclude this investigation, or are you monitoring the industry, perhaps not forever, but for a certain period of time?

Mr. André Lafond: We do not have a definite timetable. We need to obtain evidence, if there is any, of anti-competitive practices, and if there is evidence, we continue looking into things. If there is no evidence, we discontinue our work.

At present, we are doing a study; we are not yet doing an investigation. The next step may be to discontinue our study. At that point, the results of our study will be made public, since the issue is in the public domain, and we will clearly indicate our reasons for deciding to discontinue the study. If we carry on with our work, the industry will be notified that we are doing so.

It is very clear that, whatever the case, we are trying to act as quickly as possible.

Mr. Pierre de Savoye: Thank you. Mr. Lafond.

Mr. André Lafond: You are very welcome.

[English]

The Vice-Chair (Mr. Dennis Mills): Thank you very much.

Before I turn it over to Mr. Bélanger, how many persons are involved at the Competition Bureau?

Mr. André Lafond: There are 325 people in the Competition Bureau.

The Vice-Chair (Mr. Dennis Mills): How many investigators are there?

Mr. André Lafond: There are 150 in the regional offices. The bureau administer four acts, so it's not just the Competition Act. There are the labelling statutes; there are three other acts, the trademarks....

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In terms of investigators themselves, there are perhaps 150, but I don't have the exact number.

The Vice-Chair (Mr. Dennis Mills): To be qualified as an investigator, what type of experience or what kind of a background do you have to have?

Mr. André Lafond: The act has two elements. One element is legal because we administer an act, and the act is based on economic principles in terms of the marketplace, the way companies operate. Therefore, essentially what we're looking for when we're hiring somebody for the bureau is someone who has a background in economics, in businesses, or in law. These are essentially the types of people working for the bureau.

The Vice-Chair (Mr. Dennis Mills): Thank you.

Monsieur Bélanger.

[Translation]

Mr. Mauril Bélanger (Ottawa—Vanier, Lib.): Mr. Chairman, I will try to be quick because I have a number of questions.

First of all, does the Act governing your activities give the Bureau responsibility or the right to intervene with other government or quasi-judicial bodies in order to express your opinion?

Mr. André Lafond: The answer is yes.

Mr. Mauril Bélanger: Would it be possible to find out how many times the Bureau has asked to intervene with these bodies, such as the CRTC, the Copyright Board and other bodies, over the last few years? Could we get that information?

Mr. André Lafond: Yes, we could give you that.

Mr. Mauril Bélanger: Is it something you do often?

Mr. André Lafond: I would say that, on average, we make about 10 representations a year.

Mr. Mauril Bélanger: Okay.

Mr. André Lafond: But it varies from one year to the next.

Mr. Mauril Bélanger: Is that information available?

Mr. André Lafond: Yes, it is available and it applies not only to federal bodies, but also to those at the provincial level.

Mr. Mauril Bélanger: My second question is did you reach a conclusion, in your preliminary investigation in this area, regarding the percentage of market share currently held by Chapters?

Mr. André Lafond: No, not specifically, but we know that Chapters has a significant share of the market. That is part of the analysis we are doing now.

Mr. Mauril Bélanger: You have not yet come to any conclusion on that.

Mr. André Lafond: No.

Mr. Mauril Bélanger: All right. If I understand correctly, the analysis started last spring. In November, one of your people, Mr. Taylor, sent a letter to the Canadian Booksellers Association—I have already quoted that letter to the committee, by the way, and we have it before us this morning—indicating that you still had concerns and that you were going to continue to investigate before deciding whether to close the file or conduct an investigation. Is that the case?

Mr. André Lafond: Yes.

Mr. Mauril Bélanger: If I correctly understood what you were saying earlier, it was that when you receive a complaint, you do a preliminary analysis of it. Where appropriate, you conduct a preliminary investigation and if there are grounds to continue, you then carry out a formal investigation. After the formal investigation, you close the file and turn to legal remedies. Is that right?

Mr. André Lafond: Yes.

Mr. Mauril Bélanger: In this case, we are at the preliminary investigation stage. How long can a preliminary investigation take?

Mr. André Lafond: There is no specific amount of time allotted.

Mr. Mauril Bélanger: Is there a rule of thumb or an average?

Mr. André Lafond: No, there is no rule of thumb because each case can be different. In some cases, it can take 10 days, two weeks, two months. It depends on the complexity of the issue.

Mr. Mauril Bélanger: Can it take a year?

Mr. André Lafond: No, not usually.

Mr. Mauril Bélanger: But this particular preliminary investigation has been going on for a year.

Mr. André Lafond: A complaint was laid last spring.

Mr. Mauril Bélanger: All right, but you do not know how much longer it might take?

Mr. André Lafond: At present, no.

Mr. Mauril Bélanger: Would it be possible for us to find out what types of proactive steps you are taking to go after the information and motivate people to seek you out instead of waiting until people decide to speak up? Does the Bureau actively go after the information it needs? For example, have you done anything or do you intend to do anything to find out how book publishers see their situation in the industry at present? Are you doing that?

Mr. André Lafond: We are specifically doing two things. First, we are naturally encouraging all those with specific information to come forward and provide it to us.

Mr. Mauril Bélanger: How do you do that?

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Mr. André Lafond: Firms know that we are carrying out a preliminary investigation. They know we are looking into a particular issue. If they have something to provide to us, they do so. As well, the Competition Bureau identifies certain market players and contacts them. We discuss the matter over the telephone or they come to see us. We are proactive. We do not just wait until people come to see us.

Mr. Mauril Bélanger: Could a body like this committee give you a list of publishers and other people to contact? Would that be an acceptable procedure?

Mr. André Lafond: The committee can give us names. Then we can decide whether to contact all of them or just some. Of course that can be done. We would be pleased to receive such a list.

Mr. Mauril Bélanger: We heard...

Mr. André Lafond: That would also enable us to do some comparisons.

Mr. Mauril Bélanger: For example, the media have talked about a company—we are not in camera here—that had all its books sent back to it because it had refused to comply with a request to increase its discounts. I am wondering whether, once a case is out in the media, the Bureau can be expected to get in touch with the company in question and investigate the situation.

