How much reform?

Something strange is happening in competition law circles. A field that always tended toward the technocratic is now asking basic questions about political philosophy and the common good — about what competition law is for.

“It’s not just about repealing one section or another of the Competition Act,” said Jennifer Quaid, a specialist in corporate accountability and business ethics at the University of Ottawa. “It’s about the ethos of the law itself.”

The federal government announced a comprehensive review of the Competition Act in early February. Everything appears to be on the table this time: the “efficiencies defence” in mergers, measures to prevent collusion to fix the price of inputs (such as wages), the maximum fines permitted under the law.

So far, opinion in the legal sector seems to be splitting into two broad camps: those who want the law rewritten to adapt it to the unprecedented market power wielded by multinational digital firms, and those who think root-and-branch reform is unnecessary or counterproductive.

Competition policy in Canada has always been a struggle between the impulse to consolidate and the need to boost Canada’s anaemic level of innovation. Consolidation seems to be Canada’s default state. Last year saw boom times for mergers and acquisitions: Canadian firms were involved in 729 deals worth a total of $158 billion as of the end of May 2021 and 2022 looks to continue the trend.

Canadian industries have been doubling up: a 2019 study out of York University found that the number of non-financial firms trading on the TSX had declined by almost 40% since 2008, while “the remaining ones swelled in size.” The lack of turnover at the top can be seen in the average age of the 15 largest publicly traded Canadian firms: 122 years, compared to 45 years in the United States.

Ideas for reversing that trend tend to focus in part on the “efficiencies defence,” which has led to some infamous merger decisions in the past.

The efficiencies defence, added to the law in 1986, comes into play after the Competition Tribunal concludes that a merger would have anti-competitive effects (higher prices, fewer consumer choices). Under the law, the tribunal must compare these anti-competitive effects to the efficiency gains unlocked by the merger.

Whenever those efficiency gains can offset the anti-competitive effects of a merger (even when consumers won’t enjoy those gains), the tribunal can’t issue a remedial order. “The firms are allowed to merge, even if the tribunal has found that the merger will lead to higher prices, less choice for consumers, decreased levels of innovation, or other anti-competitive effects,” the Competition Bureau wrote in its recent submission on Competition Act reform.

“In the U.S. and EU, the efficiencies defence is just a point around which to argue,” said Pierre Larouche, an expert in competition law at Université de Montréal. “Here, the Supreme Court of Canada has interpreted the efficiencies defence in a way that completely ties the hands of the agency.”

Quaid said the problem lies in the way the efficiencies defence is written into the law — coming into effect after the tribunal concludes that a merger would undermine competition. 

“The efficiencies defence comes into play at the end of the process,” she said. “Companies know that the interpretation of the efficiencies defence means they’ll almost always prevail in the end.

“In the U.S., efficiencies are judged on the basis of how they affect consumers. But the Canadian establishment has always railed against that idea.”

Among proposals for Competition Act reform, the idea of eliminating or modifying the efficiencies defence seems reasonably popular. The Competition Bureau, for one, wants it gone.

Even relatively cautious observers like Edward Iacobucci — a professor in competition law at the University of Toronto who supports retaining the efficiencies defence — argue the precedent set by the Supreme Court in Tervita Corporation et al v Commissioner of Competition — requiring that the bureau quantify anticompetitive effects every time a merging company cites the efficiencies defence — should be overturned.

Other proposals for Competition Act reform are getting some pushback from critics who argue that competition law can’t be made to fix everything wrong with data-driven market capitalism.

Take buy-side agreements — arrangements between competitors to fix the cost of inputs, including labour. Iacobucci and others argue that, since digital markets tend to see consolidation of market power, they’re more vulnerable to buy-side arrangements that could exploit workers and consumers. He wants the Competition Bureau to pursue buy-side agreements through Section 45, a criminal provision in the Act prohibiting agreements among competitors to fix prices.

Quaid is skeptical. “Wage fixing is more a matter for employment law, which is provincial. Criminal law is designed to impose penalties, not remedies,” she said.

"I’m not sure expanding Section 45 would have the effect people want it to have. Anyone who thinks it would be applied a lot is dreaming in technicolour. It’s very difficult to enforce.”

Still unknown is the degree to which the Competition Act review will engage with bigger questions about the intersection of digital giants’ market power and consumer privacy. The push to expand the reach of competition law in other jurisdictions already has observers like Daniel Sokol, an expert in anti-trust law at the USC Gould School of Law, warning of a burgeoning “populist” approach to competition law reform.

“Some commentators claim that big tech is responsible for a variety of social and political harms, such as inequality and degradation of free speech and democracy,” write Sokol and the U of T’s Anthony Niblett, Canada Research Chair in law, economics and innovation, in a recent paper. “These are not harms that competition authorities were designed to cure.”

Expect broader agreement on the need to give the bureau better tools. Most observers say the available fines for punishing abuse of dominance — $10 million for an initial order, $15 million for a subsequent order — are too pathetic to deter multinational data firms with annual revenues in the billions.

“Simply to get the attention of these multinational data giants, the fines should be much higher,” said Larouche. “Our fines simply don’t register.”