As discussed in our previous blog post, on November 17, 2022, the Honourable François-Philippe Champagne, Minister of Innovation, Science and Industry, launched the much anticipated public consultation on the second stage of potential amendments to the Competition Act (the “Act”).
As part of this consultation process, the Department of Innovation, Science and Economic Development (“ISED”) issued a discussion paper, titled The Future of Competition Policy in Canada (the “Discussion Paper”), which considers numerous issues and potential areas of reform, including in the mergers, unilateral conduct, competitor collaboration, deceptive marketing and administration/enforcement context. The Discussion Paper does not include any particular recommendations or proposed amendments to the Act. Rather, it simply sets the stage and invites feedback from interested stakeholders on the issues and potential areas of reform. Feedback can be provided on or before February 27, 2023.
To help businesses better understand the issues and potential areas of reform included in the Discussion Paper, we are releasing a series of blog posts discussing these issues and potential areas of reform on a topic-by-topic basis. This is the third blog post in the series, and is focused on unilateral conduct.
The Act includes a variety of civil “reviewable conduct” provisions that are intended to address anti-competitive unilateral conduct, including the refusal to deal provisions in section 75, the price maintenance provisions in section 76, the exclusive dealing, tied selling and market restriction provisions in section 77 and, most importantly, the abuse of dominance provisions (one of the main pillars of the Act) in sections 78 and 79. Each of the provisions:
- Is civil, and not criminal;
- Requires anticompetitive effects to be demonstrated as having resulted, occurring, or likely to result, from the conduct, and in the case of abuse of dominance, anticompetitive intent to be proven;
- Permits the Competition Tribunal, on application of the Commissioner of Competition or a private party with leave, to issue prohibition and other orders (including, in the case of abuse of dominance, orders imposing administrative monetary penalties) in respect of the proscribed conduct, but does not permit civil damages to be awarded to injured parties; and
- Leaves issuance of an order in the discretion of the Competition Tribunal even where all elements of the provision are satisfied.
In relation to ‘Big Tech’ and digital markets, the Discussion Paper notes, among other things:
- “concerns that a select few tech firms substantially control a number of core digital markets, such as online search, social media and e-commerce” and that these firms “are de facto “gatekeepers” with the power to decide who is allowed to compete in a market and the terms upon which such competition will occur.”
- “This power has the potential to extend further into the physical economy with the growth of the ‘Internet of Things’”.
- Importantly, “…the size and breadth of activities of digital firms raise questions about the efficacy of Canadian competition enforcement in the event of anti-competitive conduct by these firms”.
- The long run implications of the ability of these firms to forgo profits to enable expansion and diversification, for the contestability of markets and for innovation, are unclear.
- Some issues previously identified with the unilateral conduct provisions, including self-preferencing by an entity that both controls a platform and competes on it, may be of greater concern in the digital era.
The Discussion Paper then reviews several of the characteristics of the current abuse of dominance provisions in the Act that allegedly limit the usefulness of the provisions. The Discussion Paper notes that the Federal Government is considering possible reforms to the current approach to unilateral conduct and would welcome input on each of the topics listed below, as well as input on the approach to unilateral conduct more generally.
- Better defining dominance or joint dominance to address situations of de facto dominant behaviour. The Discussion Paper notes that harm to competition “can arise through the actions of firms that may not be unmistakably dominant, but together exert substantial influence on the market,” whether as vendors or purchasers. Where such harm arises from an agreement or arrangement between competing firms, it can potentially be addressed under the competitor collaboration provisions, which are discussed in our prior blog post; or under the cartel provisions. However, these provisions would not necessarily apply in the case of, among other things, “copycat strategies, conscious parallelism (where reciprocal action is expected but not enforced) [and] facilitating practices (where firms take unilateral steps to soften the relationship with competitors without necessarily requiring an agreement,” such as through the publication of price lists or the use of price-matching guarantees or most-favoured-nation clauses). While the Act “…recognizes the possibility of multi-firm dominance,…this requires more than simply parallel or similar cases of unilateral conduct, and in practice has rarely been identified.”
- Crafting a simpler test for a remedial order, including revisiting the relevance of intent and/or competitive effects in the case of abuse of dominance. According to the Discussion Paper, having to prove a substantial degree of market power, a practice of anti-competitive acts and a substantial lessening or prevention of competition may limit the ability of the Commissioner to consider seeking remedies under the abuse of dominance provisions where competition appears to be threatened. The Discussion Paper indicates that the Federal Government is open to exploring a variety of different approaches, including (i) borrowing from the approach in Europe, requiring only demonstration that conduct (a) is “capable” of having anti-competitive effects, or (b) “has as its very object” an anti-competitive outcome, regardless of whether this effect or outcome is achieved; (ii) establishing certain conduct as presumptively unlawful; (iii) removing the examination of intent; or (iv) based on the US Senate proposal, requiring only an “appreciable risk of competitive harm”.
- Creating bright line rules or presumptions for dominant firms or platforms, with respect to behaviour or acquisitions, as potentially a more effective or necessary approach, particularly if aligned with international counterparts and tailored to avoid over-correction. The Discussion Paper notes that legislators are increasingly “…turning to the possibility of preventive rules or presumptions applied to dominant firms or platforms, with respect to both acquisitions and business practices such as self-preferencing and data use, rather than conducting extensive economic analyses in each case.” According to the Discussion Paper, “such structural and proactive approaches remain under consideration in Canada”.
- Condensing the various unilateral conduct provisions into a single, principles-based abuse of dominance or market power provision. Alternatively, the unilateral conduct provisions outside of abuse of dominance could be repositioned for different objectives of the Act, such as fairness in the marketplace. As noted above, the Act includes a variety of provisions that are intended to address anti-competitive unilateral conduct. There is some overlap among these provisions and some have suggested that it would be appropriate “to consolidate the existing unilateral conduct provisions along with abuse of dominance into a singular, broadened unilateral conduct provision, more akin to the U.S. and Europe”. In addition, noting the multi-faceted purpose clause included in the Act, the Discussion Paper raises the possibility of “exploring whether these (or potentially other) provisions may be repositioned as ‘fair competition’ provisions with less focus on competitive effects, in the interests of maintaining a level playing field and checking gatekeepers with monopolistic or monopsonistic power”.
Timing of Submissions
As noted above, interested stakeholders have been invited to provide submissions by February 27, 2023. This can be done using the online consultation form on ISED’s website.
If you have questions about the ideas and proposed areas of reform included in the Discussion Paper, or if you would like assistance in preparing a submission in response to the Discussion Paper, 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.