INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, May 4, 2000

• 0910

[English]

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

I would like to welcome today Professor Thomas Ross, Faculty of Commerce and Business Administration, University of British Columbia, and Mr. Lawson A. Hunter, an associate with Stikeman Elliott and a former director of the Competition Bureau. We're trying to remember the dates, though. Welcome. We'll begin with Mr. Ross.

Professor Thomas W. Ross (Faculty of Commerce and Business Administration, University of British Columbia): Thank you, Mr. Chairman.

First of all, I'd like to thank the committee very much for this opportunity. It's a pleasure and an honour, in fact, to be here. I've been working on competition policy for some time now, and it's very encouraging to see such an interest in that subject. I had never appeared before a parliamentary committee in my life, and then a few months ago I was asked to speak to the transport committee about competition in the airline industry, and now I'm getting this opportunity. So I'm excited.

You have before you, I hope, a copy of the notes I prepared, and I think they were translated as well. Since I have a limited amount of time, if you don't mind, what I would like to do is go through things in an order of priority to me, because I recognize I can't possibly talk about everything in the notes. But feel free when the time comes to ask me questions about anything in my notes or not, as you see fit.

The first thing I'd like to talk about is the reform of the conspiracy provisions, what is currently section 45. I'm very excited by the proposals I see in Bill C-472. Since about 1990-91 I've been arguing, and have published to this effect, for a change in our laws against price-fixing to do essentially what the new bill does.

I think it is important that we create two branches for agreements between competitors, one branch that makes securing convictions against true price-fixers easier than it is currently. The current law can make that rather difficult because of the inclusion of the word “unduly”, which can be confounding. But at the same time I recognize that we need to be more accommodating to strategic alliances and joint ventures, all these kinds of complex agreements that we see these days between firms that are in some sense competitors but in another sense can benefit, and all of Canada can benefit, from their cooperation. So I thought the law needed to create the two branches. I wrote about this in about 1990-91.

I think you heard from Tim Kennish a few days ago. He and I wrote a paper that elaborated on this proposal and filled in a lot of details. You may have a copy of that paper as well. If not, I can certainly provide one. The new Bill C-472 looks an awful lot like what Tim and I had in mind in our proposal, and that's terrific.

But I do have two concerns that I'd like to bring to your attention. First of all, the new proposed subsection 79.1(1), which is the branch that is sort of designed for these strategic alliances and joint ventures, does not have an efficiency defence in it. It does give the tribunal discretion. It says that the tribunal may issue an order, but it doesn't really give much guidance as to what would influence that. Our view was that we should treat these kinds of agreements like we would treat mergers. In mergers we consider efficiency defences. In fact, that's the main point of breaking these things off, so that you can review their efficiency impact and weigh it against the anti-competitive effect. Sometimes the anti-competitive effect might be quite small relative to the gains that could be attained through the joint venture or strategic alliance. So I would like to see an efficiency defence clause in there. Tim and I had one drafted in our proposal, but there are other experts who could probably do a better job of drafting than we did. At any rate that's my first concern.

My second concern, and I feel a little guilty about this, is the 25% safe harbour that's in there. There's a clause in there that basically exempts agreements from consideration if the parties represent less than 25% of the market. The reason I feel a little embarrassed is that Tim Kennish and I suggested this as a possibility in our paper. Now I've decided that I don't like it. The reason I don't like it is because I don't think it belongs in legislation; I think it belongs in enforcement guidelines.

• 0915

The reason I don't think it belongs in legislation—and I would value Lawson Hunter's opinion on this—is because when you define something in legislation this way, you just open the door to huge fights about market definition, with the party saying the market is really national and in the national market we constitute less than 25%, whereas the commissioner might feel that no markets are much more local, provincial, or regional and in those markets in Quebec or in the Maritimes you have 50% of the market.

Since it's in the legislation, this is going to have to be fought out, perhaps in court if it's a criminal action. As we do with mergers, I like the idea of some sort of safe harbour guidelines, but I'd like them to reside in guidelines rather than in the legislation.

So those are my main two points about section 45.

My next topic is refusal to deal. I don't really like section 75 on refusal to deal. I think that the abuse-of-dominance provisions could catch this kind of behaviour when it really matters. What I particularly don't like about refusal to deal is that there's no competitive effects test. In almost all of the Competition Act, in order to get into trouble you have to lessen competition somehow. But not so with refusal to deal. There's just someone whose business is hurt because he can't get a supply from you. The tribunal has been willing to define markets around brand names, so if you're the Chrysler parts dealer and he can't get Chrysler parts, that's good enough for the tribunal, with the result that what should sort of be private contract disputes gets brought up as competition matters.

The new proposal in Bill C-472 to privatize these actions, that is, to let private actions take care of refusal to deal or at least make them available, is good, but I would suggest that if you want to do that, it's even more important to put in some kind of competitive effects test. The refusal to deal has to hurt competition, not just a competitor. We don't want to protect inefficient competitors. We don't want to use this as a licence to pry supply out of someone who really doesn't want to supply you because they don't think you're any good or it doesn't fit their strategic vision for supply. Notice that in section 75 you don't even have to have been supplied in the past to make use of that section. You can just go up to someone and say, please supply me, and they say, no. If this goes private, you would have reason to challenge that.

So my preference would actually be just to scrap the refusal to deal provisions, knowing that if it's done by a dominant firm, you can always catch it under abuse of dominance where there is a lessening of competition test.

Failing that, I would add some sort of competitive effects test, something that says that competition must be lessened, and then, as Bill C-472 does, allow the private parties to take these actions on their own if the commissioner doesn't see a public interest in taking them.

I'll make a couple of remarks about the Competition Bureau and the act generally.

I think that in general we have a solid, modern act that we can be quite proud of. It reflects modern economic thinking. It is a piece of economic regulation. It's important to remember that. It's pretty up to date. I'm pretty proud of it, when I talk to colleagues from other countries. That said, I do have ideas, obviously, for revision.

I think we also should be fairly proud of the Competition Bureau. I think with the resources they have, they do a very good job. Their work is respected by other countries, and they get regularly asked for advice by countries developing new competition laws or working on enforcement policies for the new competition laws they have, which gives you some measure of their international stature.

I like the concept of the tribunal with the mixed lay and judicial membership. I'm a little bit unsure about the concept of a part-time lay member. I don't know what kinds of people could be part-time lay members who are really the sort of people we envisage for the tribunal. I'm very happy with the full-time lay members who have been on the tribunal, the previous one and the current one. But I don't know whether on a part-time basis we can get the quality of people we had in mind.

I do have two concerns about the bureau. First of all, it is short of resources and people in some areas. Part of this is because their beat has been expanded. There are all kinds of areas that used to be regulated industries, and now suddenly they have to watch: telecommunications, electricity is coming up, and natural gas. All kinds of markets that just weren't part of their beat before now are, with privatization of course adding to this. Of course, they've had the added work imposed by the merger wave that just seems to go on and on and on.

• 0920

My other concern with the bureau is in the prominence of economics there. Clearly the Competition Act is economic regulation—of the best sort, I think. I'm not sure that economics in the workings of the bureau gets quite the respect it deserves. In my proposal, you'll see I'm arguing for the creation of a position of chief economist, to be basically a second-in-command to the commissioner and to provide some leadership and quality control on the work of the economists, both the internal ones and the external ones brought in to provide advice on cases.

On the predatory pricing provisions, I like the idea of taking them out of the criminal law. They could either be left in section 79, as a case of abuse, or you could create a new civil provision on predatory pricing. I think either of those would be fine. I do think temporary orders in the predatory pricing area are necessary, although I think there might be some concerns with the way the current provisions are worded, that they're a little too broad and confer too much power on the commissioner.

On resale price maintenance, it's a sort of anomaly, given that we recognize the possible efficiency benefits of things like exclusive dealing and tied selling. We don't make them criminal and we don't make them per se illegal. It's sort of odd that we do that to resale price maintenance. There are lots of good reasons to use resale price maintenance that have nothing to do with hurting competition.

I'm not someone who says resale price maintenance has to be efficient and can never be anti-competitive. I think it can be anti-competitive. But as has been suggested, I would move it to the civil side, a reviewable practice, and put in an efficiencies defence there, or at least a competitive effects test. Again, it's sort of odd that this hasn't been done already. It's a sort of historical anomaly.

If given my choice, I would delete the price discrimination provisions completely, and just use abuse if someone is abusing a dominant position through price discrimination.

The price discrimination law up to now has not been terribly effective, but that might be just as well. The Americans, in the Robinson-Patman Act, have been tied in knots sometimes by small buyers trying to get discounts to which they aren't even particularly entitled through the cost-justification provisions. But I don't think we want to go down that road particularly.

I'll make just a couple of more points, and then I'll shut up. I promise.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): That's our job.

Prof. Thomas Ross: That's a hard thing for a professor to say.

The Vice-Chair (Mr. Walt Lastewka): No, you'll have questions.

Prof. Thomas Ross: Yes, okay. Good.

On private access to the tribunal, I do think that's a good idea. Some of these disputes, like the refusal to do things, really are like contract disputes between people who just didn't work the contract out right the first time, and they now want to use the commissioner to fight their battles—or at least one side does.

So letting the commissioner take a pass on those and letting the private parties do it is, I think, a good idea. But I would urge that for anything you're going to consider for private action to the tribunal, there be a competitive effects test in there.

Don't just move the refusal to deal as it is, because then anybody who wants to get supply can go and try to pry it out using this. And the refusal can have no effect on competition. So anything you move to the private side I think needs a competitive effects test.

You should recognize that struggles in the distributive trades—I think I make this point in my notes too—go back more than a hundred years. When A&P started developing the first large chain stores, first in the United States and then eventually coming to Canada in the latter half of the 19th century, traditional retailers were very threatened. They took all kinds of action to try to fight back, including lobbying political support, which got the price discrimination laws passed eventually in Canada and the United States. And then the United States got special taxes passed for chain stores, for no other reason than to hurt chain stores—to protect mom-and-pops.

So these sorts of struggles are nothing new. Our point is that you want to protect competition, not necessarily individual competitors.

• 0925

Finally—and this is a kind of footnote—on delivered pricing, once again there is no competitive effects test in there, and I think, for the reasons I gave for refusal to deal, you shouldn't take an action on delivered pricing unless you think the practice is hurting competition.

Thank you very much.

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

I'll now ask Mr. Hunter.

Mr. Lawson A.W. Hunter (Associate, Stikeman Elliott): Thank you, Mr. Chairman. I'll try to be quite brief. The only material I've given you is a paper I delivered at a symposium at Queen's on the merger law.

I want, as I mentioned to the clerk, to make a preamble here that the views I'm expressing today are my own personal views. They're not the views of my clients, some of whom you may be interested in under the mandate of this particular committee.

You asked, Mr. Chairman, when I was the director under the act. It was from 1981 to 1985. One of the changes I've seen since that time is the increase in visibility of and support for competition policy in this country, and I think that's a very positive thing.

When I left the job I was asked by a reporter what my greatest regret was, and I said it was that I didn't think Canadians really trusted the market to produce economically or socially acceptable outputs, and that made support for the policy very, very difficult. As you know, the government, in successive governments, tried for almost twenty years to bring about the major reforms to the act that were passed in 1986. But since that time I think there has been a change, and the fact that this committee is talking about these things and that there are many others going on, as you know, is to me an indication of that change.

Having said that, I'm going to now talk a bit about the dangers of going too far. To do that, I want to talk about my view on what appropriate competition policy is.

First of all, it's a general law of general application. And one of the implications of that is that it is a very blunt instrument. Because of that, it is a very discretionary instrument. It gives enormous power into the hands of the regulators. I would say that the Commissioner of Competition position is easily one of the most powerful public service jobs in the country. It is enormous power. I think you need to bear that in mind when you think about the powers and the process you're adding on to that position.

Secondly, competition policy is not a short-run policy. The effects of competition policy are in the medium to long run. If you think it should be used—and I guess that's what worries me a little bit—to fix short-run problems, in my view that would be a mistake.