Mr. André Lafond: On any given issue, we take into account all the information that is brought to our attention, whether privately, publicly or through the media. If we feel it would be appropriate to contact a given company because it will help us in our investigation, we do so. We are proactive in that way as well.

Mr. Mauril Bélanger: I will come back to this later. According to what Mr. de Savoye and other colleagues have heard—we are not inventing this—some publishers would like to talk about their experiences with Chapters-Pegasus. This was said by witnesses, and you can check that in the committee proceedings. By the way, I would encourage you to read the committee proceedings, which could give you valuable information. Some companies hesitate to go public about their discussions or dealings with Chapters-Pegasus out of fear of reprisals.

I am trying to find out how we can help you get to the bottom of things because I, personally, find it unacceptable that people should be afraid to speak out. For this to be the case in our country is deplorable. Second, if we want to have a clear picture of the situation, these people need to provide the information, because if they do not, there will be no point to this work. People will be dealing only with insinuations and allegations. That is also deplorable.

I understand the need for confidentiality, but if we provide you with a specific list, we need to know from you whether we can expect you to investigate and whether these people can be protected by the confidentiality clause that governs your work.

Mr. André Lafond: We will certainly speak to them.

Mr. Mauril Bélanger: Thank you.

[English]

The Vice-Chair (Mr. Dennis Mills): Excellent point, Monsieur Bélanger.

Mr. McTeague.

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

Mr. Lafond and Mr. Busuttil, I have some understanding of this issue in other areas of the marketplace, particularly oil and gas and groceries, so the questions I am going to ask are really about the efficacy of your act as it is currently written.

Under the civil provisions, the bureau must establish before the Competition Tribunal that a contravention has occurred, as you pointed out here. First of all, we're not really dealing with civil; we're really dealing with civilly reviewable. Is that correct?

Mr. André Lafond: Right.

Mr. Dan McTeague: The distinction being that each case is on a case-by-case basis.

I'm interested in the words because words mean a lot obviously in terms of this act. When one refers to the fact that determination of market abuse or market size is based on relevant market, could you explain to this committee what the cases...? Clarke and Nova Scotia Pharmaceutical Society dealt with collusion, specifically under abuse of dominance. What does relevant market mean, for instance, in the case of NutraSweet?

Perhaps you could explain the difficulty your bureau is having in trying the convince the tribunal of a potential abuse of dominance situation with respect to Superior Propane.

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That would be my first question, but before I ask you to answer it, I'd also ask if you could tell the committee here whether or not, when you approved the merger in 1995, you had taken into consideration not the oligopoly—that's the power they have in the retail—but the matter of oligopsony, the power to tell manufacturers, or in this case booksellers, publishing companies, etc., that they may be faced with a situation that is potentially abuse of dominant position. Did that enter into the equation before the merger was approved in 1995?

Mr. Chris Busuttil (Acting Assistant Deputy Commissioner of Competition, Competition Bureau): The short answer to that is yes, it was. A backgrounder was put out at the time the merger was reviewed; I have a copy here. We were very cognizant of the fact that both Smith and Coles at the time had a significant part of the market. I believe we referred to it as being in excess of 50% of retail sales. As a consequence of that, we recognized it would have significant buying power in the market. So this oligopsony or monopsony sort of—

Mr. Dan McTeague: So it went beyond your thresholds that you've explained here in the first place?

Mr. Chris Busuttil: Certainly this merger was looked at with a tremendous amount of scrutiny. It certainly met the merger enforcement guidelines, which are very similar to our guidelines, in terms of defining what the product markets were, what the market shares were, and where there were bright lines of concern. Yes, the market share thresholds at that point certainly were significant enough to prompt further scrutiny.

At the time the decision was rendered to allow it to go through, we put together a fairly detailed piece on what the issues were.

Mr. Dan McTeague: The reason I raised that is I now see that if you had approved a merger knowing it would possibly lead to that and nevertheless you went ahead and did it, it would have something to do with your stated goal on page 4, which is that before a remedial order can occur, three elements must be looked at, one of which is whether the firm substantially or completely controls a relevant market.

If I'm to understand that in the context of what you've said, that the Canadian book market is currently both diverse and dynamic, and if I put that over the other issue you've raised, that there seems to be plenty of competition from the Internet, book superstores, and bookstores themselves.... If indeed you've allowed—I don't want to make an embarrassing remark here—the excuse of the relevant market to allow you to get away with breaking through the threshold levels such that you have the problem you have today....

Is that the case? Was the relevant market argument used? Because I want to talk about the relevant market, if it's indeed the case that it allowed this almost near-monopoly to occur, both at the wholesale and at the retail levels.

Mr. André Lafond: Are you talking about the time of the merger?

Mr. Dan McTeague: The time of the merger.

Mr. Chris Busuttil: It's important to put things in perspective. At the time of the merger, you were looking at a merger of Smith and Coles. Chapters and the large-format retail stores didn't exist. The market analysis done at that point was basically focusing on whether the merger of Smith and Coles in 1995 would create significant market power of sufficient size to create a substantial lessening of competition under the merger provisions.

The analysis done at that point in time, which is on the public record in the release done then, basically concluded that the available evidence didn't suggest they had that market in 1995.

Mr. Dan McTeague: Because it was based on the relevant market? I want to understand that. You looked at the relevant market and felt it was not enough to prevent the merger in the first place?

Mr. Chris Busuttil: It was certainly an important part of the analysis, yes.

Mr. Dan McTeague: Then let me explain my understanding. Certainly my reading of the Competition Act suggests that the relevant market could be, as in the case of Nova Scotia Pharmaceutical Society or as in the case of NutraSweet—on which you were successful, and I compliment you—or as in the case of Clarke Transport in 1995, where freight was arranged, prices were rigged, and several operators decided they were going to, with the full intent of fixing a price on freight between Ontario and western Canada.... The consequence at the Supreme Court of Canada at the time, if I'm not mistaken, was that because freight by truck was not the relevant market and intermodal rail was also considered, they were in effect not abusing the relevant market.

