Canadian Competition Law Update

In this Bulletin, we report on four items of interest:

• The Competition Bureau's release of its detailed backgrounder concerning Rogers Wireless Inc.'s acquisition of Microcell Telecommunications.

• The Bureau's appointment of an Advisory Panel on the treatment of efficiencies under the merger provisions of the Competition Act.

• Recent Bureau enforcement activity.

• The status of the proposed amendments to the Competition Act contained in Bill C-19.

The Bureau cleared Rogers Wireless Inc.'s $1.4 billion acquisition of Microcell Telecommunications, which offers mobile wireless services under the "Fido" trademark, in November of 2004, but only recently released its Backgrounder explaining the rationale for its decision.

The Bureau's Backgrounder is important for two reasons. First, it reflects an effort on the part of the Bureau to make its decision-making with respect to merger reviews more transparent. In the past, the Bureau has been criticized for not providing detailed explanations of its decisions. Second, it provides insight into the Bureau's application of the revised Bureau's Merger Enforcement Guidelines issued in September 2004.

The merger raised competition issues with respect to the potential removal of Microcell as a vigorous and effective competitor in the provision of mobile wireless services in Canada. In addition to the potential exercise of unilateral market power, the Bureau was concerned with the impact of the transaction on coordinated behaviour and whether Microcell could be considered a "maverick" in the mobile wireless market.

The Bureau concluded that: new and innovative products would continue to be available to consumers at competitive prices; the merger would not affect the rate of innovation in the industry or the projected increases in consumer demand; the merger was unlikely to create or enhance market power in the mobile wireless market; and the merger would not increase the likelihood of coordinated behaviour among the remaining cellular telephone companies. Although Microcell had a history of offering innovative and competitive products, the Bureau also considered substantial evidence that Microcell is likely to face difficulties maintaining its position as its competitors bring out newer generations of mobile wireless services.

The Bureau's Backgrounder is available at: http://strategis.ic.gc.ca/epic/internet/incb-bc.nsf/en/ct03086e.html#2.

In March 2005, the Bureau appointed an Advisory Panel on Efficiencies with the mandate to assess the role that efficiencies should play in the administration and enforcement of the Competition Act, focussing on the treatment of efficiencies under the Act's merger provisions. The Panel will review submissions and reports from the consultation process and is expected to provide the Commissioner with a written report in June 2005.

Section 96 of the Act provides for an "efficiencies defence" which prohibits the Tribunal from making an order prohibiting a merger when the merger has brought about or is likely to bring about gains in efficiency that "will be greater than and will offset the effects of any prevention or lessening of competition" caused by the merger. Since the enactment of the Competition Act in 1986, the Tribunal has applied the efficiencies defence only once - in the Superior Propane case (2000-2003).

The Bureau continues to aggressively pursue its enforcement mandate in the area of misleading advertising and deceptive marketing practices. On April 1, 2005, the Bureau announced that Sears Canada Inc. was ordered to pay a total of $487,000 following the Competition Tribunal's January 2005 decision that Sears breached the Competition Act by making false or misleading representations regarding advertised discounts for tires. On March 31, the Bureau also announced that it is seeking an order from the Competition Tribunal prohibiting Fabutan Sun Tan Studios from making false representations to the public regarding the health benefits associated with indoor tanning, such as a reduced risk of cancer. The Bureau's application to the Tribunal is being filed under the deceptive marketing practices provisions of the Competition Act. Finally, the Bureau also completed an examination of the rapid rise in retail gasoline prices in the Spring and Summer of 2004. The Bureau concluded that there was no evidence to suggest a national conspiracy by gasoline companies to coordinate price increases, and that gasoline pricing behaviour was consistent with independent pricing actions taken in response to normal market forces.

In our last update, we reported that Bill C-19 had passed first reading in the House of Commons and that further hearings had been postponed. Hearings before the House of Commons Standing Committee on Industry, Natural Resources, Science and Technology resumed in late March 2005. A number of competition lawyers from Bay Street firms appeared as witnesses, with some endorsing the notion of administrative monetary penalties (AMPs) for large businesses. Two Blakes partners, on the other hand, testified that AMPs are both unnecessary and probably unconstitutional. Renowned constitutional expert, Peter Hogg, Blakes Scholar in Residence, is to testify when the hearings resume.

The Standing Committee has postponed additional hearings that were to have taken place in early May. There is growing speculation that a federal election in Canada may take place in the Spring or early Summer of 2005. If this occurs, it is unlikely that Bill C-19 will make it through the legislative process before the election is called.

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