Thirdly, competition policy is not about fairness. It may be about fairness in the sense that there should be an equal opportunity for business people to participate in a market, but it is not about fairness in the sense of equal treatment, that everyone should be able to buy goods at the same price, or that everyone should be able to not be disadvantaged competitively in the market because someone has an advantage. The whole purpose of competition policy is to try to see if people can gain advantage over others.

Lastly, it is not concerned with the distribution of wealth in the economy. It is concerned with how wealth is allocated, under the belief that the market is the best way of allocating wealth, but it is not saying that the money that ends up in this guy's jeans would be better in somebody else's jeans. So any desire to try to redistribute wealth through competition policy is, in my view, the wrong policy.

What this all adds up to as well is that competition policy in the law is doctrinal policy. It is based on economic policy. As I've described many times, the law is an attempt to map economic policy onto a piece of legislation. So when you think about what appropriately fits in the policy, you have to think about it in a doctrinal sense. That's what it should be. If you would like to achieve some other objective, some social objective for example, then in my view it's the wrong policy. You should be looking somewhere else. If you want to intervene to help particular people, then you do it through some other instrument.

• 0930

I don't want to suggest that we're going too far, but I see signs that there are dangers here. It is not a panacea for all ills. I know when I went to the private sector, I had people come to me very frustrated that the act couldn't help them. But to be honest with you, in most instances it shouldn't have helped them.

One last comment I'll make about this is that it is sometimes easy to identify things that you think are wrong, behaviour that you think is wrong. It is not always so easy to figure out what the remedy is.

I would cite to you the Microsoft case as an example of that. You may say that what Microsoft did was clearly a terrible thing, and I wouldn't necessarily disagree with you, but then when you get around and ask what do we do about it, how do we fix this, it is not so obvious. So you always need to look down the path and say “Even if I think this is wrong, how can I cure this legally?”

I want to make a couple of comments on particular areas. In the merger law there are two things that I think are important, that probably need to be changed. Both of these points are in my paper.

First of all, I am concerned that the current law does not give sufficient weight to innovation. We, and the bureau, need to give, either legislatively or in its guidelines, more importance to innovation in markets, and that is often a factor in the question of how much time they're willing to look at that changes may take in the marketplace. They tend to take a two-year view, and in some industries I think that may be too long a period. In others, it may be plenty of time. But I'm not sure innovation is properly factored into the law at the moment.

The second comment has to do with efficiency. I was probably the principal legislative draftsman on the bill you have, and at the time we made efficiencies a defence under the merger law, which I think again conceptually is probably the right way to look at it. But I think it may have had the effect of not really counting efficiency gains sufficiently in the discretionary process as to which mergers to review. I think it may be time to make it an explicit factor that has to be taken into account when the director decides whether to challenge a merger.

By the way, the FTC went through a long series of hearings, which I have referred to in my paper, about how to take into account efficiency gains. They came to the conclusion that it was better to make it a factor and not a defence. In my view, this is important for Canadian companies' ability to compete internationally. We need to make sure we are allowing them to gain efficiencies and get their costs down in an increasingly open global economy.

I have two quick last points.

On private enforcement, I have to tell you that I am not in favour of this—and again, I talk about it in my paper. In my view, it is a competitive advantage that the Canadian system gives our participants over the United States. We are a less litigious society. As you know, in the United States they have far more treble-damage actions. I think it is a competitive advantage for Canada, and we should be very careful before we give it up and move to their system.

Secondly, I am not convinced that there is not sufficient adherence to and enforcement of the law as it is. The presumption is that if you need to have private access, under the current regime businesses aren't complying with the law or the regulator is not enforcing it sufficiently.

Basically, in the areas that are being talked about here—tied selling, exclusive dealing, and refusal to deal—the law hasn't changed at all since I was director.

When I was director, I kept asking that part of the bureau, where are the cases? We never had any cases. The reality is, there weren't any, and I'm not sure that has changed, that there really is behaviour out there that is so egregious that we need to be allowing private access.

In my view, the major people you would benefit are the lawyers and some of the economists. I'm not sure that you're going to benefit the economy, or that you're even going to benefit many businesses.

• 0935

So I think you want to be very careful about it—that it will be used to competitive advantage, to strategic advantage. If you're interested, I can tell you some horror stories about what happens in the U.S. to Canadian companies and about private enforcement already, because I'm involved in three cases right now that have cost companies an enormous amount of money that are absolutely wonky. All you will do is add cost to business that will not be returned in any economic benefit.

Finally, on interim orders, I am very concerned that this is a major institutional change, to give the commissioner decision-making power on his own of a legally binding nature. If you're going to do it, you want to be very careful about the due process side of it.

With that, I'll conclude my remarks. Thank you.

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

Mr. Penson.

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

I have a lot of concerns about the direction in which we're heading in increasing the Competition Bureau's mandate, and also staff, for that matter.

My family and I have a farm out in Alberta. There used to be sort of a standing rule in agriculture from some of the people who had been in it a long time. They used to say “Be careful what you ask for of government; you might get it.” That's my concern, and Mr. Hunter, I think you've alluded to that.

It seems to me that the best form of competition is a healthy marketplace and that competition law is, as I guess you've described it, a blunt instrument. It seems to me that's sort of a last resort. We should be trying to encourage the environment for a healthy marketplace to take place, and we wouldn't have the kinds of cases coming before us that we have.

My concern is, where is the pressure? We've seen it in the airline industry, but where is the pressure coming from? Where is the problem that is necessitating this kind of anticipation that we need to increase our legislation here?

Prof. Thomas Ross: It's a fair question. It's not clear to me that we need a lot of extra legislation. We're talking about fine-tuning, mostly, and making bits of the law that we currently have work better.

You mention the airline industry as one pressure point. The airline industry has brought up recently these concerns about predatory pricing and whether our law on predatory pricing is adequate, and that has brought up the idea of temporary orders and things like that, which is now spilling over into a more general provision for those sorts of things. So that's one source of pressure. There is a feeling that maybe the law isn't adequate to stop predatory behaviour.

Another pressure point seems to be coming from concerns in the business community—and maybe Lawson can speak to this too—about how accommodating our law is to joint ventures and strategic alliances, a feeling that there might be a chill out there, that the law in fact is too tough right now, or at least there's a fear that it is.

Imagine yourself trying to strike some joint venture with a firm that's a competitor of yours. The way the law is right now, you technically could be committing a crime and could be subject to a jail sentence. Now, that doesn't happen—

Mr. Charlie Penson: Such as the Air Canada situation before they were exempted.

Prof. Thomas Ross: Yes, they got an exemption. But in some other industry, if you meet with a competitor to talk about something, if it's at all going to involve common decisions on prices or something, even if you're developing a new product or process and you think it's great and the market is going to love it and competition isn't going to be hurt whatsoever, you might worry about going to jail.

So some of the proposals, including Bill C-472 and the stuff Tim Kennish and I wrote about, are not actually to add to the law, but in a sense to soften it, break it into pieces so that one piece can deal very harshly with the real naked cartels, the price-fixing in vitamins and things that we've seen, for example, and make that in fact easier to do so that you don't have long, protracted cases when really that's all they've done—you're not going to fight about the word “unduly”. On the other hand, it would provide an outlet to treat strategic alliances and joint ventures in a more balanced way, where it's non-criminal, so no one is subject to worry about going to jail or whopping fines. In fact, just treat them almost like a merger.

With a merger, you say here are the benefits and here are the costs; let's weigh them and decide whether this is, on balance, good for the Canadian economy. If you say on balance it's good, then you let it go. So I don't look to this package of things that are before us as adding to the amount of regulation.

• 0940

After all, competition law, as Lawson said, is framework law, in some sense. The alternative, in some cases, is industry-specific regulation. Since we don't have enough competition in airlines we need to regulate airlines, or we don't have enough competition in natural gas, so we'd better set natural gas.... That's the worst.

Mr. Charlie Penson: Mr. Ross, I'm sorry to interject, but I don't have a lot of time. I just want to follow up on what you're saying. Surely the interim orders—the cease and desist—is a move to boost the competition—

Prof. Thomas Ross: Absolutely, yes. That's one that's been brought about by the sort of pressure created by predatory pricing cases, more than anything.

Mr. Charlie Penson: Can I ask you about that, just for a moment? We've had other witnesses here who have expressed concern about that aspect of it—

Mr. Dan McTeague: Lawyers.

Mr. Charlie Penson: —going beyond what we currently have now. They've said what we have now is adequate to go to a judge and make the case. What's your view on that?

Prof. Thomas Ross: Maybe that is a better question for lawyers. As an economist, I can say we need some power to move quickly in predatory pricing cases, so you can preserve competition before the victim's dead.

Mr. Charlie Penson: You'd need to have it right, too, wouldn't you?

Prof. Thomas Ross: Lawson has legitimate concerns about the power conferred on the commissioner under some proposals, and I think those have to be taken into account. It's for a lawyer to decide what a good process here would be, but the economic principle of moving quickly to protect a victim before they're sunk is a good one.

Mr. Charlie Penson: That's true, but you'd have it right, because the victim could be a company if it wasn't right too, couldn't it? A cease and desist order for a very short time could have a very negative effect on a company, if you didn't have it right.

Prof. Thomas Ross: Oh, absolutely. Lawson—Mr. Hunter—points out quite correctly that one thing we want to avoid is people using competition law strategically in Canada. This is one thing that happens in the United States all the time, where people use the competition act as a stick to beat up on their competitors; to slow them down from mergers and get them to give them better prices they don't really deserve through normal market forces. We really don't want to get into that game.

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

Mr. Charlie Penson: I'm just wondering if Mr. Hunter wants to comment. But a comment I would make, just to invite that, would be that like our dumping law, it seems to me that sometimes we're protecting very inefficient Canadian industries, therefore it's necessary to be careful what kind of law we design. I'm just wondering what your comment would be.

Mr. Lawson Hunter: I would agree with that. I also practice in the dumping area and I know how those things can work. But I think your first comment's a very interesting one, and I'll make a few comments about it because I'm not quite sure what the answer is.

I don't deny that most of my clients are in the big business community. That's not to say they all are, because I represent people who want to complain about the behaviour of their larger competitors, but from a business point of view there isn't any great move to change the law, except maybe this concern about whether the law is right in a global economy. Are there things we need to do to make sure Canadian companies and the economy are as competitive as they could be?

Another factor, as Tom mentioned, is the fact that the government has fewer legislative policy instruments to intervene in the marketplace than it used to, because of the WTO or whatever. I say, maybe jokingly, to the industry department—and Kevin Lynch is a friend of mine—that competition policy is arguably the most powerful economic policy they have left in the department. It used to be that they handed out all kinds of money and had all kinds of things they could do to intervene in the marketplace. Now they don't have very many. Also, with deregulation and the opening up of the world economy, the one infrastructure legislative policy you have is a competition policy. So if there are political pressures, I think there's a tendency to say, “Well, what do we have? Let's—

Mr. Charlie Penson: Investment limits, though.

Mr. Lawson Hunter: —latch them onto that”.

I also think because of that there's just more visibility. Obviously, things like the bank deal and the airline deal heighten the visibility of this policy and attract attention. Whether those things are good or bad reasons, I don't know. I just think it's where we're at.

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

Mr. McTeague.

Mr. Dan McTeague: Gentlemen, thank you for being here today.

I can't help but always remark that when my colleague from the Alliance—or whatever they're calling themselves these days—is concerned about an unbearing ability on people who are potentially committing anti-competitive or illegal acts, we should be erring on the side of caution. However, when it comes to the Criminal Code they're the first ones to really make sure the police have all the power they need to be able to arrest. I think it's a contradiction they will obviously have to resolve over the next year, because we on this side have not had that problem. That's one of the reasons we're driving this issue. I think it has a lot to do with—

• 0945

Mr. Charlie Penson: We have a different point of view, there's no doubt about it.

Mr. Dan McTeague: —trying to look at small business. We're not particularly beholden to the oil patch or to any large interests, and I think we're very clear on that. We want to make sure we represent all people, not just certain people.

Professor Hunter, I've read a lot of your information and I'm acutely aware of the interesting position in which you found yourself in 1984 with the Southam case, I believe. I guess you were director of the old restrictive trade practices commission or director of investigation at the time. Hunter v. Southam Inc., was that for—

Mr. Lawson Hunter: I'm the Hunter.

