Jennifer Quaid, L’Université d’Ottawa/University of Ottawa
December 24, 2023
The state of competition — or lack of it — has been on Canadians’ minds for a while. From the Rogers-Shaw merger to the concentrated grocery sector and record fines for bread price-fixing, just about everyone agrees it’s time to improve our competition law.
The wait is over. Eighteen months after an initial set of reforms was completed in June 2022, and six months after public consultation on the future of competition law, the second phase of reform is coming.
Most of this overhaul has been folded into the next budget bill, Bill C-59, but a set of changes to competition law were just passed as the second part of Bill C-56, the Affordable Housing and Groceries Act.
The title may give people the wrong idea; Bill C-56 won’t directly lower grocery bills. As Commissioner of Competition Matthew Boswell said to the Senate committee, the reform aims to make the economy more competitive. While competitive markets should lead to lower prices, it’s neither automatic nor immediate. Still, Bill C-56 makes six big changes.
Market study power
Market studies are an important way for the Competition Bureau — Canada’s competition watchdog — to learn about an industry or sector outside of a specific case investigation.
Previously, when the bureau did these studies, it couldn’t force businesses to provide the information it needed. This was a constant irritant, as we saw in the Retail Grocery Market Study. Relying on voluntary co-operation prevented the bureau from getting access to all the information it needed for its analysis.
Bill C-56 has changed this by creating specific rules to govern the market study process. If it’s in the public interest, a market study can either be started by the commissioner or the Minister of Industry can ask the commissioner to do one. In either case, the two have to agree it makes sense and is feasible. The need to consult is supposed to guard against unreasonable use of the power by either party.
The study terms are also announced on a public website so interested parties can comment on them before they are finalized. If the bureau respects these conditions, it can apply for a court order to get information for its study from businesses under s. 11 of the act, which is the same process used for investigations. Finally, studies have to be completed in 18 months and a report published on a public website.
Repealing the efficiencies defence
The second big change that Bill C-56 has made is repealing s. 96, which sets out the efficiencies exception to merger law.
Dating back to 1986, this exception allowed things like cost savings and economies of scale to be weighed against the anti-competitive effects of a merger, like price increases, reduced choice or less innovation.
The basic idea was that mergers that produce more savings than anti-competitive effects were deemed beneficial, even if it meant consumers faced higher prices. This differed from that of the United States and other countries with consumer-focused approaches.
Under Bill C-56, efficiencies will not longer be analyzed as a separate second step in merger analysis that gives it special status over other factors. Since nothing about efficiencies has been added to s. 93, their inclusion in merger analysis will rely on the clause that allows “any other relevant factor” to be considered. This leaves open how and when efficiencies could be qualified as pro-competitive.
This change applies to new mergers, not those already underway.
Agreements between non-competitors
Bill C-56 expanded the application of s. 90.1, the civil collaboration provision, to include agreements between parties who are not competitors. Previously, for s. 90.1 to apply, at least two of the parties had to be competitors. This change won’t come into effect until Dec. 15, 2024.
This adjustment was prompted by concerns that restrictive covenants — contract clauses that limit business activities — did not fit well into existing competition law, even where they negatively affected competition.
However, some argue the change is too broad and could encompass a lot of agreements. Additionally, provinces are best suited to creating rules to prohibit businesses from using contracts for anti-competitive purposes, since contract law is mostly a provincial matter.
Charging excessive and unfair prices
Charging excessive or unfair prices has been added to the list of anti-competitive acts under the abuse of dominance rules. While some might think this gives the bureau or affected consumers a way to go after businesses that charge unreasonably high prices, it’s not a consumer protection measure.
Charging excessive and unfair prices only qualifies as an anti-competitive act if there’s evidence it has a predatory, exclusionary or disciplinary effect on a competitor or if it substantially harmed competition.
Based on existing law, it’s not clear what the specific reference to excessive or unfair pricing will add to enforcement. But many rules on abuse of a dominant position have been changed, with more to come in Bill C-59, making it hard to predict how courts might interpret this provision.
Changing how abuse of dominance is proved
One of the most significant changes in Bill C-56 is the revamping of the conditions required to prove abuse of dominance.
The guide to the public consultation highlighted what critics have said: the abuse of dominant position rules in the Competition Act are needlessly technical and impose a heavy burden on the commissioner, with few successful cases.
Bill C-56 makes several changes to the existing rules, all stemming from a revised test for getting relief from a firm that abuses its dominance.
Previously, proving abuse of dominance involved proving three things: a firm’s dominance in a line of business, engagement in an anti-competitive act and that these actions negatively affected competition. Post-Bill C-56 it’s enough to show a firm is dominant and either the anti-competitive act or an anti-competitive effect.
Will this change allow more cases to be brought where dominant firms abuse their position? Business groups worry this change will create uncertainty, chilling innovation and business investment.
The actual impact will depend on enforcement practices, but this could change once Bill C-59 makes it easier for private parties, like affected businesses or consumer groups, to initiate cases when the commissioner decides not to.
Substantial increases to monetary penalties
The final change brought about by C-56 is significant increases to the maximum administrative monetary penalty that can be imposed on dominant firms that harm competition.
The penalties have more than doubled, going from $10 million to $25 million for a first order and $15 million to $35 million for subsequent orders. These increases mean penalties can be better scaled to the size of dominant firms.
While Bill C-56 won’t immediately make groceries more affordable for Canadians, it does bring big changes to competition law. And there will be much more to come with Bill C-59.
Jennifer Quaid, Associate Professor & Vice-Dean Research, Civil Law Section, Faculty of Law, L’Université d’Ottawa/University of Ottawa
Subscribe to our newsletter.
This article is republished from The Conversation under a Creative Commons license. Read the original article.