February 3, 2022
Update on an Update! On February 8, 2022 Competition Commissioner Matthew Boswell released his submission to Senator Wetston’s anti-trust review, a day after ISED Minister François-Philippe Champagne announced a government review of the Competition Act. As befits a submission from the chief enforcer of competition law, Commissioner Boswell recommends a laundry list of amendments intended to strengthen competition outcomes, especially in the digital economy. His recommendations overlap with the various reform proposals discussed in this blog. Where they do, I have made bolded annotations.
Updated: On February 7, 2022 the federal government announced a comprehensive review of the Competition Act will be undertaken, including “potential ways [to adapt] the law to today’s digital reality to better tackle emerging forms of harmful behaviour in the digital economy.”
The debate over whether Big is Bad or Beautiful is back.
US Congress is engaged in daily debates on legislation aimed at taking Big Tech down a peg, joining a global trend.
Here in Canada we have yet another communications merger on the front burner: the proposed $26 Billion Rogers-Shaw conglomerate. Decisions from both the Competition Bureau (telco assets) and the CRTC (broadcasting assets) are pending.
What Canadians may not realize is that the CRTC review of whether broadcasting mergers are “in the public interest” is an anomaly: all other corporate mergers and abuse of market power are governed by the little-known Competition Act—Canada’s “anti-trust” legislation— that is very much designed to protect the private interest of big business in the name of economic growth.
The obscure rules of competition law will be vital if Canada follows the global movement to trim the size and power of Big Tech.
The picture often painted by news coverage of Canadian corporate mergers is that our Competition Act is toothless and its agent of enforcement, the Competition Bureau, is ineffective. Certainly, the business community likes it that way (more on that later).
Indignant questions about the Bureau are frequently asked: how could Postmedia get away with buying the Sun Media tabloid chain in 2015? How could Postmedia and Torstar trade 41 community papers like baseball cards in 2017 and then close 36 of them on the same day because they competed with each other in local markets? How could Bell buy rival Astral Media in 2012 (though only with divestments) and the telco MTS in 2017 (again with divestments)? How was Telus able to buy cell phone start-up Public Mobile in 2013 ?
When our Competition Bureau picked up one of its earliest Big Tech files in 2013 —-a review of whether Google’s 95% control of the Search Engine market has resulted in the abuse of market power—- it issued Google a clean bill of health in 2016. When Facebook snapped up Instagram (2012) and WhatsApp (2014) our Competition Bureau did nothing (although to be fair, neither did US authorities). Our Bureau’s results in policing Big Tech are inferior to the US and the EU, other than “me-too” settlements after the larger jurisdictions have levied fines.
But popular tolerance of Big Tech’s size and might has worn thin around the world. Most importantly, it has worn thin in US Congress. Debate on the diverse raft of proposed regulatory Bills, matching the diverse holdings of Big Tech, is now a daily event on Capitol Hill.
With all of this public attention on whether Big Tech is bad or beautiful, our own Senator Howard Wetston has given the debate a Canadian focus by kicking off his own consultation on whether clipping the wings of Big Tech first requires an overhaul of the Competition Act.
While a lone Senator taking up an arcane policy issue hardly constitutes legislative momentum, Wetston enjoys special credibility as the former Director of Competition Enforcement, ex-Chair of the Ontario Securities Commission and a stint as a federal judge (he’s also a Senior Fellow at the C.D. Howe Institute). Depending on what he has to say, his report could be the spark to tinder here in Canada if the US Congress moves the needle on anti-trust.
The submissions to the Senator’s consultation address the technical features of competition law but mostly they offer some very readable (and philosophical) debates over the role of government in distributing economic opportunity and wealth.
But first, a quick review of the Competition Act:
The bread and butter of the Act is the index of criminal offences that Canadians take for granted like corporate collusion in price and output fixing, bid rigging, and deceptive marketing practices.
The more controversial stuff is about mergers, acquisitions, and the abuse of market power by big business.
The Competition Act is explicit: market dominance is perfectly fine. Even an air-tight monopoly is legal. If a dominant company keeps its nose clean it’s free to grow, merge and acquire its way to market dominance. It only runs afoul of competition regulators by committing acts that substantially lessen competition through sharp practices designed to harm competitors, such as:
- exploiting its dominant market position to put out cheaper quality goods;
- a conglomerate charging lower prices to its own retailing divisions;
- selling at prices lower than the acquisition cost;
- demanding a supplier refrain from selling to competitors; or
- buying up and stockpiling scarce resources.
Otherwise, big is not bad. It’s not even suspect.
And that’s the way the Competition Act ought to remain according to its chief defenders which include the big business lobbyists C.D. Howe Institute and the Montreal Economic Institute, as well as the Bay Street merger and acquisition lawyers speaking through the Canadian Bar Association. All of them have advised Senator Wetston to leave the Competition Act alone or make it even more favourable to big business.
As they accurately point out, the Act’s purpose clause makes “efficiency” the trump card in all matters of abuse of market dominance and, notably, mergers and acquisitions. [Commissioner Boswell rejects a proposal to strengthen further the “efficiency trump card” ].