Mr. Dan McTeague: You're the Hunter. You will now be the hunted.

I'm interested. It seems to us here in this committee that those who are objecting to any small significant changes, unless of course they're advocating the status quo, happen to be lawyers with very large clients who are defending the largest of large clients in this country, and who believe the status quo is acceptable.

This committee's already heard testimony to the effect that Canada's bar is far more pro-defence than it is pro-competition or pro-antitrust, as it is in the United States. We also note the differences between civil rights of action in the United States, as provided by the Clayton Act. We're also familiar with some of the concerns that have been raised over the question of whether there are adequate resources for the department, which you once ran. The reality is there are three lines of defence for competition issues in the United States, whereas here there really is only one. There are the FTC and the antitrust division of the Justice Department in the United States, and of course the private rights of the courts.

I'm interested in hearing from you, and I'll ask you to put your legal cap on, how any court of equity—call it any court in Canada, but I'm using the British system on which we're based—would treat a frivolous case brought before it as a means of trying to tie up the court's hands, if indeed you believe there are some wonky cases that have come before in the past that you are somewhat concerned about. Do you really believe that either a tribunal, with the safeguards that have been put in Bill C-472, or any court, should we go further down the road to a private action, to a court God knows maybe in 20 or 30 years if that's so decided, would hear a case, or if it would frown very heavily on someone bringing a spurious, frivolous case before it?

Mr. Lawson Hunter: That's a good question. Unfortunately, I think you may not like the answer.

Mr. Dan McTeague: I've been here for a year.

Mr. Lawson Hunter: All right. I'm going to mention a couple of what I call wonky cases. The question is, how do you get around that? There's always been in the law, as you know, the notion that you can dismiss frivolous and vexatious cases. So you need to see what the law is on getting rid of frivolous and vexatious cases. That leads you to the question of summary judgment and how easy is it to get summary judgment. The standard to throw out cases at an early point has gone up and up. There's an Ontario Court of Appeal case of not too long ago that makes that standard very high and difficult.

Now, having said that, and just to be completely open and honest with you about it, in two of these three cases that I would probably classify—and I'd better be careful about this, because one of them is still in front of the courts—we brought motions for summary judgment. In one of them we won completely, much to our surprise—because the standard is very high—and it was a predatory pricing case. With the other one we won part of it. But the cost of getting to that point was prohibitive.

Mr. Dan McTeague: I then have to beg the question why one would want to resist the opportunity of somebody who has the legitimate case of wanting to have a voice that will actually hear them, but cannot afford to bring a matter they believe will ultimately.... As Mr. Ross pointed out a little earlier, you have to wait until you're put out of business before someone will actually listen to you and will restore competition. Are we simply saying we're floating this wonderful idea that the Competition Act is there to preserve competition, and competitors be damned, especially those who are efficient?

Mr. Lawson Hunter: In two of these three cases the people went to the bureau and the bureau said “This is wonky; we're not bringing this case.” Then two years and a million dollars in legal fees later, maybe you get some remedies.

• 0950

You're assuming that the cases are going to be brought for good and sufficient reason. I'm not convinced that's true. Again, you talk about the U.S. and how many avenues they have there. Look around at the rest of the world. Certainly in the U.K. they don't have these rights. If you look at Europe, they don't have these rights.

Mr. Dan McTeague: To some extent they do, Mr. Hunter, in terms of the British model of C-472. But I recognize that most of our trade is done with the United States. I also recognize that the same groups that are quite often hypercritical of any type of change to the Competition Act, which they created in 1986, are indeed the same ones that want us to have parallel rules with the United States of America in terms of trade and arrangements.

I am perhaps on more of a continental basis. I think the rule of ceteris paribus must apply in almost every circumstance, and that what's good for the goose is good for the gander.

I'm interested in the concern you have raised with respect to frivolous and vexatious cases. If I'm ill, I will no doubt seek the advice of a physician. If the illness is about to spread into other areas and you're concerned about the dearth of case law, why would you not want to provide a mechanism in which we can actually have the tribunal and make a decision? Well, maybe not entirely the tribunal. The mechanism in Bill C-472, and I suspect in Bill C-26, is to allow at least one person of the tribunal to make a judgment quickly and efficiently as to whether this case ought to be heard or has any merit if the bureau doesn't take it.

I think there are people in the business world on both sides of the equation, for and against, who may very well be in a position where they understand their business far better than those in the bureau. The tribunal may want to hear about those kinds of circumstances. Why is there such a resistance to this tiny, small fine-tuning to the Competition Act?

Mr. Lawson Hunter: I guess the concern is that it won't be a tiny, small change, that it really is a Change, not a tiny change. There's a concern as well that the tribunal would apply the general rules and maybe change the rules, which I suspect it would. In terms of the notion of having some filter that is meaningful, if you're going to do it, you sure as hell want something like that.

People say I'm raising a question that is impossible to answer. You're not the first person I've said this to. To me, there are two questions. First, do you think the substantive law is right and there just isn't enough enforcement? Let's make the assumption that this is what you're saying. Then the question you have to ask is whether we have the optimal amount of enforcement of the law. I'm not convinced that we don't.

The amount of lawyer time, economist time, and business time that is spent on compliance with the competition law has grown astronomically. When I went to Stikeman Elliott in 1993, there was me and one other person. We now have 20 lawyers. It's not like business isn't taking us seriously. It's not like there's not a lot of enforcement. It's growing.

Mr. Dan McTeague: I understand that. I was interested—

The Vice-Chair (Mr. Walt Lastewka): Mr. McTeague, I just wanted to give Mr. Ross a chance if he wanted to make some comments on your questioning before we go to the next one.

Prof. Thomas Ross: No, I'm fine. Those questions seemed appropriately directed to Mr. Hunter and I think he's handled them.

The Vice-Chair (Mr. Walt Lastewka): We're going to go to Mr. Dubé and then we'll come back.

Mr. Dan McTeague: Thank you. I have a few questions for Mr. Ross as well.

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

[Translation]

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): Thank you, Mr. Lastewka.

I am not an expert on these issues and I appreciate listening to qualified specialists like yourselves. My questions will be of a general nature.

Our competition policy is often compared to that of the Americans. If we were to compare it to other OECD countries, the 28 largest... I recently read a number of criticisms. I do not have the quote with me, but one made the claim that in Canada the Bureau only investigates complaints and is not independent enough. That is what the critics say. But let's leave the Americans aside for a moment because we pretty much know how things are done in the United States. How does Canada compare with other countries? My question is meant for the two of you.

[English]

Mr. Lawson Hunter: Again, I can't speak for all of them, but I think it's a mixture. I would say that in Canada it is true on the behavioural side of the law, like abuse of dominance and monopolization, that the bureau acts on complaint. And then, as I used to say, it's driven by the mailbag. People come to it and they don't necessarily take initiative on their own, but they do on occasion, and they see a situation and they'll investigate it. But most of that enforcement will be driven by the mailbag.

• 0955

In the United States in the government agencies that is largely true. What is so different in the United States is that of all the cases brought, and I don't know what the statistics are now, 80% at least of all of the cases that are brought in the United States are brought by private action under the triple-damage laws. So you have more self-help remedies than reliance on the government.

In Europe, at the European Union, I think they would be largely driven by complaints. And partly that is a legal issue as well. Even if the agency on its own wants to investigate something, if it doesn't have people who have been harmed who are willing to stand up and be counted, it's pretty hard to make a case; because otherwise you're making it theoretically, which I think from an evidentiary point of view is difficult.

So I don't think we're that far out of step. I think the Americans are different because they have this very powerful private damage remedy that applies to a lot of the law and more of the law than ours does. But as to the government enforcement, I would suspect we're pretty close to everybody else.

Prof. Thomas Ross: I would say the same thing. I think the one area that is different, but it's different in most countries, is mergers, where merger review quite often is much more proactive. The merger team in Canada or the United States or Europe would see an announcement of a merger and if they knew it was big would start action. And they might get a pre-notification in fact, depending on the law. So that wouldn't be complaint-driven, but that's the only major section of the law that isn't.

Occasionally, on the price-fixing side as well—and this would be true in Canada and the United States and Europe—they might get a tip about a price-fixing conspiracy, which wouldn't be necessarily a complaint from someone, but perhaps a participant in the conspiracy who was feeling guilty or nervous and wanted to talk about it and bargain their way out of punishment.

So as Lawson said, I don't think our systems are that different.

[Translation]

Mr. Antoine Dubé: I have another question. We all know that the main concerns often have to do with mergers, but there is another sort of activity that does not always come to mind. I am referring to what I call corporate integration. I am thinking, for example, of petroleum refiners who also operate service stations and other situations of that nature. There is cause for concern when you see people who are in a position to control both the input and the output of downstream businesses and who end up having a sort of monopoly. According to you, does our present legislation allow us to look into cases of inordinate integration? I know that these can't be prevented totally, but what is your view of the matter?

[English]

Prof. Thomas Ross: I'll start with this one. I think we probably do. Vertical issues do come up from time to time. They do raise competition issues, particularly when they spill over into a horizontal dimension. Quite often it's this vertical consolidation that collapses market shares into very few hands at some product level, and then you get market power at what we would call a horizontal level. And it's very difficult for new entrants to come in, because they have to come in at all stages, because there's no one to deal with for the other stages because everyone is integrated. So vertical relations, whether they're full integration or just by exclusive contract, can raise competition issues. But I think we're in a position with the current law to deal with those by and large. They'll become a concern that could be attacked under section 79, the abuse of dominance, as perhaps a joint dominance case, or if one firm gets too big, as just a simple dominance case.

Although I haven't given that a lot of thought, I think we probably have the tools to deal with those sorts of problems. Again, a lot of vertical restrictions can be reviewed under some of the restrictive practices sections of the act as well.

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Mr. Lawson Hunter: Can I briefly comment on that?

This is a difficult area of the law, there's no doubt about that. I think the law, certainly on exclusive dealing and tied selling, all of these things largely are vertical non-priced problems and the act deals with them specifically.

Whether we have in every industry been careful enough, even on the merger side, about the effects of vertical integration—I'm not sure that we have. I'll mention your favourite industry. I think that in the whole refining sector, in my view, not enough attention was paid to the significance of that back when there was some consolidation going on in the refining sector in the oil industry.

I don't want to mention particular names, but I personally think that the key issue in one of those mergers in the late eighties was the refining sector. The bureau allowed the consolidations to take place, and that's why in my view you're seeing some of the problems today in that sector. There just wasn't enough supply available, and the notion was that that will come across the border, but the reality was that this wasn't really going to happen.

So you do need to look down the road, and I think that maybe some past decisions have exacerbated that problem. It does, however, present the same problem today that I mentioned before about what's the remedy. That's the tricky part of this law.

The Vice-Chair (Mr. Walt Lastewka): Mr. Dubé, one more question.

[Translation]

Mr. Antoine Dubé: It was interesting to hear you say that we do not give innovation sufficient importance. You referred to that rather quickly. The thing about innovation is that the innovator will of course always find himself alone in his new field of activity. Did I understand you to say that you would rather promote innovation than regulate it? Did I understand you correctly? I would like to give you time to tell us a little more about it. I did not have the opportunity to read all of the material, but I saw it was saying something new about innovation.

[English]

Mr. Lawson Hunter: As we know, and according to one of the phrases people use now about change happening at the speed of light or something like that, as John Roth would probably say, innovation in merger review—and I'm really talking about it more there—in my view is becoming increasingly important. I will talk about a case I was involved with, which was the bank mergers. I thought the bureau did actually by and large a very good job there. The one area that I thought they didn't do as good a job on was how they factored change and innovation in that sector of the economy. In my view, they did not understand how quickly that industry was changing. They therefore took a far too restrictive view of the likely changes in competitive landscape in the future and they took a historical view of market share as a principal measure of how to decide whether there was a problem or not, as opposed to what the world was probably going to look like.

Remember, this whole exercise on mergers is a predictive exercise. You're trying to say what the world's going to look like in two or three or five years, which is not an easy thing to do.