My concern here is that the determination of your threshold sounds great on paper, but when you juxtapose that to the question of relevant market, you ultimately give a rubber stamp to virtually any merger that occurs in this country. Even when you do have a legitimate case of where the relevant market is being affected, as we're seeing in Superior Propane, the tribunal is going to fight you to the nth degree using those rather high thresholds that are impossible to achieve under your act.

Do you currently have any mechanism for cease-and-desist within the provisions of section 79 or other provisions of the act?

Mr. André Lafond: We don't at the moment.

Mr. Dan McTeague: So even if you determined there was something wrong here, you still wouldn't have the ability to enforce the act and say “Look, for a thirty-day, fifty-day, eighty-day, or whatever period, we want you to cool off until we can actually see what's gone”? In other words, you can't prevent the potential damage that might be there, which is being raised by those who are alleging that they're being put out of business?

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Mr. André Lafond: We don't have that power within the bureau. We have to go to the Competition Tribunal to obtain an interim order, and we have then a specific period of time to submit an application to the tribunal.

Mr. Dan McTeague: If I were ill and I wanted to seek the advice of a physician, I would want to put myself in the position of going to that tribunal. Unless I can convince you and you can convince the tribunal, do I have any private right of access to that tribunal? In other words, say I'm a bookseller or a publisher, whatever the case may be, and I'm going to lose my business in the next ninety days. I can't sell my product, because Pegasus, which is owned by Chapters, has such a huge control over the industry that unless I play by their game, go with their discounts, and offer my product, I may be out of business. Can I not go to the tribunal and ask them for an injunction?

Mr. André Lafond: Under the existing legislation, only the commissioner can go to the tribunal to present a case against the civil—

Mr. Dan McTeague: Unlike the United States. I see that in the bureau's letter some time ago there was a comparison between Barnes & Noble and Ingram in the U.S. Under the Plaintiff Act in the United States, I can go as a private citizen and say “I've been affected; I'm being hit here”, and take it to any court of competent jurisdiction, but I cannot do that in Canada. Okay.

This is my final question, Mr. Chairman, with your indulgence.

The Vice-Chair (Mr. Dennis Mills): Absolutely. You're doing well.

Mr. Dan McTeague: There are several others that will probably come up here.

Gentlemen, I have some trouble understanding why your bureau would not have availed itself of the ability at least to cease and desist. If it sees something potentially wrong, why would it not recommend actions that would allow it to have...?

Your act says a lot, but it seems to be practically impossible to enforce, and it's rather an obtuse document, because while it gives us the chance to believe there are a lot of mechanisms in here that protect the individual and protect competition where that is possible, it is not.... We have an expression in French: C'est un peu boiteux. It's a little flimsy. It doesn't have the ability to actually address a problem instantaneously. It takes a long time for these things to occur.

In this case, should you be successful and bring this matter to the tribunal, will you have the ability to ensure that companies such as Chapters or any other company that engages in similar activity...? Should it be decided by you and the tribunal that there is a problem, will that have an application to other industries? Will it have an effect in injunctive or general application in law?

Mr. André Lafond: When we apply to the Competition Tribunal, the decision by the tribunal is applicable to the particular case that is presented to them and does not apply to the whole of the industry.

Mr. Dan McTeague: Doesn't that make your job difficult, Mr. Lafond, if you guys do it case by case?

Mr. André Lafond: Well, that's the way the act is written, but once you've—

The Vice-Chair (Mr. Dennis Mills): Pardon me. We have to remember—and we had this instance the other day with Investment Canada officials—if we have flaws in the act, then it's our legislative responsibility to call for an intense review of the act. The officials are only there to implement what we give them.

Mr. Dan McTeague: I have a final question, Mr. Chairman.

The Vice-Chair (Mr. Dennis Mills): Okay.

Mr. Dan McTeague: Has it been brought to your attention or are you aware from this investigation of the practice of using slotting fees or shelf fees by Chapters or Pegasus, or perhaps wholesale fees, stocking fees, or warehouse fees?

The Vice-Chair (Mr. Dennis Mills): Pardon me. Many of our listeners might not know what slotting fees are, so could you explain that to all of us?

Mr. Dan McTeague: It's the ability of a large retailer, perhaps through its warehousing agent, its warehousing arm, to charge a given book publisher a fee for putting the book on the shelf in their large stores, given that they constitute such a large portion of the marketplace.

Are you familiar with that as an occurrence with respect to this particular issue of Pegasus-Chapters?

Mr. André Lafond: I cannot answer that specific question, since we are under investigation, but we are aware of the general issues you're raising about listing fees.

Mr. Dan McTeague: Have those who've complained raised it in any letters made public that you're aware of?

Mr. André Lafond: Not that I'm aware of.

Mr. Dan McTeague: Okay.

Mr. Lafond and Mr. Busuttil, in your answers, you've told some members of Parliament here what needs to be done, and I thank you for your candour.

The Vice-Chair (Mr. Dennis Mills): We're not finished.

Mr. Dan McTeague: I'm finished. I can't ask more questions.

A voice: There's a quorum call for the House.

The Vice-Chair (Mr. Dennis Mills): That's not going to affect us.

Ms. Lill.

• 1210

Ms. Wendy Lill (Dartmouth, NDP): Thank you very much for coming before us. I was interested in your comments that the Competition Act is not really interested, particularly, in the nationality of ownership.

However, I have a question I would like to ask, given the fact that I think there is a concern about the viability of the industry, which may involve ownership. I want to discuss one of my major concerns. At one of the first meetings we had to discuss the book publishing industry, I asked the dominant bookseller in the industry whether they had talked to a major foreign chain about a takeover. The answer was no, but I'm still concerned about that possibility.

Here's the scenario that scares me. The publishing industry is chronically undercapitalized. I have a press release quoting the Minister of Canadian Heritage about this very fact, from January 20, after the Bertelsmann acquisition was accepted. It's chronically undercapitalized and cannot withstand large financial shocks. I think you know that. The dominant player continues to close or, as they say, “rationalize” some of the stores they got through their earlier mergers. We see more independents going out of business. I would say that's not unusual. We could say that at least 50 of them have gone out of business in the last few years. We saw the Lichtmans chain go out of business last month; that was 10 stores.

