Yves Faguy speaks with Jennifer Quaid about reforming the Competition Act and making it fit for purpose in a changing digital economy.
Yves Faguy speaks with Jennifer Quaid, an associate professor and vice-dean of research in the Civil Law Section at the University of Ottawa, about reforming the Competition Act and making it fit for purpose in a changing digital economy.
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Yves Faguy: You’re listening to Modern Law presented by the Canadian Bar Association’s National Magazine.
Hi and welcome back to the show. I’m Yves Faguy, and today we’ll be discussing competition law and our digital economy.
Believe it or not, the last time the Competition Act underwent a review was in 2008 back when most people didn’t even have smartphones, Facebook had only just pulled ahead of Myspace in terms of worldwide users. It was the year Apple made iTunes the storefront for its hugely successful App Store, and when Netflix first introduced streaming.
So when Canada’s Minister of Innovation, Science and Economic Development, François-Philippe Champagne, announced plans last month to examine the country’s competition law there was a sense that it was really long past due, particularly as there had been growing calls for reform and the Commissioner of Competition himself, Matthew Boswell, has been saying how badly our laws needed updating.
But as we prepare for the next era of innovation in which artificial intelligence, quantum computing, possibly the metaverse, all these technologies rise to the fore, can we really afford to just tinker with the act or do we need a wholesale rethink. This week on the podcast we have a fantastic guest who is going to explain to us why it’s so crucial that we listen to a broad range of different perspectives before we decided how to reform the act.
Jennifer Quaid is an Associate Professor and Vice-Dean Research in the Civil Law Section at the University of Ottawa. She is a leading legal expert and scholar in the fields of Organizational Criminal Liability, Corporate Accountability, and Business Ethics, and one of her many areas of research interests also lie in Competition Law.
She recently authored a chapter in the recent book Artificial Intelligence and the Law in Canada edited by her colleagues, Florian Martin-Bariteau and Teresa Scassa, and her chapter obviously focuses on competition law. Jennifer, thank you so much for joining us today.
Jennifer Quaid:Thanks so much for inviting me.
Yves Faguy: So listen, to kick things off, just tell us a little bit how you became interested in Competition Law as it intersects with technology, and I know you’ve written recently about the rise in the use of artificial intelligence and what that may mean for Canadian competition law. So how did you come about that?
Jennifer Quaid:Well I’ve been teaching and researching in competition law for a long time, so it’s an area that I’m familiar with and I even practiced way back in the day in this area briefly so it’s always something that has interested me a lot.
But the specific questions related to the transformation of the economy in the last let’s say 10, 20 years as it’s become more digitized and also where information has taken on even more importance than before, it really was when I was first asked to write this chapter in a book that was edited by two of my colleagues, Florian Martin-Bariteau and Teresa Scassa, who wanted to write a book on AI and the law in Canada and they asked me to write the chapter on competition.
And at the time I said well that sounds really neat, I know a lot about competition law, and I think I know pretty much nothing about artificial intelligence at least as it relates to law. You know, we can talk about artificial intelligence as an idea and certainly some of the scientific progress, but I certainly didn’t know much about what we did in Canada at least about it.
I suppose the next step I had was to knock on the door of my neighbour at the faculty, Céline Castets-Renard, who is somebody who has spent a lot of her career thinking about how various aspects of the digital reality, you know, overlay on societal questions, not just competition questions. And she is particularly interested in questions of privacy and data protection and she knows European law very well, and also the American law and she came to Canada just in 2019.
So she and I sat down and started talking a little bit about this because I said, “Can you help me out? I just don’t understand [laughs], you know, what does law have to do with artificial intelligence or how do I think about this.”
And I found that from those conversations it became clear to me that it was not going to be as simple as I had hoped to write about this topic, but also that it is extremely interesting and we are perhaps at a real crossroads in the legal community, at least in this country, where we have the opportunity to explore and create possible frameworks to respond to this reality. So it started out with being asked to write an article and sort of having to figure out what I was going to write.
I think the second thing that happened after, especially after I talked to Céline and she talked to me about all these fantastic new developments in Europe and these 150-page reports that they were producing with alarming regularity and also in the U.S. that things were happening, and she said, “Well, but in Canada there seems to be a statement of ethical principles and that’s about it” and I thought, “Oh, what am I going to write about [laughs] if there’s no legal architecture.