I think they need to be well educated. They need to make sure that they don't discount how rapidly an industry is changing and have yet stuck historically at what it did look like and therefore prevent transactions from occurring that should have occurred.

So I think the way the law is set up allows them to do it. I think in fact it's right the way it's set up, it's just how you apply this that is concerning me. And also—as I say in my paper—I'm concerned that they tend to look at the factor in the merger section more negatively than positively. They tend to say you're going to tie up people through intellectual property rights. So they look at it from the bad things you can do, as opposed to the positive things that are occurring in that industry.

I know that's vague, but....

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Prof. Thomas Ross: I would like to add a couple of words about that. I feel like I have to respond, because I was on the director's bank merger review team.

Actually I don't really disagree with much of what my colleague here has said. Innovation does present important challenges to the review of mergers. The problem in general, and the problem I can tell you in the bank merger case, is it was very difficult to predict where things were going. It's one thing to say innovation is changing everything, just watch, but you don't know in what way it's changing everything, and also you don't know which direction—that is, approve the merger or don't approve—will more facilitate innovation.

Some arguments are to be made that say the more players in the market the more innovation you're going to get, so merger might be the wrong way to go. We had to at least consider that as a possibility. Of course they're confronting this with the Microsoft case as well. If they break up Microsoft, will they get more innovation than if they leave it all together? Obviously it's been very successful as a company on its own, but there's a feeling in some quarters that there will be even more innovation if they break it up.

So I'm not particularly disagreeing with Lawson on this. I'm just saying that we do have to take innovation into account, but that's easier said than done sometimes, because it's a great unknown.

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

Mr. Ian Murray (Lanark—Carleton, Lib.): Thank you, Mr. Chairman.

Actually, Mr. Dubé anticipated one of my questions. Just to follow on that question of innovation, obviously the bureau reaches out to outside experts such as Professor Ross when they have questions like this, but is it a question of our not having the right mix of people perhaps to deal with these questions? Should we be accepting that innovation will become increasingly important and perhaps we should be looking at a different mix of people who are looking at these questions?

Mr. Lawson Hunter: I'm not sure that's true. I think it's an attitudinal thing. That's why I say I think there needs to be a very clear change that is articulated by the bureau, because I'm not sure the language of the statute accommodates it, that this is a more important factor certainly in some sectors of the economy. It's not very important in others, but in many sectors it is more important and they need to recognize that and it needs to be more clearly articulated, in my view.

Tom said something about the uncertainty about what will happen, and that's always a problem in merger law, because as I say, it's a predictive exercise, and my view is that if there is considerable uncertainty then the government and the bureau should be more reluctant to intervene in those situations. Where they don't really know, then they should give the benefit of the doubt to the private sector, because I think that the risk that they will do more harm than good is very large.

Mr. Ian Murray: So it almost comes back to a question of public trust. I'd be interested in your comments, based on your experience, on how much the public can trust essentially big business, which I think we're talking about here, because there seems to be a built-in bias against big business. You see this in public policy even: small business is somehow sacred and big business is bad. You'll notice that in a lot of discussions among politicians or the general public, people don't seem to trust big business. But would it be fair to say that big business, when they're planning a future course of action, tends to look for ways to skirt the law, or do they tend to deal with the law very responsibly and say these are the boundaries and we're not going to try to pull a fast one to try to get around this? I'm interested in your experience in that area.

Mr. Lawson Hunter: When I commented before about how much time and effort I think goes into complying with the law, my experience is that big business is obviously trying to make a buck, and obviously they're trying to gain advantage over their competitors, but they're not a bunch of lawless renegades out there trying to take advantage of the law.

The other thing you have to remember is that in a lot of these situations it's not just Canada they're looking at. You have to make sure you're onside with the Americans, because you're trading with them, or your practices or the transactions are being reviewed in many different jurisdictions. So it's a growth business. There's a lot of time and effort, and a hell of a lot more than there was back in the mid-1980s, being spent on complying with the law.

• 1010

I can't tell you that there aren't people out there who will try to go as close to the edge as they can. I mean, different businesses have different risk factors. Some of them want to go right out to the line, and others want to go quite a bit back from the line. So it depends on the risk factors of the businesses, generally. But to say that people are blatantly disregarding the law is not my experience.

Mr. Ian Murray: Do I have time for another question, Mr. Chairman?

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

Mr. Ian Murray: I think it's fair to say that the genesis of this look at competition policy largely goes back to our study of a previous bill of Mr. McTeague's. We had a witness who had owned a family grocery store down east, or had several stores. He came to us after he had allegedly been put out of business by a large chain moving in and dropping prices on a number of very popular products in the stores. It was quite a compelling argument he put forth.

I was struck, Mr. Hunter, by your comment that competition policy is not about fairness in terms of equal treatment, that its purpose is to see if people can gain an advantage over others. Now, those of us sitting around the table, with the exception perhaps now of Mr. McTeague, who are not experts in competition policy or law, felt this was very much a question of the little guy being beat up by the big guy until he no longer could stay in business.

If we are going to continue to hear stories like that, where else do we turn, if this is not a blatant case of predatory pricing as defined? In our minds we have a sense of what predatory pricing may be, but that's not necessarily the legal definition of it. In the meantime, this guy's out of business and the other store has essentially taken over the market. How should we be dealing with that?

Mr. Lawson Hunter: Right. Well, I have some personal experience in this that goes back a long time. My family was in the grocery business many years ago at a time before there were supermarkets. This was a very small village and there were three little grocery stores in this village that all managed to eke out a living. All of a sudden a supermarket comes in, and all of a sudden the consumers seem to prefer to go there, for whatever reasons. Ultimately, we had to get out of that business. You know, we didn't like it, but unfortunately, that was innovation. That was good for the consumer. And we were either going to have to build our own supermarket or else we were going to have to go out of business. We went out of business.

I remember when I was in the bureau in the 1970s it used to be that there was a whole industry in this country of wholesalers who sold tobacco and confectionery products. All of a sudden the people who manufactured those products said it was more efficient for them to distribute their products themselves. So they cut these guys off, because they said they didn't need them.

They belly-ached. They said it was terrible, and we should fix it under the Competition Act. But that's not the right role for the Competition Act, because it was innovation and it was better for consumers.

In the grocery business now, you have to worry that you don't end up with the bigger guys having too much power, so that it's bad for consumers. But you need to be very careful that you are not impeding a necessary change in the economy because there is innovation and there are better ways of doing things. Because ultimately, the beneficiary of this law should be the consumer, not the businessman himself.

Now, often businessmen are consumers, as we talk about in vertical integration in gasoline, where the guy is the consumer of the guy who has the refinery. But be careful that you don't get caught in the trap of saying this guy wants to stay in business, and the only way he can stay in business is to make sure consumers don't get lower prices, because that, in my view, is not a good result.

Prof. Thomas Ross: If I could, I'll just add a couple of words. I don't need to add very many, because I agree with what Lawson just said.

It's an unfortunate fact that sometimes competition isn't pretty. People lose, individuals lose, and organizational forms lose.

Organizational innovation is a very important source of innovation. Sometimes we miss it. We think about innovation as new products or processes, but sometimes it's just a new organizational form. The ultimate test should be whether consumers benefit by it.

• 1015

You know, to the extent that an individual grocery store owner is disadvantaged because of predatory pricing, we should go after that. And if they're disadvantaged because the dominant grocery chain has squeezed suppliers and told them not to supply, we should go after that, because that's taking away a level playing field and not giving the independent grocer a chance to compete. But given that level playing field, if one organizational form starts to lose to another.... We don't have many blacksmiths any more either, and I don't think it's in our interest to protect them.

Mr. Ian Murray: Okay, thanks.

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

Mr. McTeague.

Mr. Dan McTeague: Thank you, Mr. Chair.

Gentlemen, a lot of good questions have been raised and there have been a lot of comments here about the wording within the Competition Act. I understand that when you put in words like “unduly”, “substantially lessening competition”, “relevant markets”, “substitution”, and “practice”, they all tend to ensure that the benefit of the doubt always goes to the defendant. Or as in the case of where someone is accused of something, or alleged to be accused of doing something, we tend to have an act that says a lot but is realistically, from a jurisprudence point of view, practically impossible to enforce. There's very little jurisprudence that goes with a lot of the cases that are there.

And I point out, not in the case of predatory pricing—which is a favourite of mine and which, as Mr. Murray has quite rightly pointed out, sort of instigated the whole question of competition—but in areas such as price-fixing, collusion, and conspiracy 45 you have the term “unduly”.

In the two cases I know of—the Nova Scotia Pharmaceutical case, and later on the case dealing with Clarke Transport—you literally had a situation where naked per se illegal offences like price-fixing were acceptable as long as they didn't happen to impact on the relevant market.

The relevant market in the case of Clarke happened to be because they didn't have control over the intermodal freight between Ontario and the west, and trucking transport was almost virtually agreed to, in terms of what would otherwise constitute an agreement.

It appears to me that the Competition Act has been up to this point quite incapable of bringing forth the kinds of cases.... So that people say “Bring us evidence that you need changes to the Competition Act, because obviously there's never been a problem, or there have been very few cases”. I'd submit to both of you that it's because of the wording of your act that it's practically impossible to bring a case forward, unless, of course, you have the deep pockets to sustain a very tough fight.

That brings me to the question of when a change is made, the usual knee-jerk reaction by vested interests in this country is that it will create a chill on investment. And I've heard that a thousand times. I want to ask both of you, is a chill in investment something that would be otherwise illegal in the United States that we would permit to happen in Canada?

Where is the public interest protected and benefited by saying that because we don't go after Microsoft, ADM, Bell, Kodak Eastman, or whatever the case may be, or we invite...? As we saw this summer with respect to the vitamins issue, evidence raised on a global scale was used to successfully obtain a prosecution here at home. Of course, this is my own opinion, but we received—

The Vice-Chair (Mr. Walt Lastewka): Can we get to the question?

Mr. Dan McTeague: Yes, I am, Mr. Chairman.

We received competition vicariously; we received a decision as a result of other competition jurisdictions.

Tell me, why would we accept in Canada a standard of competition that is, practically speaking, less enforceable than in other jurisdictions, particularly that of our largest trading partner to the south?

Either of you can answer.

Prof. Thomas Ross: I'll start, if you like.

Where do I start? First of all, I think you're right, Mr. McTeague, about the word “unduly”. It was in my proposal as well, going back to 1991 in the proposal Tim Kennish and I wrote, to strike out the word “unduly” to make prosecution of naked price-fixing conspiracies that much easier. You wouldn't have to get into serious issues of market definition or anything like that.

Mr. Dan McTeague: Right.

Prof. Thomas Ross: If you had good evidence that they had met in a smoke-filled room and agreed on prices, that was it. So I'm four-square in favour of simplifying that.

You might be overstating the case. I think we could get convictions on price-fixing. I think we probably could have proceeded on our own on the vitamin case, given a hint that it was going on. We were certainly assisted by the information provided, but some of those egregious cases we can still get.

• 1020

I don't think cases against naked price-fixers are going to create any sort of chill. So I'm not particularly worried about that. My worry is more that our current law might chill legitimate business activity through strategic alliances and joint ventures. That's why I like the new proposed subsection 79.1(1). It is consistent with some of the things I had written, which is to let those kinds of more complicated agreements that have efficiency benefits get evaluated more on a merger standard. I like that, and I think that will reduce whatever chill there is.

I think with Bill C-472 or my proposal you get the best of both worlds. You get easier enforcement for the bad stuff you want to knock out. On the other hand, the stuff that is complicated, that reasonable people could disagree about, and that might require a weighing of benefits and costs gets a proper airing where all of those benefits and costs can be brought up and treated as you would treat them if there were a merger of the parties.

It's a funny thing that if two firms get together and do a merger, we treat them under a sort of civil process where they get to talk about the benefits of the merger and all that, but if they get together to talk about something a little bit less than a merger and don't call it a merger and the bureau doesn't determine it to be a merger, they can go to jail.

