Competition Bureau recommends overhaul of competition law

In reviewing mergers and acquisitions Canada's Competition Act should do away with the so-called efficiencies exception, and should enact what are known as structural presumptions to shift the burden to merging parties to prove why a presumptive merger would not harm competition, according to the authority in charge of enforcing the act. Just a day after Innovation Minister François-Philippe Champagne announced that Department of Innovation, Science, and Economic Development (ISED) would "carefully evaluate potential ways to improve" the operation of the Competition Act, the Competition Bureau Tuesday released a sweeping and broad ranging set of recommendations in response to Senator Howard Wetston's October consultation invitation on the Competition Act. "This submission recommends modernizing the Act so that Canadian consumers and businesses can prosper in a competitive and innovative marketplace. To achieve this goal, the Act must contain the right provisions," the bureau wrote in the introduction to its submission. In one section that is sure to draw significant attention in both the telecommunication and broadcast sectors, the Competition Bureau recommended significant changes to the process by which it reviews mergers and aquisitions. The "merger provisions of the Act have been interpreted narrowly, in a manner that risks allowing businesses to complete anti-competitive mergers to the detriment of consumers and competition," the bureau wrote, adding that the act as constructed "may permit anti-competitive mergers when the private benefits of merging outweigh the broader economic harm of the merger." In one of its most striking recommendations, the bureau calls for the elimination of a provision of the law – section 96, or the efficiencies exception – that allows a merger to proceed on the basis of gains in efficiency that will "be greater than, and will offset, the effects of any prevention or lessening of competition," in the language of the act. This provision of the law "permits mergers that are harmful to Canadians; is inconsistent with international best practice; is difficult—if not impossible—to implement properly; and suffers from a misguided original policy intent," the bureau wrote in its submission. The Competition Bureau is nearing the end of its review of the Rogers Communications Inc. acquisition of Shaw Communications Inc., and while the nature of the review and the bureau's communications with the companies are confidential, there have been indications that the efficiencies exception has played a part. Last April, in hearings before the House of Commons Industry committee on Rogers' then-CEO Joe Natale raised the prospect of efficiencies in his comments to MPs. “This is a scale business with massive fixed costs. Adding Cogeco or adding Shaw brings those efficiencies — fibre, spectrum — it allows us to do things that wouldn’t have been otherwise the case,” Natale told MPs at the time. In his own remarks to the committee the following week, Competition Bureau commissioner Matthew Boswell told MPs that allowing a merger to proceed on the basis of the efficiencies exception (also referred to as the "efficiencies defense") is a "very serious exercise of enforcement discretion to approve an otherwise anticompetitive merger.” “It’s controversial both inside and outside of Canada. Certainly from the perspective of the person who administers and enforces the act, I think it would be worthwhile in this country to discuss this particular section of the act, and that’s for parliamentarians,” Boswell told MPs. Indeed, the bureau's recommendations released Tuesday point to the lack of an efficiencies exception in the competition law of the United States, the United Kingdom, and the European Commission. Rather, these jurisdictions consider efficiencies as one factor among many when reviewing a merger, the bureau submitted. "Originally designed to help Canadian businesses compete with international counterparts, it has been shown to act contrary to the economic well-being of Canadians." The bureau also recommended that "structural presumptions should be enacted to simplify merger cases by shifting the burden onto the merging parties to prove why a concentrative merger would not substantially lessen or prevent competition." In other words, it would be up to the parties that want to merge to explain why their merger would not harm competition, rather than the bureau itself. On Monday, Innovation Minister Champagne announced that his department is not increasing the transaction-size threshold of $93 million for the advance notification of mergers for 2022, and that his department would review a number of elements of the Competition Act. Asked if the Competition Bureau's recommendations were produced in coordination with the department, Champagne said in a statement emailed to the Wire Report that the "Competition Bureau is an arms-length independent organization and independently provided recommendations to the Senate," and that he will review the bureau's report. Meanwhile Tuesday, the research firm Ipsos released a poll showing that most Canadians – 88 per cent – agree "that we need more competition in Canada because it’s too easy for big business to take advantage of Canadians," according to a release. Some 72 per cent believe that there should be more competition within the telephone and cable sectors. — Reporting by Michael Lee-Murphy at mleemurphy@thewirereport.ca and editing by Paul Park at ppark@thewirereport.ca

Competition Bureau recommends overhaul of competition law

News | 02/08/2022 5:47 pm EST

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