And that’s where I realized that getting our heads around how these new phenomena – and you can talk about the digital ecosystem, you can talk about, you know, information age or the age of surveillance capitalism to take Shoshana Zuboff’s, you know, characterization in her book of the same name, all of these things were going to require us to stretch and stretch beyond our comfort zones of what we knew before and really to perhaps have to think about new things in relation to that. So that’s how I got started in this.
Yves Faguy: How would you describe Canada’s approach historically to competition policy? I know some, perhaps including yourself, have said that it actually favours concentration. I know you’ve written that one of its central weaknesses of Canadian competition law is the structure of its abuse of dominance provisions. So before we get into the AI, how would you characterize our framework right now?
Jennifer Quaid:Well Canada’s competition framework as it exists now was created or enacted in 1986 but, you know, the history of competition enforcement or the Competition Act is longer than that. It started out actually a year before the Sherman Act in 1889 and it was an entirely criminal statute for a long time.
It was also, to be perfectly frank, very unevenly enforced. And others, including the economist Bill Stanbury, you know, have written about that very uneven enforcement and how it doesn’t send a very clear message about what were the overarching objectives of having these, you know, even if they were limited criminal provisions on monopolization and on conspiracy, you know, what were we trying to do with it. And it’s hard to distil a set of objectives out of that enforcement history which was selective and uneven.
In 1986 there was much more effort brought to bear on, you know, looking forward, modernizing the way we look to, you know, if you will, provide some legal parameters to how competition should occur in Canada. But there was always an awareness of the fact that the Canadian economy had certain characteristics that were difficult to escape and, you know, nowadays we look at that perhaps a little more critically than we did at the time.
But Canada was a small economy, big territory, small population and very – at least initially, very heavily focused in the primary resources. You know, we were an economy that provided raw materials to a lot of other places. We did have a manufacturing sector and we did have, you know, an auto industry that was a product of a special, you know, arrangement through the Auto Pact and increasingly we were starting to have much more of an important service sector.
But, you know, historically Canada had an economy that evolved in a certain way and economies of scale were certainly something that were sought to be favoured. So in 1986 when we created a new template, clearly that the effort here was to try and come up with a regime that was more adapted to what was going on in Canada and one of the things was to say look, not all market problems or competition problems are properly criminal.
So that’s the most significant think just to come out of that is to say, you know, the economic evidence does not support treating some of these practices as sort of morally blameworthy and, you know, opening you up to fines and imprisonment. But then there was the question of well how do we provide a civil regulation or framework around this.
The thing that lots of people are talking about now, which was a very important feature at the time, was to try and figure out how to find the right balance between not wanting to have, you know, anti-competitive conduct in the market, but also being able to support productivity and growth and all the good things that we want out of an economy.
And so there was a sense that there had to be a recognition that sometimes concentration is tolerable because it will produce net benefits and that’s this notion of an efficiencies defence and that the rationale – and I’m, you know, grossly generalizing here – said, you know, what we should be concerned with and what competition policy should be concerned with is how big the pie is and if we can make the pie bigger that’s going to benefit everyone at the end of the day.
How we cut up the pie, who gets the biggest piece that is not the proper concern of competition policy. And in fact, we shouldn’t – and, you know, it’s often sort of placed in relation to more [French 00:10:00] economies where, you know, the state had a greater role in deciding who were winners and losers and who were going to, you know, succeed and not, not just communist countries but also European countries like Japan and France.
That we felt that that was not the place of competition and that competition have a light touch and a light footprint and that to the extent we need to alter the outcome of the – and I put this in quotation marks – “the normal functioning of markets” or the way that, you know, unregulated economic behaviour happens would be done through social-economic policy, taxation policy and other things.
So in 1986 one of the important things that we decided is that yes, we need to be concerned about anti-competitive behaviour, but we also need to be concerned about Canada’s place in the world and the ability for the economy to generate enough growth. And the belief was the structural attributes of Canada and its economy were such that we needed to tolerate higher degrees of concentration and we needed to tolerate some of the efficiency benefits that come from that even though they may create anti-competitive effects.
Yves Faguy: And was that aligned with what we were seeing in other jurisdictions, Europe, the United States, or were we a little bit off on our own on that?