Mr. Lawson Hunter: I don't quite know how to answer that question. There are many, many cases under the conspiracy section. There have not been very many litigated cases under the conspiracy section in the last 20 to 25 years. But if you look back to the forties, the fifties, and the sixties, you'll see that there are many, many cases, and the government typically won those cases.

I'll take you back to a bit of history when I was in the government. When we started the consultation that led to the 86 amendments, I said there are three key areas we have to look at: merger, monopolization, and conspiracy. We did the consultation on the conspiracy section. From a policy point of view, there's no doubt in my view that having per se offences for price-fixing, market allocation, and boycotts is the right policy. The issue is whether you can craft and write the law in a way that is not overinclusive.

Remember that the U.S. Sherman Act, where they evolved into this, is one line. It has all evolved from jurisprudence. It's not that they legislated this. It was the way the courts interpreted that section.

The problem you run into is that people come forward with all these things that shouldn't get caught by that. I have to say that in looking at the language of this bill, it troubles me that it's pretty vague. There are things you don't want to catch, but you're going to catch them anyway. So we ended up with this long list of exemptions. At the end of the day the government said, this is going to look a little funny. We're going to have it per se, and then we're going to write everything out of it. So that's a danger here. How do you write this so that you don't really catch things that are good and by making it so blunt?

It comes back to my—

Mr. Dan McTeague: I think you're right. You want some flexibility in terms of this.

Mr. Lawson Hunter: Exactly.

Mr. Dan McTeague: If there's one thing on which all parties involved in the issue of competition agree, whether it's those who want to retain the status quo and who had a hand in creating it or others like myself, small or large business, left or right wing, it is that the rapidity of change in the economy does not allow for proper appropriation of resources to this department. I've heard from others, and we'll probably hear this from other commentators today, that everything is hunky-dory, fantastic, just perfect, and that there are enough resources to go there. Any comparison to other jurisdictions shows that the Canadian Competition Bureau is, relatively speaking, not as well funded and probably has to devote a lot of its resources to issues such as mergers.

We've seen changes in the areas of deregulation, as you pointed out, and rationalization. There are many changes occurring right now, so would we not want to avail ourselves of mechanisms that at least allow us the time to determine whether or not these are within the ambit of the public interest?

I think the question we have to ask ourselves right now is whether what we did 15 years ago is as acceptable as what was done 20 years before then. If this act, which is so vitally important, as both of you have identified, can't evolve with changing times, then it becomes irrelevant not just for large businesses but for Canadians in general. Is that an accurate portrayal of where we stand today?

• 1025

Prof. Thomas Ross: Yes, I think so. You've said a lot of things, Mr. McTeague. I can't think of any I disagree with.

The law does have to evolve, as Lawson pointed out. The government did win a number of conspiracy cases. It did start to run into some trouble, though, in the seventies on the merger side as well as on the price-fixing side that made it look as if winning cases was going to be harder in the future. That was one of the things that propelled amendments in 1986, although the conspiracy provisions were not much changed. The law does have to change. I think many of the proposals you have before you would be very helpful.

Mr. Lawson Hunter: Could I just make a comment quickly, because I know we're running out of time. I come back to my point I made at the beginning. This policy is a doctrinal policy, and that means that by necessity it is going to be a relatively blunt instrument. You have to get right the concepts in the law. It's the application of it that has to change. I don't think that conceptually our law is out of step with most of our trading partners. This law—of course I like to say this because I say I was the principal architect—is the most economically literate antitrust law in the world.

Mr. Dan McTeague: Conceptually.

Mr. Lawson Hunter: It's the application of it that is the key.

Mr. Dan McTeague: Thank you.

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

Thank you, Mr. Hunter and Mr. Ross, for your presentations and for the discussion this morning. It has been very helpful.

We'll now adjourn this portion of the meeting and get ready for our next session.

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• 1032

The Chair (Ms. Susan Whelan (Essex, Lib.)): I'll call the meeting back to order.

We're very pleased to welcome our next witnesses: from Blake, Cassels and Graydon, Mr. Warren Grover, a lawyer; and from Lang Michener, Mr. James Musgrove, also a lawyer.

We'll begin in that order, if that's okay with Mr. Grover. We look forward to your opening statements, and then we'll move to questions together.

Mr. Warren M. Grover (Lawyer, Blake, Cassels and Graydon): Thank you very much, Madam Chair.

I've been before this committee before. I've been studying competition law longer than most people. I did a masters degree in it at Berkeley in 1960 after graduating from the University of Toronto. I've taught it and practised it since 1960.

I find it odd to hear that it wasn't enforceable, because it sure as hell was in 1960. I might comment a bit on that, because I think the competition legislation we have today is antiquated and prolix because so many things got stuffed into it in the 1930s that never got fixed. That is, nobody has ever used sections 50 and 51. They simply have been dead issues, and they have a lot of words in them that, in my view, have hampered enforcement.

If you get it down to simple language, like the U.S.... Remember, the European Union has only two sections. The Sherman Antitrust Act really has two sections, which are in four lines; the first one is in one line, and the next one is in three lines. That's all there is. The rest of it is done by enforcement, and what we don't have is enforcement.

In the last twenty years, enforcement at that level has been poor. Under the new parts of the act that came in in 1986, I believe the director has been successful in all but one. He has had at least some success, and his record of enforcement is therefore very good. However, in things such as pricing, where we have them all over in the criminal side and unusable, the real concept is that you don't have to move all those provisions up to the civil side; just get rid of them and they fall onto the civil side under monopoly.

Those provisions are not important if nobody has any market power. The supermarket that was talked about in the last presentation gets nowhere if it hasn't market power. It can't tell anybody to do anything. So what you are really talking about are pricing practices with market power, and I'll deal with that. But what you really want is enforcement of this act, and I think that's important.

I am not going to deviate much from pricing practices in what I say to you just shortly, but I would say that one of the factors you have to consider.... I understand about Mr. Hunter coming from the town of Florenceville, New Brunswick, which has three grocery stores for 600 people, and that's a lot of grocery stores for 600 people. On the other hand, when you get it to one and the prices start to go up, do you have competition?

• 1035

You don't want to get rid of competition entirely by not recognizing that in our economy, unlike the U.S. economy and unlike Europe, we're a small country population-wise, but geographically we're huge. On competition laws, all the economists you hear from come with exactly a Chicago school or a Harvard school. Hey, sorry, wrong school. We need a Canada school when we think of this law, and in a Canada school you need to have small people to discipline the large ones, otherwise you have no competition in the market.

Things like efficiency are important, but they are not any more important than having an extra competitor. I don't mean you need 25 of them and you have to keep 25 grocery stores, but you will not get an effective Canadian competitive policy if there are no little fellows to discipline the big ones. In my view, that is a real problem in our economy.

But certainly in the pricing provisions, it's my suggestion—which you'll see in my little paper, which I didn't make extensive for you because I don't think that's useful—that you can get rid of sections 50, 51, and 61 with no loss, because they'll all fit over in the section 79 provision. In fact, it will help you over there.

With respect to the word “undue” in the conspiracy provision, I do not think that has been a big factor. The biggest factor has been that over the last twenty years the federal government simply has not put its position forward strongly. In the earlier cases it did so, and as Lawson pointed out to you a minute ago, it won almost every one of them. In fact, I think when I graduated from the University of Toronto the teacher at that time would have said the government wins under section 45, no problem.

How did the problem arise? There was a shift in economic thinking in the United States, which immediately got transferred to the Canadian lawyers. They aren't that stupid. They can read what the U.S. is saying. There was a shift in the United States, and then it shifted back. It's the so-called per se rule and the rule of reason. All sorts of stuff got thrown under the rule of reason during those years in the United States, and they've now shifted back into more or less some more types of per se offences.

So I don't see that as a problem, but I do say, as I said in item six, the lack of enforcement of section 45 over the last few years has been obvious. Yes, they've lost cases, but they haven't brought many, and the ones they've brought were not very sensible, like the Perreault case. They won, but, mon Dieu, it's about a driving school in Sherbrooke. Ce n'est pas grand chose.

In any event, one of the things I think you need to get into is that the director needs to have his own legal staff, needs to be able to hire outside counsel, but these counsel have to be effectively competition-based thinkers. There is a difference, I suggest to you, between abuse of the dominant position and drug abuse. You don't use the same prosecutors. Yet that's exactly what has been happening. That just doesn't work.

So what I'm saying to you is, in the law, yes, get rid of the superfluous pricing sections, as they don't add anything. You do want effective competition, but that means you have to have competitors.

Don't be befuddled, as I've tried to say also in my paper, that globalization is increasing competition. I don't believe that's true in Canada. Globalization has meant more dollars spent on marketing, and they've brought in large things like Home Depot, and the customers like them, but it's not because of the low prices, really. What happens is they come in and they market to death, and the consumer likes that. They like being told that there's good quality and whatever. But slowly the prices keep rising.

I suggest to you that rising prices are the only problem. If prices are going lower or staying the same, nobody's complaining. But what happens is in comes the Home Depot, out go the Beaver Lumbers or whatever, and slowly prices start going up.

• 1040

They're efficient, but if you start spending an enormous amount of money on marketing, are you sure you haven't spent the efficiency someplace else? I can show you that by taking two companies and putting them together you can lose one president. Each one used to be paid more. Therefore, you have an efficiency.

I'm being simplistic, but that's really what these efficiencies of scale and scope go into. I'm not denying them. I'm saying look at the bigger picture.

The other fallacy, in my view, is that technology-based industries roll over so quickly that they hardly have time to hurt anybody, so don't worry about them. It seems to me that most of the major billionaires have come out of these technology industries by scalping the consumer for the ten years they're at the top, and then they move on. I don't see that as necessarily great. We certainly need innovation, and Canada has been very slow to innovate. At least 90% of our patents are held by outsiders. We've been very poor on the innovation side. I'm not suggesting we haven't. But the idea that the high-tech stuff all has to be sort of forgotten because it's going to get boiled away seems to me to ignore the fact that meanwhile the consumer is really taking it on the chin, in my view.

Whether competition laws should deal with allocations down to the consumer level or just worry about overall efficiency, what's called market efficiency, I think is a problem parliamentarians need to deal with.

Madam Chairman, I think I've probably gone past my ten minutes, and I should let my friends speak. It's more important to listen to your questions than to listen to me talk on. Thank you.

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

Now we'll turn to Mr. Musgrove. Mr. Musgrove, please.

Mr. James Musgrove (Lawyer, Lang Michener): Thank you very much, Madam Chair.

Thank you very much for inviting me here today to speak about the Competition Act. It is one of the few framework laws that govern how we run our economy, so it's very important. I think it's important, because it has to do with how successful our economy will be. We really do not have other overarching industrial policy. We have an industrial policy that says that except in regulated sectors—and that's a part of Warren's submission I agree with—where you leave the regulated thing to the people who know what they're doing, we're going to have a competitive economy. We're going to let people sink or swim, and consumers will benefit at the end of the day. So getting that law right means getting economic welfare and consumer benefits right, and getting it wrong means the opposite. So it's of fundamental importance.

I'm happy to see a vigorous debate about the appropriate scope and aspects of the law. I think the process is important, though. The VanDuzer report I think is a major contribution to this debate.

At the end of the day, though, I think the proper process is for the government to consider the various views expressed through this and other processes and to come forward with a discussion about what it wants to do and why that will allow for input on why change is relevant, as opposed to a kind of a piecemeal approach, both by process and by way of, we'll put something in about airlines here, about gasoline stations there, and about some other industry somewhere else. That really is what specific regulators are for. These rules should be applicable across the board, and if they're not, they should be somewhere else. That's my brief comment on process.

I also want to say something very quickly about the possibility of the commissioner having a direct regulatory role as opposed to a prosecutorial investigative one. I think that's unwise. We had that before. We split the functions because we thought that was best done. You can have whatever interim-order approach that is thought to be appropriate. But there is a body to make orders and another body to investigate and prosecute, and I think the separation is healthy.

I want to speak briefly about this issue of private access. In 1986, after considerable debate, we established a regime that did not allow for private access. In my view at least, there has not been a clearly articulated position that says why that approach is not an appropriate one.