So if the dominant player is the e-com division and the wholesalers lose money and their share price continues to fall, which I understand has been the case.... And the reason could be anything: it could be the increased cost per square foot, or the intrinsic difficulties of on-line shopping, whatever, an act of God, or a financial institution starts to liquidate its assets. It seems to me there are only two scenarios left, which I think are very important to the Competition Bureau.

This large player could start sending back their inventories to the publishers, causing a negative cashflow across the industry for a full fiscal quarter, which would push most of them over the edge and out of business. That has to, in your estimation, have a major impact on the relevance of the industry. Or they could appeal to the government to change the investment rules so that a foreign company that already has shareholders could increase their investment...thus helping to protect the huge historical investments Canadians have made, which are, as we know, over $1 billion over the last 30 years in this industry. That would give a foreign company real control over our book retail and distribution sector in the name of saving a Canadian industry.

This is a scenario that is not at all off base. I'm interested in the fact that we hear at this point that you're just at the investigation stage. There are things moving very quickly here. I'd like to know what assurances you can give this committee that you would prevent these kinds of scenarios, that you have the power to prevent them. Obviously we're seeing an industry that is on life support. Critical bumps in it can destroy it. In fact, to me, that seems to be right up the Competition Bureau's alley.

The question is, what assurances can you give this committee that you would prevent those kinds of scenarios from happening?

Mr. André Lafond: You raise a number of public policy issues in raising your question.

The assurance I can give you with respect to the administration of the Competition Act is that if during our investigation we can establish that there is an anti-competitive act taking place and that it has a substantial effect on the competition, we will take a case, as we would do in any case, to the Competition Tribunal for remedial action.

Ms. Wendy Lill: A situation such as this, though, is quite a unique situation. It is an industry that has been heavily subsidized by the Canadian government. We have a cultural industry here, which is quite different—but we don't have to go into that at this point. The fact is, though, that the Competition Bureau has allowed a certain new element to become part of the industry, that is, the introduction of a dominant player and then the vertical integration of a wholesaler within that. This is taking place at the same time that enormous public moneys have gone into protecting, nourishing, and cultivating a Canadian publishing industry.

• 1215

These things could in fact be—and appear to be, to everyone we've talked to—on a collision course. Where is the Competition Bureau in this? They seem to have set in motion one thing that is in fact going to quite possibly destroy the very industry the Canadian people and the Canadian government have been nourishing for 30 years. I just can't understand how we can allow that collision course to continue.

Mr. André Lafond: We certainly wouldn't want to see the industry disappear. That's a given. As I said in my opening remarks, we are aware of the substantial presence of some of the key players in the industry and we will definitely take whatever action we deem appropriate if there is an anti-competitive act taking place and if we can prove it and take the case to the tribunal.

Ms. Wendy Lill: I just have one more brief question.

The Vice-Chair (Mr. Dennis Mills): Absolutely.

Ms. Wendy Lill: Last January, Minister Manley basically allowed the application of the Bertelsmann takeover to occur. At that time, Minister Copps said she was sensitive to the issues raised by the Canadian publishers. I have a press release here. For that reason, Minister Manley and Ms. Copps had:

agreed to initiate a comprehensive study of the competitiveness challenges faced by Canadian publishers - including chronic undercapitalization of domestic companies - with a view to developing new polices and programs to strengthen the Canadian-controlled book publishing sector.

I'm not trying to be facetious here, but I'm wondering if that is what we're doing here, or is a separate investigation occurring? I'm just not aware of that. What is the status of that particular announcement Ms. Copps made nine months ago? Obviously that has to have a large part in this exercise we're all involved in right now, this critical exercise.

The Vice-Chair (Mr. Dennis Mills): That's Heritage.

Mr. Mauril Bélanger: Am I a witness here?

Some hon. members: Oh, oh!

Mr. Mauril Bélanger: But I appreciate that, and I will get an answer for Ms. Lill.

Ms. Wendy Lill: Okay.

The Vice-Chair (Mr. Dennis Mills): Mr. Bélanger.

[Translation]

Mr. Mauril Bélanger: Mr. Lafond, I asked you earlier whether your preliminary investigation had determined what percentage of the market share Chapters and its affiliated companies controlled. You told me that you had not reached any conclusions on that. Is that right?

Mr. André Lafond: We have not been able to say...

Mr. Mauril Bélanger: You had not come to any conclusion.

Mr. André Lafond: We had not come up with a figure.

Mr. Mauril Bélanger: I would like to come back to this in light of the questions asked by my colleague, Mr. McTeague. If the bureau had concluded in 1995 that the merger of Coles and Smith amounted to over 50% of the market, would you agree with me that today, Smith, Coles and all the big-box Chapters stores, which are growing at an amazing rate, can certainly hold a smaller percentage of market share than the two companies held in 1995?

Mr. André Lafond: That is true.

Mr. Mauril Bélanger: Can it therefore be said—I am going to use your words—that there is prima facie case of market dominance? One company having over 50% of market share constitutes prima facie evidence that that company holds a dominant position. Can that already be asserted?

Mr. André Lafond: Yes.

[English]

Mr. Chris Busuttil: Clearly, at the time of the merger the conclusion drawn was that Smith and Coles were responsible for in excess of 50% of book sales. At the time, following the merger, Smith and Coles withdrew stores out of malls and re-channelled stuff into the Chapters format, so clearly they still have a substantial amount of market share.

In terms of whether it's a prima facie dominance, based on that one would assume that they meet the prima facie definition, but it clearly would require more examination. It's not simply an assessment of market share that leads us to conclude dominance exists. You have to look at it in the context of other factors, such as barriers to entry into the market, the effective strength of other competitors in the market, and whether there is countervailing power in the market—in this case, by publishers.

• 1220

Mr. Mauril Bélanger: I'm not dealing with that. I'm dealing with your own presentation, sir. I'm very respectful here.

You say “There are no hard and fast rules as to the relationship between market share and dominance.” Fine. Then you say “However, the Bureau's general approach to evaluating allegations of abuse of dominance is as follows”. The third point there is that “A market share greater than 50% in the case of a single firm will prima facie be considered dominant.”

In terms of that sentence there, are we to conclude today, based on your 1995 conclusion and the growth since then of that company, that they are to be considered as having a greater than 50% share of the market and therefore dominant? Can we conclude that? If not, tell me why not.

