As discussed in more detail in our prior blog post titled “Competition Bureau Recommendations to Strengthen the Competition Act”, in a continuing effort to ensure that Canada has an effective and impactful competition law framework, Senator Howard Wetston invited interested stakeholders to participate in a consultation to promote additional dialogue on the path forward for Canadian competition law. As part of this consultation, Senator Wetston received comments from more than 25 stakeholders, including a detailed submission from the Competition Bureau (the “Bureau”).
The Bureau’s submission includes 35 wide-ranging recommendations that, if implemented, would fundamentally reshape competition policy in Canada. To help businesses better understand the impact of these recommendations, we are releasing a series of blog posts discussing the recommendations on a topic-by-topic basis. This blog post is focussed on abuse of dominance.
By way of background, subsection 79(1) of the Competition Act (the “Act”) authorizes the Competition Tribunal (the “Tribunal”), on application by the Commissioner of Competition (the “Commissioner”), to make a remedial order where:
- one or more persons substantially or completely control a market,
- that person or those persons have engaged in or are engaging in a practice of anticompetitive acts, and
- the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market.
Currently, only the Commissioner can apply for a remedial order under the abuse of dominance provisions. There is no private right of access to the Tribunal. Available remedies include (i) administrative monetary penalties (“AMPs”) of up to $10 million for a first violation ($15 million for subsequent violations), (ii) prohibition orders, and (iii) any other orders that are reasonable and necessary, such as the divestiture of assets or shares, to overcome the anticompetitive effects of the practice in the relevant market.
As set out in the appendix to this blog post, the Bureau’s submission includes four recommendations regarding abuse of dominance. Its recommendations, if implemented, would lead to fundamental changes to the abuse of dominance regime in Canada, including by expanding the range of anticompetitive acts captured, lowering the threshold for establishing an abuse of dominance, increasing AMPs, and creating a private right of access to the Tribunal.
- Anticompetitive Acts
The Tribunal and the Federal Court of Appeal have generally interpreted paragraph 79(1)(b) of the Act as applying only to anticompetitive conduct that has an intended negative impact on a competitor that is predatory, exclusionary, or disciplinary. In the Bureau’s view, this interpretation is too narrow, in that it focuses solely on the impact of an act on a competitor and not competition more broadly. This view is shared by Edward Iacobucci in his paper commissioned by Senator Wetston to contextualize his consultation on the Act, and by various competition policy commentators.
The Bureau has recommended that the abuse of dominance provisions be amended so that they capture harm to competition and not just to competitors. If implemented, this recommendation will expand competition risk for businesses with potential market power by expanding the range of conduct captured by paragraph 79(1)(b) of the Act.
- The Substantive Test
The Bureau has indicated that the substantial lessening or prevention of competition (“SLPC”) legal test by which anticompetitive effects are assessed is insufficient, in that it does not address potential harm to emerging businesses. In the Bureau’s view, anticompetitive acts directed at such business cannot effectively be addressed under the abuse of dominance provisions and, in turn, the Bureau has recommended replacing the current test/standard with a “more workable standard”, without specifying what that standard might be.
Competition policy commentators have provided more specific suggestions. For example, some have suggested replacing the consequentialist approach employed in Canada with a deontological approach that would specify the characteristics of anticompetitive conduct as opposed to requiring the Commissioner to assess its anticompetitive effects. Others have suggested replacing the “balance of probabilities standard” with a “balance of harms” standard.
The Bureau’s submission refers to various legislative proposals in the United States, the United Kingdom and Australia. In particular, it alludes to US Senator Amy Klobuchar’s legislative proposal to replace the substantive test in the Clayton Act with one that would forbid mergers that would “create an appreciable risk of materially lessening competition”, where “materially” is defined as “more than a de minimis amount”. It also cites the UK government’s proposed intervention threshold that would allow its competition authority to intervene where there is a “realistic prospect” that competition will be substantially lessened, as well as the Australian Competition and Consumer Commission’s proposal to define the term “likely” in its substantive test as “a possibility that is not remote”. Each of these proposals is aimed at increasing the ease with which a competition authority (or private applicant) may establish anticompetitive effects.
As may be evident from the discussion, there has been some conflation between the legal test for assessing anticompetitive effects (e.g. in Canada, the SLPC test) and the evidentiary standard of proof for civil law disputes at common law (i.e. the balance of probabilities standard). The latter is unlikely to be altered, as the Supreme Court of Canada has confirmed in McDougall that the balance of probabilities is the only civil standard of proof in Canada.