Jennifer Quaid:Well a formal efficiencies defence is unique to Canada. For some people that’s a point of pride, for others it’s not, and I think a lot of that has to do also with the fact that at the time it was very much believed, and I think that the economic literature supported it more than it does now, that this was a good strategy. That this was something that would be appropriate for Canada. And so, you know, in the eyes of some Canada was an innovator and was sort of, you know, charting its own path, but even in 1986 there were those who were not as persuaded.
And so we are unique in having the type of consideration of efficiencies that we do because it essentially operates as a means of permitting otherwise anti-competitive transactions or conduct to go through, whereas in other jurisdictions although economies of scale and efficiency gains could be taken into account, they don’t have that same weight and don’t have the ability to countervail anti-competitive effects the way we do.
And, you know, our closest – if you will, the economy with the closest set of rules is the United States and although they also were concerned with growing the pie, they said at the end of the day consumers have to be better off. And so they apply a similar model, but the constraint is that if it’s bad for consumers then that is something that will prevent the deal from being authorized whereas we don’t say is it bad for consumers, we just say is at the end of the day the entire economy better off and then we’ll worry about if consumers need to be made better off in some other way.
Yves Faguy: So I’ll get to the consumer side of things. So, you know, fast-forwarding to today and there are, you know, as you hinted at earlier, other jurisdictions who are looking at revising their own competition laws. But what is different about the economy today that we need – that should make us rethink our competition strategy or rethink the confines of our competition law?
Jennifer Quaid:Well, so that’s not something that is, you know, universally agreed upon at this stage. I think by and large many people will acknowledge that the way that economic activity occurs and in fact the way, you know, societal interaction in general occurs is different and has undergone a significant transformation in the last 20 years.
It becomes a little bit trickier when you try to label what exactly is it that’s different because I think that there’s a lot that’s been written by many people who know a lot more than me about the details. But, you know, some of it has to do with the technologies that have been created and how widespread they are. Some of it is attributable to the fact that we are all connected in ways that we weren’t before and with incredible speed and reach and that in some ways, you know, whether it’s the internet or just the ability to communicate more broadly, these mechanisms do change the way we relate to one another and open up possibilities and also create dangers.
There’s also the sense that there is a large amount of surveillance going on. That is to say that how we access this technology and how we interact, these networks are not private the way, you know, when we walked along the street and talked to somebody, you know, no one could really – it was more difficult to capture those things, and part of it is the technology that makes it easier to capture voice data information.
And then I think there’s a third thing which is – or an additional factor which is that we have now entered a zone where transactions are not necessarily as easily characterizable. And by this, I mean, you know, in the social media context people can be participating as private citizens or as individuals, they might be participating in a professional or a commercial context, they might be participating as a state actor or representative of a state organization and so the lines are blurred.
In the old economy if you will it was probably a lot clearer, you know, am I in the presence of a business transaction, am I in the presence of a private relationship, I’m in the context of a government-citizen relationship, and those things are not as clear anymore so that contributes I think to some of the characteristics that are different.
What I will add though is that – and this was one of the first things I had to do when I wrote my paper is, you know, competition doesn’t deal with all those things. And so one of the challenges is figuring out which of the parts that we have traditionally associated with market regulation sort of intersect with these parts of the economy.
And I think that’s one of the difficulties we’re having right now is that the neat little category of what is, you know, firm behaviour or business behaviour or what’s relevant to, you know, the competitive dynamics of an economy is not as neat as it was before. So I would say that that’s what a lot of the conversation is about is understanding how many different ways factors can influence the economy and the behaviour of participants in the economy without them necessarily being easily labelled as business commercial market.
Yves Faguy: Yeah. So you hear that a lot that, you know, competition law should – well I mean that competition law should co-exist with other areas of law without necessarily getting into it too deeply and I think, you know, historically we’ve wanted to interpret it in ways that limited scope. Would that be the predominant view today among people who practice competition law?
Jennifer Quaid:Well that’s – [laughs] I’m going to get in trouble with this answer. You know, I’m always a little bit careful about generalizing too much. I mean the fact is that the competition space in Canada is pretty small, lots of people know each other and there is a lot of overlap and there are generally good relationships between those players.
You know, members of the bureau and people who represent private clients, you know, the think tanks and private groups that provide expertise, which is often very specialized economic expertise, you know, these people talk to each other regularly and I would say on the whole tend to get along quite well.
I think one of the things that we current debate about whether or not competition needs to have a slightly different ambit and what are we actually dealing with in terms of the new economy is that perhaps there needs to be some other voices and some other perspectives that are brought to bear on the debate because now expect different things from the economy as well.