Mr. André Lafond: If they have 50% plus of the market, then they are dominant.

Mr. Mauril Bélanger: You determined in 1995 that they did, correct?

Mr. Chris Busuttil: We determined in 1995 that Smith and Coles accounted for 50% of the market.

Mr. Mauril Bélanger: Okay. Is there anything that you're aware of that would allow us to conclude that their market share has diminished since then?

Mr. Chris Busuttil: What we do know is that there's been a surge of activity on the Internet. We've had not just Chapters on the Internet but also Amazon and Indigo. We do know there's been a significant change in the format of retail outlets by the old Smith and Coles.

There's a variety of factors in there, and we're not suggesting that they don't have a significant market share. I guess what Mr. Lafond is saying is that we wouldn't give you a precise number today.

Mr. Mauril Bélanger: I'm not looking for a precise number. It's just that it seems to be above 50%.

Mr. Chris Busuttil: In terms of walking this through the generic enforcement guidelines, to my way of thinking they would meet the prime facie level of dominance, yes.

Mr. Mauril Bélanger: Okay.

Would that normally be sufficient, if you had complaints, to trigger, in the words you used, a “formal inquiry”?

Mr. Chris Busuttil: Not necessarily. Dominance is not illegal. Acquiring a dominant position in the market is not illegal.

Mr. Mauril Bélanger: No, dominance is not, but complaints from people that it might be using its dominant position—

Mr. Chris Busuttil: But we would need to establish that there were reasonable grounds to believe the dominant firm was abusing its market position. That's the threshold—

Mr. Mauril Bélanger: We don't have time to explore this, but I'd really like to understand it.

The Vice-Chair (Mr. Dennis Mills): Mr. Bélanger, we will take all the time this issue needs, if it means we have to make this an item at our next meeting. This is critical.

Mr. Mauril Bélanger: I want to defer to my colleagues as well.

An hon. member: No, go right ahead.

The Vice-Chair (Mr. Dennis Mills): What would it take for the bureau to trigger a formal investigation?

Mr. Chris Busuttil: If we have reasonable grounds to believe an abuse of dominance has occurred or is occurring, we could go and inquire. It is not—

Mr. Mauril Bélanger: Could you define, please, “reasonable grounds to believe”?

Mr. Chris Busuttil: You're getting into specifics.

Mr. André Lafond: If we have reasonable grounds to believe, it would mean we have specific evidence.

The Vice-Chair (Mr. Dennis Mills): How much specific evidence do you need?

Mr. Mauril Bélanger: Is one case enough?

Mr. André Lafond: Sure.

Mr. Mauril Bélanger: Do you have one, sir, in the media? Firefly of Toronto has said they will not cave in to the demands. I'm reporting allegations here. I'm not making an accusation. Publicly, their position is that they did not accept the request for a higher discount, and consequently $1.1 million of books, including best-sellers, were returned to them.

Is that not enough?

Mr. Chris Busuttil: That would certainly be enough to cause us to look at it and make absolutely sure that this practice was in fact an abuse and not part of a general market practice that occurs on a day-to-day basis as part of this industry.

Mr. Mauril Bélanger: I would submit to you, with all due respect, sir, that.... I'll supply you with news clippings and the transcripts of radio shows, as reported. I would encourage you to take a close look at that one. There are others.

Perhaps since we don't have the authority to do the investigation—and it's not our responsibility, I might also submit—and you do, you should do so, and we can clear the air here.

The Vice-Chair (Mr. Dennis Mills): Thank you, Mr. Bélanger.

Before we go to Mr. Mark, I want to ask a question with regard to staffing at the Competition Bureau.

The last time Parliament had a full review of the act was in 1986. We all know that over the last 15 years the Public Service of Canada has been in a mode where we've been cutting it in terms of personnel and resources. Did that happen to the Competition Bureau? Would your man-years over the last 15 years have increased with all of this extraordinary pressure you've been put under with this wave of mergers and the concentration of power that goes on in terms of all sectors of the economy? What would be the trajectory in terms of your man-years? Would it be upward or downward over the last 15 years?

• 1225

To give a specific example, I'm a downtown Toronto MP, and one of the biggest issues facing Toronto MPs is the fact that now 70% of our time is taken up with immigration. The immigration department has slashed the personnel who normally would deal with immigration difficulties and challenges. Has a similar experience happened in the Competition Bureau, or would you say you have all the staffing you need and then some?

Mr. André Lafond: I must plead ignorance on this one.

Voices: Oh, oh!

The Vice-Chair (Mr. Dennis Mills): Okay. Say no more.

Mr. André Lafond: I have been with the Competition Bureau for three years, so I can't go back in its history, but if it's your wish I can go back to the bureau and we can provide, through you to the committee members, the staffing activities of the bureau over the last 10 or 15 years.

The Vice-Chair (Mr. Dennis Mills): That would be most helpful, especially at the investigative level.

Mr. André Lafond: The number of investigating officers within the bureau over the last 10 years?

The Vice-Chair (Mr. Dennis Mills): Starting from the review in 1986 right up to now in terms of whether the man-years have gone up or down.

Mr. André Lafond: We would be pleased to provide that to the committee.

The Vice-Chair (Mr. Dennis Mills): Thank you.

Mr. Mark.

Mr. Inky Mark: Thank you, Mr. Chairman.

Let me begin by saying that I still think we live in a country where we believe people can succeed, and if you own a small business you can get larger and take a bigger chunk of the market. That happens from sea to sea to sea in this country. It's not illegal to be successful.

The Vice-Chair (Mr. Dennis Mills): Who's saying that?

Mr. Inky Mark: Well, I'm just making that statement.

Mr. Rick Limoges (Windsor—St. Clair, Lib.): Profit is not a dirty word.

Mr. Inky Mark: At any rate, I think the key question here is determining, as Mr. McTeague had indicated in his question, relevant markets, and I think it's really difficult now because of changing times, changing technology.

As we heard already, even in e-commerce, paper may be a thing of the past twenty years down the road. In fact three years down the road we're looking at little boxes for reading.

