Competition Bureau’s Call for Intel on Anti-Competitive Conduct in Digital Economy Raises Eyebrows

In a general sense, what the Bureau wants to know is whether the characteristics of certain digital markets favour concentration — a process called ‘tipping’

The Competition Bureau’s recent call to Canadians to flag anti-competitive conduct in the digital economy is raising eyebrows among industry professionals.

Certainly, the Bureau’s consultation seems far more concrete than what is evident from the regulator’s statement that it “is examining concerns that certain digital markets have become increasingly concentrated.”

“The Bureau is looking to collect information and understand facts to determine whether increased concentration is truly occurring,” says Anita Banicevic, a competition partner in Davies Ward Phillips & Vineberg LLP’s Toronto office. “But it’s also looking to see whether it should take enforcement actions and beyond that, a fairly open call for complaints on which to base such actions.”

Although Banicevic acknowledges that the Bureau has “always been driven by complaints to a significant degree” and “does have the ability and resources to weed out the genuine complaints from those that are meritorious,” she still finds the call-out disquieting.

“I remain concerned that the call for complaints is essentially a matter of looking for issues,” she says.

James Musgrove, a competition partner in McMillan LLP’s Toronto office, is of similar mind.

“This (call-out) was a little surprising, because presumably if there are actual problems, people already know how to contact the Bureau,” he says.

But Matthew Boswell, Canada’s Commissioner of Competition, says the Bureau is bound to approach the issues with an open mind.

“We don’t have the luxury of making assumptions and going in with a fixed view of things,” he says. “We work on a prosecutorial model in which any evidence we have will be tested because we have to take everything we do to a court and establish that there are anti-competitive effects. We can’t just go off on a jag of our own.”

In this regard, the Bureau is encouraging market participants to schedule meetings with the Bureau to discuss the issues.

“We’re willing to hear from all quarters, including people who believe there is no cause for concern,” he says.

In a general sense, what the Bureau wants to know is whether the characteristics of certain digital markets favour concentration — a process called “tipping,” which emerges from a combination of the network effects of a widely used product (such as Facebook), economies of scale and access to huge databases.

We’re willing to hear from all quarters, including people who believe there is no cause for concernMatthew Boswell, Canada’s Commissioner of Competition

The Bureau also wants to define the extent to which anti-competitive strategies may have contributed to the success of leading players. The Bureau’s list of such strategies includes protecting core markets, capturing adjacent markets, refusals to deal, self-preferencing, margin squeezing and creeping acquisitions.

At stake is nothing less than the long-term viability of current practices in core digital markets, including online search engines, social media, display advertising, app stores and services such as ride-hailing. Still, both the Information Technology Association of Canada and Facebook have made public their willingness to co-operate with and be accountable to Canadian and other regulators.

“ITAC welcomes the Canadian Competition Bureau’s focus on targeting anti-competitive conduct in the digital economy,” said Angela Mondou, the organization’s president and CEO, in an email response to questions from the Financial Post. “It’s important to note that the tech industry is always ready to co-operate with government.”

Mondou went on, however, to add a note of caution.

“It’s important that government of all levels find a clear balance between being too prescriptive and setting clear rules for the tech of the future,” she said. “Industry should adhere to policies; and government must establish clear guidelines.”

While many other stakeholders — particularly traditional media — have welcomed the call-out, critics have suggested that Canada is late to the game.

In the U.S., enforcement actions against big tech are already a reality: 50 states attorneys general have recently announced antitrust investigations involving Google and Facebook. In July, the European Commission launched an antitrust investigation of Amazon.

In the U.S., enforcement actions against big tech are already a reality

At about the same time, Australia’s competition regulator produced a 600-page report that recommended increased regulation of Facebook and Google and the creation of an algorithm that determines what appears in users’ news feeds and search results.

But it’s not as if the Competition Bureau has been standing still on digital issues.

“We’ve been very much involved in the worldwide debate on the role of competition regulators in the digital economy,” Boswell says. “In fact, we were one of the authors of the G7 data paper that announced competition authorities’ general understanding of the issues raised.”

As it turns out, the Bureau has been on the digital economy case for several years — and showing no reluctance to go after the big fish.

As far back as January 2015, BCE Inc. paid a $1.25-million penalty after staffers posted deceptive online reviews. In January 2017, Amazon paid $1.1. million to settle an investigation into misleading pricing representations online. Rental car companies Avis, Hertz, Discount Car Rentals and Enterprise paid a total of $5.95 million in administrative monetary penalties in 2018 to settle allegations of “drip-pricing” practices (which occurs when companies offer low prices up-front but add in additional mandatory fees or charges later in the purchasing process).

Most recently, the Bureau reached a settlement of its first merger challenge ever involving software companies. The impugned transaction involved the acquisition of Canadian software company 3ES Innovation Inc., carrying on business as Aucerna, by a U.S. private equity firm, Thoma Bravo LLC. The Bureau alleged that the merger resulted in a substantial lessening of competition in the market for reserves software aimed at Canadian oil and gas producers. As part of the settlement, Thoma Bravo agreed to sell one of the two software products in issue.

“The call-out is just one further step in prioritizing digital economy matters in accordance with our vision for the Bureau as set out in our annual plan,” Boswell says.

The consultation period ends November 30.

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