• 1045

As Warren mentioned in his remarks, on these kinds of things, when the government brings a case, it wins it. That suggests that the government brings sensible cases and gets something. Now, I've occasionally been on the other side and lost, but that's the way life is. That's appropriate.

If you allow private access, however, instead of having someone with the public interest in mind bringing cases, you will have people with private interests in mind bringing cases. There's nothing inappropriate or wrong about that, but that's what will happen. That's what you're inviting when you allow private access.

The tribunal has granted relief in every case, and I submit that at least in large part it's because you almost always have somebody before the tribunal who is bleeding, in some cases bleeding to death. That's sad. That's humanly unfortunate. It may, however, be economically appropriate. Yet it's hard to turn down a victim who is before you. However, if you fail to turn down the victim, you may in the long run be victimizing consumers, because they're not there and they're not articulated.

I have a fear that allowing private access will discourage people from subcontracting out pieces of their operation. It may be appropriate to change their mind later and bring it back in-house, but they won't be able to do that because someone will bring an action against them if they do. That would be inefficient, so they'll keep it all to themselves from the outset.

If there's a concern about insufficient government enforcement, there's a remedy for that, and it's a direct and expressed remedy. The Competition Bureau is now a profit centre, and they brought in $100 million in fines in the last 12 months. That's pretty good. They weren't contested cases, but somebody thought that they could win a case enough to pony up $100 million to settle the case. There's money there. It's making money. If more enforcement resources are required, I say that's an easy decision, rather than change the law and risk the inefficiency that could create.

I'm going to turn briefly to the pricing issue, because I understood that was one of the fundamental reasons I was invited to come and speak. In my little note that I sent up in advance, for the balance of it, pages three to the end, I talk about them one by one. I'm not quite as revolutionary as Warren who would just scrap them all, although I don't think that would be a disaster.

With predatory pricing I say that there are four pieces to that puzzle, only one of which actually makes sense, which is prices that are too low and that injure competition. Everything else doesn't make sense. So I'd just leave it at prices that are too low and that injure competition and change the rest. You can do it by deleting the last ten words of the section. It's kind of easy to do. I don't disagree that Warren's approach would work as well, frankly, but you go either way, I think.

I make a very nice living advising people how to avoid committing the offence of price discrimination. I can find a way to avoid committing the offence. I've never come across a situation in which I thought there was any economic harm, except the fees they were paying me. Any of these amendments will be a competition lawyer's employment bill. They're great for me. But I don't think these provisions are good for the economy. Price discrimination and discriminatory allowances are essentially the same thing. There's the regional predation section. Again, as Warren says, they do nothing beneficial for the economy, except in legal fees.

Price maintenance is, I think, a little trickier. Warren would get rid of section 61. I don't know. I suspect that's not in the cards. I would try to limit it, and I've set out the appropriate ways in which to do it in four points in the paper. But it's a harder one.

The real problem I find with the price maintenance section is the strategic alliances people are getting into now where one party comes forward with one component of the product and the other party comes forward with the other component, and they're going to market it jointly. One of them buys it from the other and sells the whole package. But both parties in that kind of case have a real and legitimate interest in what price the thing is going to the market at, and yet because of the wording in the price maintenance section, there are serious difficulties with that. You can work with them, but it's hard and largely inefficient, again except for me.

That, in a ten-minute nutshell, is my take on this.

• 1050

I did want to conclude by saying there have been some comments in the press in the last few weeks about the efficacy of the Competition Bureau and its international ratings and things like that. I don't practise around the world, but I think those comments are unfair. I disagree with the bureau regularly and sometimes strenuously, but I think they are a professionally run organization. They do a good job. In the deals I've been involved with, in comparison with other international enforcers, they do an admirable job. So I just think those comments have been unfair.

Thank you.

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

[Translation]

Mr. Dubé.

Mr. Antoine Dubé: Mr. Grover, it is unusual to see someone who wishes to improve on a piece of legislation by asking us to remove some of its provisions. That is rather rare. In justifying your position, you stated that certain provisions in the Act are either not enforceable or not being enforced.

I am no expert on competition matters, but I am most interested in what you said. Why have this excellent legislation if it is not enforced or if it is unenforceable?

I know that you mentioned certain provisions of the Act, but are you suggesting that, generally, we simplify the legislation and cut out a number of provisions? I recently read it again and there is nothing simple about it. I imagine that it is difficult for a small business to have direct access. Not every business has a legal department and retaining one or more lawyers can be a costly proposition. There may then be some small businesses we are unaware of the opportunities they have under the Act. You made that very clear when you spoke of grocery stores in certain areas. It is a fact that this often happens in Canada, especially in remote areas.

I would like you to tell us more about this, since you only referred to it quickly and your presentation was very brief. Would you mind giving us further explanations? The Act might be suitable in large cities, but what could we do for smaller areas?

[English]

Mr. Warren Grover: Let me try to answer that in two different ways.

First of all, with respect to our law, what I've said is that certain provisions of it are emasculating the better provisions of it. Sections 79 and 78 relating to abusive dominance work well, but the old pricing provisions back in sections 50 and 51, which have never been enforced, make people think those are the law in that area rather than sections 79 and 78. Thus the focus, as Mr. Musgrove has said, gets back to these old, prolix, unenforceable things that I would like to see off the books because then I think people would concentrate on using them in sections 78 and 79.

With respect to the second part of your question as I understood it, because we have a country with a lot of small areas, we have to do something to try to encourage small businesses in smaller areas to be able to grow and compete with larger businesses. I agree that this may not be entirely a competition law concern in the sense that competition law generally says get out there and fight. Well, if you think of that in the real world, that usually means the bigger guy clobbers the little guy. This is what happens in fights. But you may be able to assist that by certain.... I suggested just a few things in here because I think it is important that Canada start to develop its own thinking in this area, as it has not done. That's the fault of people like me who should have developed it and didn't or haven't.

• 1055

For example, the municipalities in which these places are located tended to favour buying locally. If the Government of Canada told the bureaucrats to stop using Air Canada, how fast do you think there wouldn't be a second airline? Go to the Ottawa airport. You can see it. Half of that is that government bureau stuff with Air Canada, all of which is basically flying at full fare. Put it to another airline and you fix the problem. Do you see what I mean?

There's one example of how you could go at it from a Canadian perspective to try to help the smaller fellows and the medium-sized fellows. Have the government try to assist them in that way. I don't know how you legislate that. I'm not a legislator, but that's one idea I would have.

Another idea, as I mentioned in this paper, is to abolish the so-called non-compete clauses that are in every purchase and sale agreement. Every time I buy a competitor, I tell him he can't compete with me.

We don't have enough people who know the businesses in Canada if we're going to put all those guys out on the farm. They learn the business. They work at it for 30 years and they build up a good business. They know how to do whatever they do, bakeries, etc. Then they get bought. Somebody comes in, a bigger person wants to buy them out. It's a good price. They want to sell. The first thing that goes in there is “You will not compete. You will not work for anybody in the bakery business.” One of the best bakers is now out chopping hay or whatever. He can't get into the bakery business.

I've never understood why you'd want that provision in Canada. It's based on an old English case from 1898. The House of Lords called it the Nordenfeldt guns case. To me it would be sensible to get rid of that, to try to protect your small businesses so that people can go back into business. People will say that might affect the sale price of a business. They're happier if they can kick you out. Is that a pro-competition reason? Is that a pro-consumer welfare reason or is that because I don't want this bastard in there competing with me and driving prices down? I think it may be the latter, just maybe.

Does that answer your question?

Mr. Antoine Dubé: Yes.

[Translation]

Mr. Musgrove, you are concerned about the effect of what you call private access to courts. I for one would like to promote small businesses even if it sometimes meant disadvantaging larger firms, because I come from an area where small businesses are important. You are concerned about the potential for abuse. If it were set up so as to prevent abuse, would it not be a good way to help small businesses protect themselves? There might be certain means we could use to prevent, as far as these legal procedures are concerned, the types of abuse that end up thwarting policy.

[English]

Mr. James Musgrove: Of course it is possible to allow for private access. We know that. There are mechanisms being discussed. Some are better than others. It's certainly possible. But what is the best result for Canada, not for the small businesses of Canada, not for the big businesses of Canada, but for the economy of Canada and ultimately, I think, for Canadian consumers? Reasonable people differ and can differ on this point.

My personal view is that what we will see is not fights on behalf of consumer or public interests but fights on behalf of private business interests, maybe in some cases smaller versus larger businesses. I suspect that in significant part, larger and larger businesses will be fighting it out to the ultimate end, in my view, of less willingness by suppliers to deal with middle men, more doing it yourself. Then they're unlikely to make a fuss because you never started. It's not like you're changing.

• 1100

As you were discussing in the last session, the economy changes. Distribution of products used to be through the tobacco wholesalers. It ceased to be through tobacco wholesalers and now it is happening on the Internet. Who knows where it will go? You and I, none of us know. But if you build in this mechanism to allow for people with a vested interest to have an attack against someone when their personal ox is being gored, they'll use it not to protect the public interest, although that sometimes may be the result, but to protect their own interests. The government should use it only to protect the public interest, and advisably, when they think it's appropriate. They don't have enough money. I think there's an easier cure for that than this.

The little businesses that you refer to are probably not going to have enough money to bring that attack anyway, if that's the real concern. This is a business-to-business fight, not a consumer issue, this private access. It's just protecting one group of business people from another group of business people.

Don't forget, insofar as they have contracts or whatever with one another, they can protect themselves if they so choose. We're only talking here about situations where they have not done so; otherwise they'd have a private lawsuit already.

This law exists. This is not an objective harm. This is not murder or bank robbery. This law exists to protect the economy. If it isn't significantly injuring the economy, in my view, there shouldn't be an action.

We may disagree, but those are my views.

[Translation]

Mr. Antoine Dubé: Mr. Grover seems to have a different point of view.

[English]

Mr. Warren Grover: I'd like to add that the worry I have as a practitioner in this field is twofold.

The bureau has already put out statistics on how much it costs to go to the tribunal. The average of their cases—there haven't been that many—has been over $1 million to go to the tribunal, from the bureau's point of view alone. Both Mr. Musgrove and I have been on the other side. I've acted for the bureau, and I've been on the other side as well. In the NutraSweet case we were on the opposite side. But I'm sure that on the defendant's side, the costs are even higher. So going to this tribunal is not a cheap proposal. And I agree with Mr. Musgrove that it's not going to be the little fellow who's going there; it's going to be big fellows.

But the real question is when you go to the bureau with a complaint that really has a public interest to it, is the bureau not going to tell you to go and fight it, that they won't bother, and you have access?

Yes, I have access, just like I have access to swim over Niagara Falls. But there is a certain outside risk. Do you know what I mean?

[Translation]

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

[English]

Mr. McTeague, please.

Mr. Dan McTeague: There's a very interesting juxtaposition between yourself, Mr. Musgrove, and Mr. Grover.

I must say, there's a lot in what Mr. Grover has said that I agree with and a lot that I think he has revealed in terms of the redoublement that my colleague Mr. Dubé would be concerned about with respect to what's in predatory pricing and what's already in the abusive dominance provision, squeezing by vertically integrated supplier, and so on.

I have a great deal of concern with many of your comments, Mr. Musgrove. Therefore I think I will direct my questions to you.

No one, in your view, has articulated a position that there is the need for private access and that the bureau should not be given the further power of cease and desist, and that interim orders are sufficient. In your experience, if I am subjected to, as Mr. Grover suggested a little earlier, a quick move by somebody in a fast-moving industry like technology, and it constitutes potentially an anti-competitive act, how long does it take before the tribunal, in most cases, will actually address the situation, or do I have to be dead and buried and the ceremony over before the tribunal will actually listen to my problem?

Mr. James Musgrove: Do you mean as a matter of a final order?

Mr. Dan McTeague: Yes, that's correct.

Mr. James Musgrove: You may well be dead and buried. It's probably a couple of years.

Mr. Dan McTeague: Thank you, Mr. Musgrove.

Because I have many questions, I think it's fair to ask them first, and then you may want to expand on them at some point.

You refer to these people as bleeding to death, but now I think it's clear that they would have to be dead and gone before we would actually have some action.