So, you know, when we talk about what the right size or footprint of competition law is, you know, that comes with a lot of assumptions. And some of these were discussed just recently in a piece written by Robin Shaban that’s in Policy Options, but where she talks about –
Yves Faguy: No, that was today I think that it was published.
Jennifer Quaid:Yeah, it was today. But this is something that was also mentioned in a number of the submissions that were made to Senator Howard Weston’s consultation on whether amendments to the act are appropriate at this time and are necessary in response to the “digital age.” Again, you know, a lot of ambiguity about what that really means.
And I think that, you know, some of it has to do with the fact that we traditionally have not really liked the idea of competition policy being too large, and in particular one of the unstated assumptions behind that that Ms. Shaban talks about is that we like to think that ideally markets just work. They just work, you know, and they’re kind of – you know, it’s a real thing that happens on its own and therefore one should disturb with caution and so, you know, a smaller footprint of competition law is more true to the spirit of market capitalism.
That, you know, you shouldn’t interfere too much and just let things work themselves out and these things will work themselves out. I think that that view is not as readily accepted, in part because market failures can last for a long time. They’re not necessarily self-correcting, and even if they do correct in the long run as the joke goes, you know, in the long run we’re all dead.
And I don’t mean that quite as facetiously as it sounds. It’s that, you know, if you have a firm that’s dominant over a period of 10 years, you can and will create real damage if they’re in a position to abuse that power. And even if ultimately they’re dethroned 10 years later, that doesn’t eliminate the fact that damage was caused.
So the idea that, you know, in the long term these things correct and therefore we shouldn’t worry about it, that means you’re evening out some pretty big troughs and peaks that will affect different segments of people in different time periods. So, you know, I’m not sure I’m comforted that maybe in 50 years, for example, the Googles of this world will have been dethroned. OK, but in the meantime while I’m living, you know, these things might matter.
So there’s a lot of debate I think about, you know, what’s the right amount of shaping through regulation and other enforcement that needs to be brought to bear. And I think it’s maybe more open to debate right now because at least in the view of some, and I include myself in that group, you know, we think there’s something different about the way the economy is working right now and that this is not just the next phase of economic development. That there’s something different happening and even if ultimately it’s supplanted, we do need to worry about it right now.
Yves Faguy: So what is it that’s different? I mean again you wrote about AI, what is it that’s different that is having an impact on I guess the concentration of power; is it the data, are they privacy issues, how has the market changed?
Jennifer Quaid:Well I think some of – so these are not entirely coherently organized answers to that question because it’s actually hard to string it all together in a, you know, let’s start with A and get all the way to Z because I don’t think they all fit together that way. But certainly one of the things that is different or at least it has taken on a different character is the role of information in the economy and that is – I think there are two dimensions to that.
Information has always been important and has always been valuable and, you know, when we talk about the basic conditions for a competitive marketplace, one of them is perfect information. That is to say, everyone can obtain information that they need and no one has an informational advantage.
Now we all agree that, you know, perfect competition also doesn’t exist so I’m not suggesting that there’s some halcyon days that we’ve lost, rather that now information is more easily collected and analyzed than it was before. I mean it was certainly possible in the old days for individual merchants to capture information about their customers and to, you know, sit there and look at it and say, “Gee, you know, there’s this demographic of person that seems to like this price or this product,” but it was a lot harder to do and it would’ve taken a lot of hours and human brainpower to do that now can be done through computing.
And so I think the first thing is that information is even more important in part because information has always been important, but because we can gather more of it and we can do more with what has been surrendered that in fact the person who provides the initial raw data doesn’t even know or understand. So there’s that leveraging of that analysis.
I think the second thing is that information allows for power to be concentred in ways that are not always exerted directly in the commercial activity that might be under study. So, you know, the fact that you can gather information about how sellers are behaving generally, not necessarily by product or by service or whatever, and that might provide you an advantage that is not really going to be identified to a market.
So I think one of the other things that’s different now, we’ve talked about it as a theoretical possibility for many years but most enforcement agencies haven’t really been able to pull it off, where you say we actually shouldn’t examine this problem as a function of a market. Traditional competition analysis says well we first have to talk about what’s the sandbox, looking out over the playground, and then we can decide whether someone’s being a bully in that playground. But, you know, until you’ve delineated how big it is, it’s hard to get a handle on the problem.