My first question is in that context. I believe you need good information to make good judgments. We have tried to do the same thing here, calling a broad base of witnesses. Have you talked to such people as the Retail Council of Canada to get a grasp of the marketplace, the world of commerce, and what is happening?

Mr. André Lafond: We have access to, and we can talk to, anyone we feel—

Mr. Inky Mark: Have you, though?

Mr. André Lafond: —has the appropriate information we're looking for in order to examine a particular situation in the industry. I cannot answer your question specifically with respect to the current examination that is ongoing with respect to Chapters and Pegasus. I'm sorry about that, but that's under the confidentiality provisions of the act.

Mr. Inky Mark: The other thing I want to say is that Ms. Lill has indicated that we're heavily subsidizing the publishing business in this country. In fact 81% are not viable without a subsidy. Is that a factor in the equation in trying to analyse competition, certainly when you're talking about companies that are not subsidized? Is subsidization a factor?

Mr. André Lafond: As I indicated in my opening remarks, the Competition Act is an act of general application and has a focus on competition in the marketplace. Therefore it does not address other public policy concerns such as ownership or subsidies of any industry. We look at the situation in the industry and the players in the industry, the way they operate, and we make a judgment on that.

Mr. Chris Busuttil: Just in a generic sense, to the extent that in any industry certain competitors are subsidized, I think it would certainly come into play when you do an analysis to determine whether there are barriers to entering that market. If you're looking at somebody who's thinking of entering a market where the incumbent competitors are highly subsidized, that's going to be a factor, obviously, and we would take that into consideration in the normal course of analysing the market.

• 1230

Mr. Inky Mark: How do you deal with the fact that 81% of the industry has received subsidization?

Mr. André Lafond: I'm not sure if I understand your question.

Mr. Inky Mark: When 81% of the industry receives subsidization of one form or another in order to be viable, that has to come into play when you're looking at one or two companies that don't receive subsidies from the government.

Mr. Chris Busuttil: In a generic sense it would. It would factor in.

The Vice-Chair (Mr. Dennis Mills): Mr. de Savoye, did you have a short question?

[Translation]

Mr. Pierre de Savoye: Yes.

[English]

The Vice-Chair (Mr. Dennis Mills): Okay, and then we'll go to Mr. McTeague.

[Translation]

Mr. Pierre de Savoye: When Mr. Bélanger asked you how many cases there would have to be before you intervened energetically, you said that one would be enough. Mr. Bélanger then cited one case and you answered that you would have to make sure...

You no doubt understand that the members around this table are very concerned about the situation as we are beginning to understand it. We have heard witnesses make allegations. It is hard for us right now to pinpoint specific cases that would give rise to vigorous corrective measures. I get the impression that you are finding yourself in similar situations in your own investigations. That is why you are doing monitoring.

If the committee is able to obtain information about specific cases about witnesses, how long will it take you to intervene in a decisive way?

[English]

The Vice-Chair (Mr. Dennis Mills): That's a good question.

Mr. André Lafond: That's an excellent question.

[Translation]

As soon as we have the facts before us, we can build a file and submit it to the Competition Tribunal.

[English]

The Vice-Chair (Mr. Dennis Mills): Mr. McTeague.

Mr. Busuttil, did you want to add something?

Mr. André Lafond: Oui. My colleague Chris mentioned to me the conformity continuum,

[Translation]

with respect to compliance with the Act. When we find that a company uses an anti-competitive practice that has a major and substantial impact on the competition, we can resolve the issue in two ways. We can build a complete case and submit it to the Competition Tribunal. We can also go directly to the company concerned and say that we have identified certain anti-competitive practices and if it wants the Competition Bureau not to go before the Tribunal, it needs to voluntarily stop these practices. The latter solution can work more quickly to a certain extent, if the company concerned is prepared to cooperate with us.

If you consult our Internet site, you will see published there all the cases that have been resolved by what we call alternative file resolution. The site gives the names of companies that have voluntarily decided to end a practice that we have deemed anti- competitive.

So there are two ways to resolve such problems. There is not just the tribunal. If the company in question is interested, and that is often the case, the situation can be resolved much more quickly.

Mr. Pierre de Savoye: It is published on an Internet page.

[English]

The Vice-Chair (Mr. Dennis Mills): Thank you.

Mr. McTeague.

Mr. Dan McTeague: I would submit to the gentlemen that with my experience in both the gasoline and grocery industries, most recently I made available to the Competition Bureau and the industry committee—

The Vice-Chair (Mr. Dennis Mills): What about food processing?

Mr. Dan McTeague: Food processing, too, manufacturing, right down to the farmer, if it will make you happy, Mr. Chairman.

It became very apparent to us that even in the United States many people fear bringing this kind of information forward on the basis of retaliation, which is a vivid demonstration of the abuse or the dominance of one of the players in the marketplace in those two industries. I think the bureau was more than conscious of that fact.

• 1235

Could you very briefly explain to us—because I have three other points I want to make—how someone could tip off the bureau about a problem without divulging who they are and with the certainty that they will not be subjected to immediate and clear retaliation? How do you prevent retaliation against someone coming forward with information that could result in their losing their operations or livelihood? Can you give any protection to those individuals?

Mr. André Lafond: The only protection and the major protection the bureau gives to anyone coming to it is to keep absolutely confidential the fact that they've approached the bureau. We will not divulge who approached the bureau unless that person decides to go public.

Mr. Dan McTeague: When was that changed? It was originally the—

Mr. André Lafond: That has always been part of the act. Section 29 of the act deals with confidentiality.

Mr. Dan McTeague: If I'm a food processor and I've been abused by a large grocery chain, or in this case a large book chain, and I come before the bureau, I can be certain that the information I give to you will never be divulged, that there will never be any question, and that if it goes before the tribunal, I will not be brought forward to give testimony.

Mr. André Lafond: That is the difference. When we file an application with the tribunal, we have to lay out exactly—

Mr. Dan McTeague: I think you understand why I asked the question.

Mr. André Lafond: —the activities in the case, and the tribunal would want to examine witnesses.