• 1105

I'm concerned that you seem to believe that there's a situation here, in terms of cease and desist, where the Competition Bureau would actually in effect assume part of the work of the tribunal in terms of adjudging a case by having these kinds of limited powers.

Mr. Musgrove, if I have made a decision not to proceed and someone who is in the business believes that this is not only harmful to themselves and that they're inefficient, as we've seen in the grocery industry and the oil industry, but they further believe that this will have a harmful impact on the economy as a whole, has the bureau not already made a decision not to prosecute the case?

Mr. James Musgrove: I'm not sure I completely follow the question.

If the bureau has made a decision not to prosecute a case, of course it has made a decision. The individual bringing the complaint, the business bringing the complaint, believes that the conduct is harmful to itself. Whether it believes it's harmful to the economy or consumers, frankly, in my experience, is completely irrelevant to them.

Mr. Dan McTeague: My point to you, and I think the question you're not providing an answer to, is a simple one. The bureau makes decisions all the time as to whether or not to pursue an issue. It does so quantified based on its enforcement guidelines, on what its understanding of the Competition Act is, shortcomings or otherwise. It also does so in the belief of its understanding of the market.

Is it not possible that markets and the sophistication of markets are such that the bureau couldn't possibly comprehend swiftly changing markets as a result of globalization, as a result of deregulation, as a result of mergers, etc., that would warrant situations where people with specialized interests, people who have a far greater understanding of sophistication of their own industry, might just have a point that might ultimately help the public interest, which you believe you understand?

Mr. James Musgrove: Of course your answer is yes, that's possible. But if the complainant has a sophisticated understanding of the marketplace, which you assume, they should be able to articulate that understanding to the bureau. The bureau is not stupid. They may not know every market, but they have open ears and they can hear what's said and understand what's said. And if there's a case that's compelling, they'll listen.

I hearken back to the fast-moving industries that were discussed. I don't have a particular brief for protecting Microsoft or not. I don't care, but who does know where the future lies? If it is a fast-moving industry, it's darn hard to tell for anybody, for the tribunal, for the bureau, for the competitor, for anybody.

The Chair: Just before you go on, in the earlier question and response Mr. Musgrove said it would take two years. I believe that was in reference to a final order.

Mr. James Musgrove: Yes, that's right.

The Chair: To get an interim order, it could take only about a couple of weeks.

Mr. James Musgrove: That's absolutely right. My comment wasn't that there shouldn't be interim orders, Madam Chairman. My comment was that the power to make whatever interim orders you want should be in the tribunal, not in the commissioner. The commissioner investigates and prosecutes, and that's a distinct role. The tribunal decides. That's another relevant.... We used to have the RTPC, which had them together. That was wrong. We got them separated. Keep them separated.

If there's a view that there's a need for interim orders—and I frankly don't have a view on that point, there may well be—put it in the tribunal.

The Chair: Thank you. Sorry, Mr. McTeague; continue.

Mr. Dan McTeague: Thank you, Madam Chair.

I'm going to be more direct, if I could, Mr. Musgrove. Do you represent clients who also have their parent subsidiaries in the United States?

Mr. James Musgrove: Sometimes I do, yes.

Mr. Dan McTeague: Does it not strike you as passing strange that there are avenues available to your clients such as private rights of action, that there is the ability to receive certain compensation in some instances of triple damages, that are not available here in Canada, or that, better yet, there are circumstances in which someone could do in the United States something that would be entirely illegal, while being able to do the same thing in Canada with a certainty that they could either drag the process into two to three to four years, as we see in the merger case of Superior Propane, to the point where efficiencies are collapsed, small businesses are removed? And ultimately the cost, which you both were referring to a little earlier, of going through this process is far higher to the economy in general.

Mr. James Musgrove: There are a lot of things you've asked.

I do think it strange that the U.S. has these private action treble-damages rules. Most of the world finds it strange. There are situations that are likely illegal in the United States and not in Canada. There are the reverse situations too. These are both at the relative margin. Most of the things that are illegal here are illegal there, and vice versa.

• 1110

Mr. Dan McTeague: Those are all my questions for now. Do I have more time, Madam Chair?

The Chair: We can come back to you.

Mr. Dan McTeague: Yes, I'll allow others. Thank you.

The Chair: Mr. Murray, please.

Mr. Ian Murray: Thanks, Madam Chair.

I think, gentlemen, both of the briefs you submitted are very clear and I don't want to get into the minutiae of the act. I'm more struck with this whole debate, which is essentially a public policy debate about the big-box store versus the mom-and-pop operation.

It's interesting, Mr. Musgrove, that in one of your concluding remarks you say the Competition Act is in essence Canada's industrial policy. That's my point of departure for this discussion. If that's the case, then I would ask you to put yourself in the shoes of members of Parliament, who get calls from people who are frustrated, if not desperate, because they're in business and there is a big-box store moving in. This is somebody who has lived in the community all of his or her life, they've employed a lot of local people, they've sponsored the local hockey team, etc., all the sorts of things that small businesses do in the community, and they're staring bankruptcy right in the face and are about to go out of business because they feel they can't compete.

The reason I wrestle with this is because I am essentially a believer in the free market and I also watch people voting with their feet. If they decide they're going to go to Chapters rather than the little bookstore, they go to Chapters because they like it. If they're going to go to Home Depot, as Mr. Grover said, they seem to enjoy the experience, whether it's based on good marketing or what. And there's nothing wrong with good marketing. One should applaud that.

As I say, I'm wrestling with this whole question of whether you, Mr. Musgrove, feel it's something that we as a government—I guess I'm asking for a personal opinion here rather than a legal opinion—should be dealing with, or would we be foolish, would we be putting ourselves in front of a freight train that's coming at us, which is essentially free market competition and that should be good? Is this some area we perhaps could be looking at—leave the Competition Act alone, essentially, but perhaps look at some of the provisions in other areas that aren't going to compete with WTO rulings or FTA rulings or whatever?

I'll just throw that out for discussion.

Mr. James Musgrove: Thank you. It's a hard question. I'll try to give you some of my views and give you some answers in pieces.

First of all, Warren said you need enough competitors. I agree with needing enough competitors. And I don't know how many enough is; it depends on where you are and what the business is, but you need enough. Canada is perhaps different from the United States; maybe enough there isn't enough here, and vice versa. There may be some cases where you can't have five or six major chains of something in Canada; it's just too small a market. But you need enough, given the realities of Canada.

I am concerned, however, because in terms of the problem I mentioned about the bleeding plaintiff before the Competition Tribunal, that's your bleeding constituent calling you. It's the same human reaction, and I understand it; and I in fact act for a little chain of bookstores. I understand the problem, but people do seem to like going to Chapters, and they're buying more books. In fact the market is expanding in that business.

The whole bank insurance question is another. This whole issue came up there too, and there was a hugely effectively lobby by small and medium, maybe in some cases quite large, business people, the brokers. They're organized and they're in the ridings, and their livelihood is at stake and they made a very effective lobby.

That was a political decision. Our firm acts for insurance brokers, but I don't know if it's an economically correct decision. I suspect that you could get insurance more effectively and cheaper through banks.

Those folks who lobby effectively and who contribute to the political process and are known in their communities and sponsor the little league teams, and they're nice people, won't like it, but I'll get cheaper insurance and so will you and so will every other low-income Canadian.

Mr. Ian Murray: Mr. Grover, I don't know if you have something you wanted to add to what you said earlier.

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Mr. Warren Grover: I guess the only thing I'd add to that is that I'm not convinced you'll get cheaper insurance for very long—

Mr. Dan McTeague: Exactly.

Mr. Warren Grover: —if you don't have any other competitors in there.

I don't find that the banks, for example, by getting into the brokerage industry, have changed the industry. What has changed the industry is the Internet. There was no decrease in commissions until the Internet got in there, and other people, and the New York people started to break down commissions. It wasn't because the brokers—and I'm now talking about what I call the stockbrokerage community—got taken over by the banks. In my view, that isn't what's lowering the cost to consumers.

But there is something in what I think you yourself said, that you cannot deny that when the big boxes come in, they do it in a way the consumer likes. Chapters bookstores are very customer friendly, which the little bookstores in the little towns may not have been, or even the Britnells or various Coles, and so on, may not be as customer friendly. There is something in that. People don't market well in Canada, maybe, and that's what these things are bringing to the fore, because there's no doubt that the consumer likes them, and that's something I don't think you can fight—this is your freight train problem—except by trying to get the idea across that marketing is something they should be doing all the way along.

The other thing that has always struck me as peculiar in Canada—and I see a little bit of it in some of the ads I see in Toronto now—is we've never had a “Buy Canadian” concept. In the United States they'll only—

Mr. Ian Murray: Except in beer, I guess, lately.

Mr. Warren Grover: We have to buy beer because there is no other beer. We won't let it across the border. We had a brewers' warehouse that effectively kept it out.

I think there is more encouragement now to buy Canadian, but when I was a kid you bought Canadian because you couldn't—

Mr. Ian Murray: Sure. We had tariff barriers, and so on, that encouraged that.

There's another part to this, and I know we're way off topic here, but I have a number of small towns in my riding. I also have Kanata, which has a lot of big-box stores moving in, and again, they're popular. But what happens is that it's not just individual small retailers going out of business; you end up destroying essentially the heart and soul of little communities because these businesses go out of business. The storefronts are boarded up, and you have a bit of a ghost town downtown. The quality of life suffers. Elderly people who used to be able to walk to do some of their shopping no longer have easy access to these services.

So we're essentially talking about here quality of life for Canadians balanced against a free market economy, which very few Canadians would argue against, I would think. I'm sure this is a discussion for another day rather than when we're talking about competition policy, but part of the genesis for this whole discussion, as I said earlier, was because of some testimony from a previous witness whose family-owned grocery business had ceased to exist after a major chain came in.

Again, I don't expect any magic answers from you.

Mr. James Musgrove: My only thought is that those are legitimate social policy issues, and whether you do it through zoning or other methods to deal with those issues, I just say it shouldn't be the Competition Act.

I have a little market within walking distance of my house where the prices are twice as high as at Loblaws. That market thrives. They have great service and I can walk there. But if they didn't have great service, they'd die, because their prices are twice as high as Loblaws.

Mr. Ian Murray: Thanks very much.

The Chair: Thanks, Mr. Murray.

[Translation]

Mr. Dubé, do you have any further questions?

Mr. Antoine Dubé: Yes. Our society is moving in two directions: small areas are getting smaller and smaller, while large centres are getting larger and larger and all this is happening in the context of globalization. Both are cause for concern. You say that this should not be under the Competition Act, but considering our free market economy, NAFTA and globalization, how else could we go about it? Given that context, we cannot subsidize businesses. Tax deductions have to be across the board.

I raise the question again because it is an interesting debate. If the Act itself does not provide for the various regions' future, what means could the government employ to regulate regional economic development?

[English]

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The Chair: Mr. Grover.

Mr. Warren Grover: I'll try to reply to that a little.

First of all, I think to the extent you have it in the competition area, it would be facilitated if the Competition Bureau had local offices. One of their biggest problems.... When I come to Ottawa they look and feel and act like this is Ottawa. That's not local, and it's not the huge urbans, both of which I'm closer to.

If you had offices there particularly, they would find when the big box or whatever's coming in.... And believe me, a big box will not come in to Florenceville on the Saint John River. There's not enough there to come to. Something will come that's bigger than what's there perhaps.

If they could look and see whether or not this big box is being unfair, and later, has it raised the prices back up again, that type of thing.... If you don't have a local office, somebody sitting, with all respect, in Place du Portage is never going to find it.

They don't have enough investigation going on on their own. They wait for a complaint, then they usually don't understand it because nobody has been investigating that industry. They don't have dossiers, as the FTC does. They have a dossier on just about every industry, and I might say there used to be dossiers here in Canada on various industries. They are not trying to enter into the balancing of this equation.

I agree that you don't want to stop efficiency. You don't want to stop what the consumer wants. You do want to stop anti-competitive practices. If you have to wait until somebody is basically bleeding dead—and I forget all these epithets we've been using—before the Competition Bureau is made aware of it, that's too late. One solution is to have local areas, more investigation.