And I think some of the characteristics of the behaviour, especially by larger players who have control over a lot of information and who have access to a lot of analytical capabilities, limiting the impact of what they’re doing to delineated markets for products and services is also kind of not really capturing the full consequences of what they’re doing. And this is where, you know, people like [Tim Woo and Lena Kon? 00:24:44] have been writing about the fact that really what they control in a way that at least Tim Woo thinks is analogist to the 19th-century trusts, you’re controlling essentially the ability to participate in the economy.
So some of these very large players who have access, you know, to large amounts of information and technology and who run the platforms, for example, they’re actually controlling the ecosystem, the entire economic ecosystem.
And you can say, “Oh, that’s an extreme view and how can that be,” but it’s not very different from the way the railroad barons – you know, the fact was if you couldn’t move your goods around, you didn’t have access to the economy. If you didn’t have access to the logistics, you didn’t have access to the economy. It didn’t really matter that the railroad didn’t compete with you and your product, it was access to the infrastructure that mattered and I think that’s something that’s happening here.
You try to imagine any business, even a small business functioning without access to the information economy, functioning without a website, without a payment system that’s online, without some form of online advertising. I think it’s in fact small business probably even more than larger businesses needs the internet and access to these platforms in order to participate. So I think that those are some of my thoughts about what’s different and why we need to worry about the power that’s concentrated in the hands of a few right now.
Yves Faguy: Having said that this may sound a little naïve but, you know, a small business still does have access to that internet and, you know, could leverage some of the data that’s out there by that business’s own means and, you know, by their own actions and their own inventiveness. Isn’t that indicative of a fairly low entry barrier, you know, because obviously not everybody had access to the railroads a hundred years ago whereas perhaps a more democratic application of access is true today when we’re talking about data.
Jennifer Quaid:Well that’s certainly true to a point I would say, and my point is that, you know, large players will tolerate small players so long as they stay small and so long as they don’t nibble at things that are important. So, you know, access in and of itself is not the only question. And that is to say, access can’t only be looked at as a binary, well do you have access or you do not, at what conditions, at what cost.
And oftentimes access is conditioned, for example, on surrendering your customer data or on agreeing to share certain information about your business – you know, and it’s usually there are plausible explanations offered for why this is necessary, for quality control, for maintenance, for all kinds of things. However then you have to say well, you know, how is that access being provided and who is dictating the terms of that.
You know, and that’s certainly the case for users who are not necessarily engaging in a commercial transaction. So you think of users of social media for example. They may be in a very limited position to dictate terms that are different from the standard terms, you’re very much in a kind of an adhesion situation where it’s, you know, you take the terms or you don’t. And, you know, often the argument is to say well, you can always just not take those terms.
But I think the question that’s asked, and here we get back to what’s different about the economy, consider whether it’s really something that you can say, “I just won’t participate on social media. I just won’t.” I mean there are people who live off the grid but there are not very many. So, you know, and think of the average under 30 person making that decision, it just seems unlikely.
So yes, there’s access and I don’t think any of the large players would ever want to deny access, you know, if it meant they could get another user. But the question is on what terms and should we be concerned about those terms largely being dictated through the exercise of economic power as opposed to considerations that might be determined through a process of regulation where you might want to consider other factors.
Yves Faguy: So, you know, what would a more comprehensive competition strategy look like then, you know, if we’re to sort of re-imagine it today?
Jennifer Quaid:Yeah, that’s the $6 million question and – or maybe $6 billion or $6 trillion, you know, the amount of importance can’t be overstated. I mean as a person who studies competition law and who has been interested in this area for a long time but also who’s an academic sitting in the ivory tower and I’m very cognizant of that, I’m always very reluctant to say well what should we do.
I think that the competition policy of the future in this country needs voices to contribute to the debate, that’s probably the first thing. But I would suggest – and I’m trying to sort of work my way around not saying what ought to be done. If one looks at the policy objectives that have been given the most priority by the current elected government – which is granted a minority government but still reflects, you know, the democratically expressed wishes of Canadians and that’s the best, you know, barometer we have, right – there are some clear priorities.
Sustainability is one and dealing with the climate emergency. An inclusive economy is another one and, you know, addressing some of the historical and systemic issues related to discrimination. And, you know, I would add to that because it’s considered largely a separate category also reconciliation with Indigenous peoples.