Mr. Dan McTeague: Tell me something. Can you get an order from one tribunal member to enact what I would constitute a cease-and-desist, which you currently don't have, or do you have to go to the whole tribunal? You have a bunch of guys out there, girls and guys, I suppose—

Mr. André Lafond: You don't need the whole tribunal to get, for example—

Mr. Dan McTeague: You just need one.

Mr. André Lafond: Just one.

Mr. Dan McTeague: I realize that other members may have questions, but I'd like to ask you one, Mr. Busuttil.

We may have let the horse out of the proverbial barn in terms of the size of the industry and those who control it. What in your mind constitutes a practice? It sounds pretty nebulous. I think there's plenty of jurisprudence dealing with the whole issue of practice. In fact, when I'm dealing with a section 79 offence, a potential anti-competitive offence that falls under abuse of dominance, it's not just that I might be able to lessen substantially competition in and of itself, which is part of your enforcement guidelines, but now I'm dealing with the potential for a very large dominant player. How difficult is it to determine a practice?

Mr. Chris Busuttil: I think—

Mr. Dan McTeague: Why is that word there, by the way? It seems as if you have a lot of qualifying words in there that make it impossible for you guys to do your job.

Mr. Chris Busuttil: I think the distinction isn't so much what is a practice as to when does a practice contravene the law. That's why these are called reviewable matters, as I understand it. I'm an economist, not a lawyer. I apologize for that, but—

Mr. Dan McTeague: You won't, because you'll get my next question.

Mr. Chris Busuttil: Okay. The fact is that a lot of the business activity that goes on has no intent behind it to be anti-competitive, and in fact it may be pro-competitive or competitively neutral.

The tribunal has been quite clear in its jurisprudence as to what constitutes anti-competitive activity, and that would be activity designed to exclude, predate, or discipline other competitors in the market. The threshold then has to be that that would be the extent to which you've actually substantially lessened competition, which is—

Mr. Dan McTeague: Beyond that, though, if you're dealing with predation, it falls under the criminal, which is a different burden of proof, beyond reasonable doubt. You're not dealing with prima facie.

The Vice-Chair (Mr. Dennis Mills): Excuse me, colleagues. We got behind today because of the vote. But this issue is very important, and since we don't have an item for Tuesday, could we get the consensus of the committee to ask our witnesses to return? A number of members have said that they have other questions. It's really at the—

Mr. Dan McTeague: I just have one final question.

I'm sorry, I didn't allow you to completely finish that. Perhaps you could continue your answer to that question, Mr. Busuttil.

Mr. Chris Busuttil: If I understood correctly, your question was what constitutes a practice that we would have concerns about. Basically what I was saying is the tribunal has been quite clear in its jurisprudence that practices have to result in activities that exclude, predate, or discipline, and I'm talking about strictly under the section 79 provisions right now.

• 1240

Mr. Dan McTeague: But you understand my concern. You're knights in shining armour in terms of what you tried to do on Superior Propane, but here we're on the threshold of a very large monopoly being created, arguably, and the tribunal is simply saying “We don't see this, under the merger guidelines, as necessarily a problem yet. We haven't made a final determination”, even though your bureau is saying “Gee, we have a real problem here, considering what happened to farmers four years ago across this country, when they saw massive increases.”

My concern is, who makes the determination and how is it enforced? If the tribunal is waiting for a practice to occur, but it rubber-stamps what is occurring in terms of anything dealing with Superior Propane or with respect to Chapters, where does that leave your job? How can you do your job effectively?

Mr. André Lafond: In terms of the propane case, it's still before the court. It's still before the tribunal. The tribunal has not rendered its decision on that one.

Mr. Dan McTeague: Right.

Mr. André Lafond: In terms of the tribunal, it's our job, when we apply to the tribunal, to convince the tribunal, with facts, that there is an anti-competitive act and it is substantially affecting competition. Once they're satisfied that this is occurring, then they will issue an order.

Mr. Dan McTeague: My final question deals with the merger enforcement guidelines. When the decision was made in 1995 to go above or at 50%, what substitutive considerations were made regarding this dominant player virtually being created by your hand at the time?

I've heard other members talk about e-mail and e-commerce. In 1995 I'm sure that was a factor, but could you have substituted this dominant player with any other industry? And more important, have there been any new entrants to the market to challenge that dominant position occupied by Chapters-Pegasus?

Mr. André Lafond: Both Chris and I were hired under the civil matters branch. The issue you're raising is a merger issue, and we were not part of that merger analysis.

Mr. Dan McTeague: Would you be kind enough to get back to the committee as to whether that was taken into consideration and whether the decision dealt with the question of substitution, as prescribed by the law, in 1995? I recognize that merger enforcement was once considered criminal, but that has since changed, and I think in 1995 it was under the rubric of “civilly reviewable”.

Mr. André Lafond: We'll be pleased to do so.

Mr. Dan McTeague: Thank you.

Thank you, Mr. Chairman.

The Vice-Chair (Mr. Dennis Mills): Ms. Lill.

Ms. Wendy Lill: Thank you.

I know you said vertical integration is not anti-competitive per se, but we have heard over and over again that the effect of having Pegasus as a wholesaler for independent booksellers has presented a competitive disadvantage for them, for reasons of confidentiality. The close relationship between Pegasus and Chapters allows for Chapters to obtain information on purchases, sales, and financial strengths of the independents, using Pegasus for wholesaling. So I'd like to know how the Competition Bureau would go about determining whether vertical integration is in fact anti-competitive. That's one question.

Also, I keep coming back to this issue of the financial health of the dominant player, because in this industry we have heard that Chapters maybe has grown too fast, or that parts of it are really not very stable. They say things such as, “Well, we can always send inventory back”, and we know what that means to a very fragile industry of publishers working on tiny profit margins.

Do you evaluate the financial health of a dominant player before you literally unleash them and let them start moving on the landscape? It seems if you don't keep an eye on that, it can in fact.... It comes back to the responsibility of the Competition Bureau to make sure they don't allow crises to occur within a fragile industry such as our book publishing industry.

So there are two questions: when does vertical integration become a problem, in your estimation, and what is the financial health of these dominant players?

Mr. Chris Busuttil: On the first question, normally the reason you don't consider prima facie vertical integration to be bad is that there are a lot of pro-competitive reasons a company would want to integrate—to achieve scale economies or marketing or distribution economies.