The common denominator underpinning the Bureau’s proposal and other recent proposals is a proposed lower threshold for competition agencies to meet in order to demonstrate anticompetitive effects.
- Increased Administrative Monetary Penalties
The Bureau has also recommended that AMPs under the abuse of dominance provision be increased. As noted above, the maximum available AMP under the Act is $10 million for a first violation, and $15 million for a subsequent violation. By contrast, the Bureau argues that monetary penalties for abuse of dominance in other jurisdictions are approached quite differently, and in practice, lead to penalties that are significantly higher:
- In the UK, financial penalties are determined based on a number of factors, including the duration and seriousness of the conduct, and may total up to 10% of the worldwide revenues of the business. As an example, the Bureau points to a recent CMA fine in excess of 155 million GBP (CAD $267 million) on a pharmaceutical company for abusing its dominant position.
- In South Korea, a penalty not exceeding 3% of revenues may be imposed, but a penalty surcharge not exceeding one billion won (CAD $1.1 million) may be imposed if no relevant sales have been made, or it is impracticable to compute sales. As an example, the Bureau points to a recent fine of 1.03 trillion won (CAD $1.1 billion) imposed by the Korea Fair Trade Commission on a semiconductor company for abusing its dominant position in the market for modem chipsets, which was upheld by a South Korean court on appeal.
- In the European Union, fines are based on the duration and gravity of the conduct. They may be up to 10% of a company’s annual revenues. As an example, the Bureau points to a recent fine of 2.42 billion EUR (CAD $3.5 billion) imposed by the European Commission on a technology company for abusing its dominant position in online search, which was upheld by the European General Court on appeal.
There is a high probability that this particular recommendation will receive serious consideration. It is supported by Edward Iacobucci and many competition policy commentators. Further, Minister Champagne has indicated that the government will “consider modernizing the penalty regime to ensure it serves as a genuine deterrent against harmful business conduct”.
- Private Access
Private access to the Tribunal is available for some civilly reviewable provisions of the Act, including refusal to deal, exclusive dealing, tied selling, market restriction and price maintenance. The Bureau has recommended that the Act be amended to allow private parties to bring an application to the Tribunal for a remedial order under the abuse of dominance provisions.
The Bureau’s rationale for this recommendation is threefold: (i) private access would increase the number of cases heard by the Tribunal, which would have the effect of creating a broader body of case law that would clarify aspects of the law which are currently unclear; (ii) there are cases where a private party may be better positioned than the Commissioner to bring a case (e.g. it may have better familiarity with the facts); and (iii) resource constraints mean that the Bureau has to prioritize some cases over others, with the result that not all meritorious cases are currently being taken up.
Some competition policy commentators have expressed concern that a private right of action may be used as an excuse to underfund the Bureau. Others have questioned its utility, noting that “[e]mpirical evidence supporting [expanded private access] is not overwhelmingly strong in other areas of law where private rights of action exist. With regards to price fixing, the evidence suggests that private actions often merely piggyback on public investigations and enforcement, rather than bringing forth new evidence of harmful conduct.”
There is a high probability that this particular recommendation will receive serious consideration. Minister Champagne has already indicated that his government will evaluate how to increase access to justice for those injured by harmful conduct, which is understood to mean expanded rights of access.
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If you have questions about the merger provisions in the Competition Act or the recommendations in the Competition Bureau’s submission, you can reach out to any member of Fasken’s Competition, Marketing & Foreign Investment group. Our group has significant experience advising clients on all aspects of Canadian competition law.
The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Competition, Marketing & Foreign Investment group.
Appendix
ABUSE OF DOMINANCE Recommendations
Recommendation 3.1 (Anti-competitive acts): The abuse of dominance provision may allow dominant firms to escape scrutiny even when their conduct softens competition. This gap should be closed by ensuring that the provision captures conduct intended to harm competition, and not just conduct intended to harm a competitor;
Recommendation 3.2 (Prevent standard): The standards established from analysis of more traditional industries are not suitable for assessing anti-competitive conduct aimed at emerging competitors in the digital economy. A more workable standard would provide additional flexibility to protect the competitive process;
Recommendation 3.3 (Penalties): Monetary penalties provided under the abuse of dominance provision are often too small to effectively deter anti-competitive conduct. These penalties should be adapted to ensure that they can achieve their intended purpose of achieving compliance with the Act; and
Recommendation 3.4 (Private access): Private access to the Tribunal is currently not available for abuse of dominance cases. The Act should allow such access.