By “efficiency” these acolytes of Chicago School economist Milton Freidman mean an unfettered market economy increasing total wealth and output without regard to the impact on workers, the environment, or the distribution of wealth among the rich and poor.
Our Canadian legislation even sports the notorious section 96 “efficiencies defense” when reviewing mergers, unique among OECD nations. That provision forgives a merging company for committing anti-competitive harms (for example using market dominance to raise prices) so long as the gains from economies of scale outweigh the harms. [Boswell recommends abolishing section 96, noting that in the US and other major jurisdictions the only justification for sanctioning anti-competitive mergers is if consumers benefit.]
The triumphalism of the Chicago School’s gang goes so far that the Montreal Economic Institute suggested to Senator Wetston that Canadian judges ought to just overrule any Canadian law or regulation that conflicts with their definition of “efficiency,” as rogue a statement by the business community as you are going to find.
The Bay Street view expressed to the Senator in various submissions is simple: don’t mess with our much-loved competition law just to get at Big Tech through anti-trust.
On the other side of the policy ledger, the Senator has received a number of submissions from reformers (Vass Bednar, Keldon Bester, Public Interest Advocacy Centre, Jennifer Quaid) which in aggregate propose several amendments to the Act, some fundamentally challenging the Chicago School status quo:
- Give the Bureau clear authority to retroactively review mergers and acquisitions that later develop unanticipated market dominance, an obvious allusion to Facebook’s successful acquisitions of Instagram and WhatsApp. [Boswell has a similar recommendation and would also apply it to abuse of dominance enforcement.]
- Write into the legislation that the common denominator creating a single “market” that can be dominated by Big Tech (and policed by the Bureau) is the accrual of data, rather than maintain the fiction of a siloed array of digital products and platforms.
- Impose a “reverse onus” on companies doing the merging or acquisitions to prove affirmatively there is no anti-competitive harm. [Boswell has a similar recommendation].
- Lower the dollar value of the “notification threshold” which requires companies to report mergers and acquisitions to the Bureau so that strategic acquisitions of startup firms don’t fly under the enforcement radar. [Boswell has a more elaborate recommendation].
- Require explicit consumer consent to having one’s individual data handed over to another Big Tech company in a merger or acquisition.
- Make sure the Bureau has sufficient remedial tools like break-up powers and segregation of operating divisions rather than relying on fines which, even if they are increased significantly, are unlikely to deter Big Tech companies that have already racked up billions in fines around the world. [Boswell has a long list of improvements to the Bureau’s remedial powers.]
- Give the Bureau stronger administrative powers to review the Big Tech sector without launching a formal investigation, including compelling data disclosure.[Boswell definitely agrees with this one!]
- Give the Bureau the human resources it needs to analyze Big Tech.
- And most radical of all reforms, amend the purpose clause to remove the trump-card status of “efficiency” by adding other public interest considerations when reviewing market dominance or mergers. [Boswell rejects pro-business changes to the Purpose clause, but also ignores this reform proposal.]
It’s a compelling policy debate. Could it lead to change?
One thing that is missing in all of the Wetston submissions is the taboo subject of political power.
The popular will to limit corporate power is not just about curbing market dominance and rebalancing the distribution of wealth.
It’s also about big business’ acquisition of so much economic power that it becomes political power: Exhibit A is Facebook’s one-week capital strike in Australia which was an unsuccessful effort to intimidate a sovereign government into not regulating (note that the C.D. Howe Institute thinks Facebook’s move was just fine).
When big business thinks it can boss around sovereign governments it suggests that even if big isn’t always bad it always remains dangerous.
But any political movement to reform Canadian competition law in a significant way has more to fear than just the opposition of Big Tech.
For Canada to exercise its sovereignty over large US-based companies always brings the possibility of trade complications.
And here at home there should be no doubt that reform of competition law means taking on a fight against a tight and influential establishment of big business, its policy think tanks, Bay Street law firms, university economics departments, and Competition Tribunal members themselves. A brief web search of curriculum vitae and policy statements points in the direction of group think on competition principles of wealth maximization. Reform would be no small political battle.
Even Wetston’s consultation may be hedged to vindicate the status quo. Leaving aside the Senator’s impressive but impeccable Bay Street credentials, his choice of former law school Dean Edward Iacobucci to write a consultation paper (to which participants respond) on reform options is interesting.
Iacobucci’s paper is a well-crafted and temperate defense of the Chicago School principle of efficiency trumping all other societal goals and supports the central tenet of competition law in that regard.
He does offer the expected solace to those left behind by wealth maximization: the continued importance of progressive taxation and government social programs. But that still excludes employee, consumer, or environmental concerns about specific occasions of market domination.
Iacobucci also goes further than big business might prefer (by the way he sits on the C.D. Howe Competition Law Council) in conceding that government can always regulate a specific sector like Big Tech through special legislation so long as it leaves competition law alone.
That might be a reasonable approach but demands naivety about the likelihood of legislative action addressing market dominance in any given industrial sector.
As a former lobbyist and current advocate for news media funding and broadcasting regulation reform, I can tell you that Parliamentary regulatory measures in any given sector of the economy can take years to accomplish and most of the time the efforts are unsuccessful.
If you got this far reading this overly lengthy blog, thanks for hanging in. I am looking forward to the Senator’s report.