• 1245

Where we would be concerned is if that vertical integration were being used as a vehicle by which some pre-existing market power could be leveraged in the marketplace, or in a situation where the vertical integration was in fact a merger or some sort of strategic alliance that was leading to an enhancement of market power.

I apologize if this is sounding a bit technical, but that's where we come from.

Mr. André Lafond: The bottom line is, if through vertical integration an activity is taking place that is anti-competitive and that is hurting or substantially lessening competition, then we take action.

Ms. Wendy Lill: Would you not say confidentiality of records is probably considered the norm? If through vertical integration the confidentiality of records of many businesses no longer exists, would that not on the face of it appear anti-competitive?

Mr. Chris Busuttil: If I could, I'd like to make it into a generic model, so that we're not getting into issues that are sensitive.

If somebody has significant buying power in a marketplace because they have significant sales of that product, arguably they may also have a significant amount of influence over who they buy from and how much they buy. If they reorganize themselves in such a way as to separate their selling function from their purchasing function, that reorganization by itself is what is being called a vertical integration, an upstream move. That organization by itself doesn't necessarily constitute the anti-competitive act.

I think the concern you're talking about would be the power they had in the first instance to extract certain information. That power arguably may have existed prior to their doing anything towards reorganizing themselves. The mere fact that they were large purchasers in the market may have afforded them, by sheer volumes of purchases, that knowledge.

So you want to be careful and ask, is the activity of reorganizing, which is what we're focused on, anti-competitive, or is the activity that they have by virtue of their market power in the first instance the anti-competitive issue?

Ms. Wendy Lill: But this is something that has been brought to our attention over and over by book publishers, so I assume it is something you will now be investigating to see whether in fact it has any kind of validity under your criteria.

Mr. Chris Busuttil: I would just keep it generic, given that we have the examination in place.

On your second point, in terms of the financial health, again I would go back to Monsieur Lafond's comments. Our mandate, as we understand it, is to promote and enhance competition. We're not forensic accountants who have any sort of statutory authority to go in and check financial health.

The only instance where we would is a situation where you see a merger as a consequence of a firm failing. We would take the financial health of that firm into consideration when considering the impact of the merger versus the failure of that firm. But it certainly is well outside our mandate to sit there and start handing out evaluations of firms' financial wherewithal and making any sorts of pronouncements.

Ms. Wendy Lill: But it seems interesting to me that you did watch over the merger of the creation of Chapters for a three-year period, correct?

Mr. Chris Busuttil: Yes.

Ms. Wendy Lill: And then that ended. I gather they passed. I guess they got a passing grade. After that, there was the creation of a new wholesaling arm. So in fact you do keep an eye on the health of a dominant player.

Mr. Chris Busuttil: We keep an eye on activities. We still have the civil provisions.

Mr. André Lafond: What we're talking about here is the merger provisions. Once a merger is approved, there is a timeframe when the bureau will continue to monitor that merger, and that period is three years.

The Vice-Chair (Mr. Dennis Mills): Thank you very much.

We're under a little bit of stress here in terms of time. Other members have other commitments.

Did you have a short question, Mr. Bélanger? Then we need to take a quick vote to remove the unanimous consent for 48 hours' notice on motions.

Mr. Mauril Bélanger: I have a very quick question.

The Vice-Chair (Mr. Dennis Mills): Go ahead.

Mr. Mauril Bélanger: I want to thank you, Mr. Chairman and colleagues, for your indulgence. This has been a very important meeting and a very productive one. So I appreciate that.

[Translation]

If the Bureau decides to launch an actual investigation, is that decision made public?

[English]

Mr. Chris Busuttil: No, normally it's not publicly announced. That doesn't mean somebody who is the subject of an inquiry and becomes aware of it can't make it public, but we, as a matter of policy, do not make it public that we've gone on formal inquiry.

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Mr. André Lafond: However, by going on formal inquiry, it gives the bureau the opportunity to use some special powers, one of which is to request the production of documents, and in order to do that, we have to apply to the court, so at that point in time it is public.

Mr. Mauril Bélanger: So if you don't announce it, how are people who are concerned expected to know you're doing it?

Mr. André Lafond: When we deal specifically with people in the industry, we will tell them what's happening.

Mr. Chris Busuttil: The other point too is we don't need to be on formal inquiry for somebody who's concerned to come forward and talk to us. So the mere fact that we've gone on inquiry shouldn't—

Mr. Mauril Bélanger: I haven't the time, but I'd like to—

The Vice-Chair (Mr. Dennis Mills): Excuse me, Mr. Bélanger.

While we have all the members here, do you think it would be useful to have another session next Tuesday with the Competition Bureau? It's a very important part of this, and we should all feel very comfortable with the substance of it, not crowded in terms of—

Mr. Mauril Bélanger: I'm in the hands of the committee, as you are.

The Vice-Chair (Mr. Dennis Mills): Ms. Lill and Monsieur de Savoye, do you think that would be useful for our work?

[Translation]

Mr. Pierre de Savoye: I think that your message is clear. You are going to need specific cases. The rest may be useful, but it will not lead to any action. If we want action, we need to do something now. We may need certain witnesses to appear before us.

[English]

The Vice-Chair (Mr. Dennis Mills): We'll take your advice.

I would like to thank our witnesses today for the terrific session we've had. As you can sense, members are seized with this whole area of the Competition Bureau, and I'm sure over the next few months we will be meeting each other on a more regular basis on a whole range of issues, not just booksellers. Thank you very much for coming.

Mr. Mauril Bélanger: Perhaps we could also circulate a copy of the 1995 decision.

The Vice-Chair (Mr. Dennis Mills): Okay, fine.

Mr. Lafond, would you please have your senior person in labelling...? You have a section for labelling.

Mr. André Lafond: Yes, fair business practices. It's Joanne D'Auray.

The Vice-Chair (Mr. Dennis Mills): Okay. Could you please have that person track me down at my office?

Mr. André Lafond: Yes.

The Vice-Chair (Mr. Dennis Mills): Great. Thank you very much.

Now, committee members, we're going to go in camera and move through things quickly over the next three or four minutes.

[Proceedings continue in camera]