So if those are big priorities that have been identified by the government – you can agree or disagree, right, with those priorities but those are the ones that have been set – one should expect that competition policy as a policy that frames the discussion about how we intervene in markets or how we modulate market behaviour has to be informed by those let’s say values or things that are considered important.
So you’ve got to think now does that mean you’re going to try to do environmental policy through competition law, probably not. But it does mean that as you look at mergers or deals maybe you’re going to have to get your hands dirty and start looking at some other matters because if you don’t then you basically say well, we’re just going to do what we want in competition policy and we’re going to forget about these other broad-ranging questions. Now is it easy, no.
I think one of the things that makes people squeamish – when I say people, I mean, you know, the traditional kind of perspective and it’s not just in competition but it is characteristic of competition where, you know, we have this nice neat little place and we know how it works and we’ve come to be able to predict, you know, how things happen and we like it and we don’t want it to get all messy and possibly have things go wrong which invariably happens when you make changes.
But if we see what other players are doing in the world – the Americans, the Europeans, the Australians, South Africans, Singaporeans – they’re looking at this as a whole of government kind of question. And so dealing with the realities of the new economy is not something you can just kind of deal with in competition policy, but that means competition policy is in a conversation with policy about economic development, you know, with green and sustainable objectives and perhaps in our case with reconciliation, you know, with other regulatory regimes like privacy, data protection, national security. So it’s messy, it’s messy and I think lots of people don’t like the messiness. I don’t know that there’s an alternative to that.
Yves Faguy: Well I know that – well, you know, it’s perhaps a very Canadian characteristic to enjoy one’s comfort zone and not get too messy. But I mean there are – concerns have been voiced that, you know, if you start changing the objectives under the act, under the Competition Act – and, you know, you mentioned climate policy.
So I don’t know, like say by making competition law part of the solution to tackling climate change and I think you suggested that that’s probably not going to happen but, you know, there are privacy issues obviously. But that the risk there would be that, you know, you start running into unintended consequences and in such a way that it wouldn’t necessarily benefit the consumer anymore, which is sort of the idea that is often promoted.
So I guess to get to a question, like what do you say to those who would say that, you know, the Competition Act is actually quite flexible in protecting anti-competitive conduct and that it's just, you know, let’s keep our eye on this rather narrow objective and maybe just make it more of a matter of equipping the bureau with the resources and enforcement powers that it needs?
Jennifer Quaid:Well there’s nothing wrong with providing the bureau with more resources and providing I guess conditions for it to engage in more enforcement activity, but even in the best circumstances you cannot enforce against everything.
So one of the things that you have to think about when you create a regulatory regime is how you set expectations about what is the kind of behaviour that is acceptable and not because you want a lot of that work to be done through the signalling that comes from the selected enforcement that occurs. And that you want actors to be able to – and this is not a gotcha moment, like you want economic actors to know how they should behave so they can do it proactively and not just reactively because they’re told that this is not the way to do it.
So I am very sensitive to the fact that you can’t just say well it’s a big, black box and you know what, we’re going to hide it from you. I’m not suggesting that. When I say it’s messy, I think it’s that, you know, getting to a point where we can establish those parameters is going to maybe take a little bit longer and may require some – you know, entertaining some ideas that traditionally have been considered to be totally out of bounds in competition policy.
So, you know, those who say well the objectives of the act are fine, yes one could say that those objectives are still appropriate. I mean the fact is that they’re not pursued all at the same time. That’s sort of trite to say but, you know, they’re not always compatible. It has been suggested though, you know, by some who are arguing that not as much reform is needed, that wouldn’t it be better if we just focused it entirely on efficiency. So on the one hand, you know, it’s flexible but why don’t we make it even more, you know, narrowly focused.
I’m just going to add a small sort of editorial comment in here which is that part of the resistance to expanding the ambit or taking into consideration other factors is because there is – and, you know, in fairness not everyone agrees with this, but there is a sense that it’s just so much easier if you can stick to things that can be quantified and that can be proven through econometric analysis even though econometrics is not a science in the same way that physics or chemistry is.
And so, you know, setting out a demand curve or proving anti-competitive effect is not like demonstrating gravity. And so, you know, there’s a lot of interpretive factors that go in there and there are assumptions about behaviour that go into there, but I mean some of the reluctance has to do with the fact that it’s, you know, how do you quantify fairness, how do you integrate that into the analysis, isn’t that going to make it all very subjective.