I might say that I support the idea of a fast action. I agree with Mr. Musgrove. There has never been a problem getting a search warrant, ex parte, no problem.

They do the same type of thing in the securities industry. They put out the orders, no problem, but they do go to the commission. They go ex parte the same day. This has been the standard legal procedure for at least 40 years, since I've been a lawyer. You go to the court ex parte. You can get an injunction to stop whatever you think's going to happen, and it only lasts four or five days before somebody has to come in and make a statement with both parties there. You can get the same effect as you have and you won't get the criticism.

What worries me about the commissioner's power is you're going to get a constitutional case. It's going to run up to the Supreme Court in Canada and for seven years you're not going to know whether it works or not.

In this Hunter v. Southam case, where they tried to give that power before to the RTPC, it fell apart. Why don't you just give them an interim right to go to ex parte interim injunctions? This is a well-known route. You go to the tribune and you get it the same hour. It's not a two-year.... So those are the types of things I think you can do to help. He does need a power, but I think you can do it with the tribune.

The Chair: Mr. Musgrove, did you have anything to add to that?

Mr. James Musgrove: No. In fact I agree with everything Warren says.

[Translation]

The Chair: Mr. Dubé.

Mr. Antoine Dubé: Moving on to something else, would our Canadian legislation—and my question is purely hypothetical—allow us to take Microsoft to court? Would it be more or less like it is in the United States? If we had, in Canada, a corporation like Microsoft, could we have taken it to court in the same way?

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[English]

Mr. James Musgrove: I don't purport to be an expert in the Microsoft case, but broadly speaking, I think the answer is yes. And in that particular case we get the benefit of a free ride, if you will, on the U.S. enforcement. Whatever happens there as a practical matter will benefit Canadian consumers. If it were a unique Canadian situation, I don't see why we could not—not knowing the intimate details of the case, but knowing what everyone reads.

[Translation]

Mr. Antoine Dubé: You are not sure.

Mr. Warren Grover: No.

[English]

For example, take Nortel, which is our biggest, most profitable, highest-technology company. It would be impossible for Canada to get it to divest half of itself, because 90% of what it does is in the United States or outside Canada. We're a little country. We want it to do this. This is our export potential. So well over half of the computers of the world are in the United States. They can afford to say to Microsoft, “You do this”, and it will do it. In Canada, if we said that to Nortel, we'd probably be kissing Nortel goodbye. They would move the rest of it south of the border—who wouldn't care, and they'd only be 10%....

I've worked with many Canadian companies where 90% of what they're doing, perhaps more, is outside the country. So to come to one of the things you're getting at in mergers, which wasn't one of the things I tried to address, do I think that this solution and divestiture are adequate remedies in Canada? No. In the United States, perhaps. Indeed, in the United States, if you look at one of the two chemical companies coming together, they decided that pet foods were too big. They forced them to divest a pet food division of one of the two companies that were merging. Do you know where most of the stores were? A lot of them were in Canada. The United States was the base of this whole thing. I don't find that objectionable.

In a case I was involved in, 90%, 100% of the manufacturing was in the United States, and you had two companies, basically, with fairly high market shares in Canada that were merging, but they were merging in the States. What are you going to do? Tell them to divest their factories in Tennessee? It isn't going to happen, realistically. So I'm saying to you, do you need more...?

I didn't really come here to speak to the merger provisions; I came to speak more of the pricing. But you're asking about the merger provisions, and I think you need many more remedies in Canada. You need to have a new thinking of the less draconian remedies than divest or dissolve. They are too big.

It's the same in the monopoly provisions. You may need more remedies than cease and desist duty doing this. To divest is a very difficult remedy for major companies.

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

Mr. Lastewka, did you have any questions?

Mr. Walt Lastewka: Perhaps you can let me make some remarks.

I thought your presentation reports were very succinct and right to the point, which I appreciate. I want to ask a question after what you presented and your discussion here. If you had one thing to change on the Competition Bureau, an irritant or something that needs to be done, what would be the priority one for each of you?

Mr. James Musgrove: I'll start.

It has been my view for a long time that the pricing changes, the ones the VanDuzer report implies and that I set out in my note.... And I am glad to be invited here. I think this would be the single best thing to do.

Mr. Walt Lastewka: Okay.

Mr. Warren Grover: At a legislative level, I think that would be a great thing to do. The important things are the three things Mr. Hunter said: mergers, abuse of process, and collusion. None of those would be affected by that.

If you're talking about what should the bureau do, they should get back to not working in regulated industries, as I said in my paper, and to working in those areas. I think you asked, partly, what would I like the bureau to do? I'd like them to become knowledgeable in the non-regulated industries and start enforcing on their own, even without complaints. I think that's a perfectly sensible thing for the bureau to invest its resources in.

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Mr. Walt Lastewka: Thank you.

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

Mr. McTeague, do you have some final questions?

Mr. Dan McTeague: Yes.

Mr. Grover, you alluded earlier to the question of groceries, and I'm interested in that, as I am in the case of Chapters and so many other examples of oil and gas, where a substantial number of individuals eliminated, whether by efficiency or not, can mean that in certain markets the price ultimately goes up. One comment I didn't hear you make was on the question of the dearth of choice, which may be attendant, as a result of one of these undetected activities.

I refer to Mr. Musgrove's example of his local grocery store. Is it at all possible that the grocery store charges double what Loblaws does because Loblaws has the power, the clout, to be able to demand of the supplier, so that compared to the little independent grocery store, prices are substantially less? They engage in providing slotting fees and trade allowances. I can give you examples of co-op advertising over the funds, warehouse allowances, special programs, and off-invoice allowances.

All of these things are the demands of the oligopolist—that is, the person who has retail clout over the manufacturer, such that the manufacturer would have to charge to a small independent grocery chain that Mr. Musgrove frequents.... The only option is to have higher prices, as a means of efficiency within a very small box. The only thing they can do is have slightly better service.

Do you see this as a reality, not just in the grocery industry but spreading right across the country?

Mr. Warren Grover: I see some reality in what you're saying, but I also know from my own experience in advising people within the grocery industry—if I stood there for a minute—that there's power on both sides of that market. The person selling cereal or something wants to have end-aisle displays. To get all caught up in these pricing things, you can get everything you want under the current pricing—50 and 51.

I agree with a point Mr. Musgrove made. A lawyer can sit there and design exactly what they want and Loblaws will come to a major company like Kellogg's or something—and I didn't act for Kellogg's, nor do I act for Loblaws—and say “We don't want everyday low pricing, we want deals this way, this way, 14 times a year, and we want a market this way, we want coupons....” you know. Kellogg's will say what they want, and they will sit there and work out a plan. It's a different one, in my experience, for each store. Then they will take it to the lawyers—Musgrove or myself—and we spend time fitting in what they want, but within the crazy wording of that act, to make sure they're not doing something silly. You wonder why we do it, because nobody prosecutes them anyway.

That is really, to my way of thinking, a waste of time. Is Loblaws able to command a lower price than the little store? Under the U.S. rules, in order to command a lower price they'd have to show an efficiency. For example, if I'm shipping a whole bulk load of something to Loblaws—and that's how they work, incidentally, usually Kellogg's doesn't to go their store, they go to their warehouses—it's going to be a lot cheaper than if I have to send a boy on a bicycle up to Musgrove's, because they have so many travel bumps in the road to get to his place.

Mr. Dan McTeague: But would a manufacturer then in that circumstance say “I have to now, in order to be able to use Kellogg's, General Mills, or anything....” If one particular company, a Procter & Gamble, decides it doesn't have a problem spending $2 million to put a product on the shelf per SKU, as an example, how is a smaller company going to be able to do the same? If it does do the same, where is it going to recover that huge writedown on its profits? Is it not going to take it out on the smaller players? Does that not, therefore, have two impacts: inefficiencies for the manufacturer with the loss of choice, and potentially higher prices, maybe not for the Loblaws chain but for the smaller independent, who may not be able to purchase or offer competitive prices relative to the large stores?

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So we're not dealing with your analogy of Home Depot taking on all the smaller chains. We're in fact dealing with a situation where Home Depot can actually command such a dominant presence over the manufacturer that the manufacturer is perforce forced to discriminate in a price way against smaller players. It reduces your competition.

Mr. Warren Grover: But I'm saying if price discrimination is based on showing me that the cost is different to me, that is the U.S. rule; it has never been our rule. I think it's a very difficult thing to find where those costs are, but in my experience, the other side is usually equally big. That is, people like Kellogg's are not so small, even compared to....

Let me take an easier example that we all know. You have to have Coke on your shelf. You can't just say to Coca-Cola, “If you don't do this, I'll take Coke off my shelf”.

Mr. Dan McTeague: Unless, of course, Coca-Cola can only sell 90% of its product among two players in Canada, then that's a different dynamic. That's a dynamic that is perhaps more of a reality than a concept, in terms of what we're dealing with today, as a result of the mergers that took place in that grocery industry.

I'm sorry. I realize I have very little time, so I want to ask the real final question, Madam Chair, with your indulgence.

The Chair: Sure.

Mr. Dan McTeague: You have some concern about the commissioner exercising the power of cease and desist. Can you give me an example of why you feel more comfortable with the tribunal exercising the same discretion? Is there a reason why the commissioner, in your view, should not have the power to order a cease and desist, when it believes there are grounds for that, and when there are a number of conditions by which the commissioner can exercise that power, should the bill pass?

Mr. Warren Grover: In my view, the bill has great problems with constitutionality and the so-called power of the court clauses in our Constitution—section 96, I think it is, of what used to be called the BNA Act. It's simple to fix it. The policeman should not be able to do it himself; that's all I'm saying. It's not a difficult fix. If he could go—which he can't do now—ex parte to the court and say “I have a problem. Give me four days. I have my cease and desist out here for four days, but you bless that”...this is done in civil cases all the time.

Mr. Dan McTeague: However, in the case of a situation that may happen at lightning speed—and pardon me as a layman, but I think there's something of an open contradiction here—a policeman can also stop someone from committing an act, a bank robbery...take your pick of the Criminal Code. They don't need to seek an injunction or the advice of a judge, or wait until a judge has made a decision. In the meantime, the commission has already occurred, with often deadly or severe consequences to the victim.

Should we not allow our Competition Bureau to be put in a position of actually acting like police, rather than saying they don't have that power? All they can do is refer, and it takes a couple of weeks, a couple of months, a couple of years currently.

Mr. Warren Grover: I'm not a criminal lawyer, but my understanding is the police are very limited. They need to have found somebody in the actual act before they can act. In fact, they're coming under great criticism for shooting people who are clearly violating the law—but what I would call over-reacting.

In the commissioner's view, by the time the commissioner makes this decision, he's not out there in the street; he's sitting up in an office on the 21st floor of Place du Portage and 15 people have given him stories about it. Do you know what I mean? This is not something that happens in a minute, like seeing somebody run into a bank with a gun. That's not what he's dealing with.

I'm saying I don't think he'd have any trouble with ex parte orders, and it would save you a lot of grief. As a lawyer, I know I have a pretty strong constitutional argument. We've already put that in a submission the CBA made on Bill C-26. There's a fairly strong constitutional argument. Even if it's wrong, it will spend a long time in the Supreme Court of Canada.

Mr. James Musgrove: I think Warren's right about the constitutional issue, but he's more right about the fact that this isn't bank robbery. The problem is you become seduced by your own case. The commissioner becomes seduced by his case. I become seduced by mine. We all become seduced by our cases, so the judgment is clouded. That's what the tribunal is supposed to be neutral about.

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Mr. Dan McTeague: As for the case, Madam Chair, of being highway robbery, you ought to talk to some of my constituents about gasoline prices.

Thank you, Madam Chair.

The Chair: Thank you very much, Mr. McTeague. We're not going to go into gasoline pricing right now. That's a whole other conversation.

I want to thank both Mr. Musgrove and Mr. Grover for being here this morning. It's been very informative. We've appreciated your input and your frankness with us as a committee. We will look forward to seeing you again sometime in the future. Thank you.

The meeting is now adjourned. I remind members of the meeting this afternoon at 3:30.