And subjective is meant here in a pejorative way, right, “Oh heaven forbid that we couldn’t with mathematical accuracy figure out what the answer is going to be.” And I guess part of my reaction to that is to say well competition policy has been very economically oriented, very quantification oriented but we have other areas of law that handle fairness quite readily.
I mean fairness is not a concept that’s hard for judges to deal with. I think the concern is that you’ll get into a situation where these are really political choices that are being arbitrated by the courts, but I also think that our courts are pretty good at – they have long experience in recognizing political questions. So I’m not sure that those fears are well-founded or that, you know, we’re in danger of having judges who just don’t know what to do.
If anything, I would argue the contrary and I would say that the econometric quantified world is one that the judges don’t really know very well, and you get the results you do because they really can’t cast an independent eye on the evidence that’s being put before them. And that’s why we end up with decisions like we did in Tervita as far as I’m concerned. So, you know, that’s my –
Yves Faguy: And Tervita, what happened in Tervita?
Jennifer Quaid:Well that’s the last big merger case that went to the Supreme Court. There aren’t that many of them [laughs] and there aren’t that many contested merger cases either. But in that case, the majority – it was an eight/one decision; Justice Karakatsanis was in dissent on that decision.
But in the majority decision written by Justice Rothstein the court comes to the conclusion that at the end of the day though Section 96 which provides for the efficiencies exception to merger review, although it wasn’t necessarily intended to allow a small local market merger to monopoly, they were OK with that. And they very clearly said two things which I think have had an impact since, which is that at the end of the day the total surplus model is the best model to apply, which is the one that says is the pie bigger.
A couple of years earlier or 10, 15 years earlier there had been a case called Superior Propane where they had recognized that under Section 96 you could use something other than total surplus and there was one model that was argued in Superior Propane called the balancing weights one. It was never actually really successfully applied but it was acknowledged that there wasn’t just one model.
But here you get the Supreme Court sort of saying, “Yeah, there can be more than one model, but we really like this dominant one,” and the second thing they said is, “And quantify, quantify, quantify.” If at all possible, quantification, quantification, quantification because it’s so much more reliable and sure and we don’t want to have any – we want to limit the amount of subjectivity into the analysis.
So the message was pretty clear, you know, that these debates were going to be debates between economic experts and it was all going to be all about the numbers, and it sort of diminished the qualitative side of the analysis which had been again in Superior Propane recognized as a distinct step. That, you know, you have to consider quantitative effects but also qualitative effects, but it was a fairly clear kind of squelching or significant reduction of those components.
And so, you know, that’s the kind of mentality that you have is that, you know, it would just be so much better if we could just stick to the numbers and just stick to these things that are easily measurable, about which you can’t have much debate and where there’s no discussion of fairness. So I mean I’m being a little bit cynical but, you know, that’s the outcome and certainly a lot of the attention on the efficiencies defence right now can be traced back to the Tervita decision which is really hard to justify honestly.
Yves Faguy: So what are we seeing then. I mean I’m trying to figure out a little bit why Canada has this reluctance to evolve its view perhaps on some of these issues. So what are we seeing happen elsewhere and how are other jurisdictions redefining the objectives of their competition legal framework?
Jennifer Quaid:So the big jurisdictions, Europe and the United States don’t have the same approach, but they have both been moving forward faster than us. And part of it is that, at least in Europe, they started to tackle the question of, you know, what was happening in so-called digital markets a lot sooner. And, you know, you could say there’s some political reasons for that because the digital platform giants and the large technology companies are not European.
So, you know, one could say cynically that they were interested in reining in the power of these American behemoths that seem to be running amok. So the Europeans come in a lot harder. They come in first of all with their GDPR, so their regulation on privacy which imposes quite onerous, you know, requirements that although they get fought, you know, everyone fought them tooth and nail they’ve held and now everyone holds out the GDPR as, you know, the gold standard.
And I’m not a privacy expert so don’t ask me to explain the details of it, but it’s taken to be sort of, you know, a significant development that just said look, there’s some limits and these are the limits we’re going to throw down. But after that they also went after Google in multiple, you know, proceedings and other players and I think part of it was that, you know, they just realized that something is going on.
Now the Europeans have a different institutional framework and that allowed them to define essentially a European digital market. And so a lot of that analysis has occurred at the European level which is not something that can happen in Canada for a division of powers reasons. So, you know, they also created some structures that helped really focus attention on these things. They’ve been very much in the front looking at ways to regulate AI, and not just with ethical principles but with hard rules. They came out with this gigantic document last spring where they really lay out their policy, but they’ve been talking about it for a long time.
The Americans have not really gone the, you know, giant legislative instrument across the board approach, which is normal because they’re a federation and they also have to contend with state power. They’ve rather, you know, had evolutions in their enforcement policies and in the practices of some of the big agencies.
And although I wouldn’t profess to be an expert, from what I understand a lot of the concern about, you know, emergence of practices in markets that are characterized by a lot of the features of the digital economy got situated within the FTC and DOJ, which are the traditional anti-trust enforces. So even though one could say that might spill over their normal jurisdiction or maybe touch on things that weren’t specifically their mandate because privacy isn’t specifically their mandate, but the FTC does have jurisdiction over consumer matters which is something the bureau does not.
So, you know, they I think decided that anti-trust was going to be a lever through which some of these things could be addressed and you certainly see that now in the six bills before congress. We’ll see whether they amount to anything. I mean we’ll see how much longer the current administration will be able to actually pass bills in a fairly fractious congress, but there was bipartisan support for a lot of these modifications to the anti-trust rule.
So I think the Americans have used their anti-trust policy perhaps more broadly. The Europeans have simply been developing lots of instruments to deal with different aspects of the digital informational economy and those are filtering into their competition policy more directly.
Yves Faguy: You do get a sense though that, you know, all their authorities in Europe and in the U.S. do have far more agency to enforce the rules. You know, what would it take here for that to – like let’s assume that we timidly review the act and – because perhaps that’s what would be the outcome, perhaps not. But let’s assume that we would timidly review the act. Is there a way to give the Competition Bureau more teeth and the tribunal more teeth?
Jennifer Quaid:So on the bureau’s side for sure you could do that and some of those things have been put forward by the bureau in its submission to the western consultation. They laid down a lot of things which have been longstanding which are not uniquely the product of, you know, the current discussion about whether competition policy needs to be reframed as a function of the new economy and certainly there are things that they’ve identified.
You know, the ability to do market studies independent of reviews would help. You know, that they could build intelligence independently of an investigation. You could kind of get an understanding of how markets work, you could compel market participants to provide the information rather than having to rely on voluntarily, you know, cooperation which is not going to produce the same results and so you can understand things.
I mean they have done some things on their own. They’ve created this digital sandbox in which they, you know, are exploring and analyzing and developing ideas in relation to sort of novel questions raised in the digital space and they have been allocated more money but it’s for sure that they could use a lot more.
I think one of the things that this commissioner has made clear is that some of the state of the law, and I mean the efficiencies defence is the low hanging fruit here but it’s not the only thing, is that the way law is designed it does impose a pretty significant evidentiary burden on the commissioner which means that each enforcement action is very high stakes and very uncertain.
Now it should never be that, you know, enforcement is a slam dunk. Like that’s not necessarily what is being advocated but I think that, you know, it might be time to rethink what we’re asking the commissioner to establish before any enforcement can occur and, you know, how heavy that burden is. Especially in a quantification at all costs kind of world where basically what that means is the bureau has to hire expensive experts to produce the information and the other side hires other expensive experts and there’s only a limited number of experts.
So it’s a race to hire experts in almost all of these cases and how quickly that can be done. You know, that’s one of the other things is that often with merger reviews is, you know, the time component and it’s we can’t wait 10 years every time for the outcome of a case. So that’s one thing.
I think on the tribunal is a different matter. And that’s something that nobody is talking about quite honestly, the tribunal is dysfunctional. It does not work. This is not entirely a competition law problem, it’s also an administrative law problem because we have a tribunal that’s been created which is supposed to be specialized but has a right of appeal and under the Vavilov Framework it is subject to correctness basically all the time. So what’s the point is my [laughs] – you know.
It’s like a trial court and that’s very, very – and I’m not saying, you know, that anyone is not doing their best to try and make things work but it’s got all the disadvantages of civil litigation; slow, tons of interlocutory procedures, it just crawls along and then at the end of the day those decisions are vulnerable on appeal, and they systematically are appealed. So you sort of say well what are we doing and, you know, that would unfortunately require a serious overhaul and I don’t know whether the political will is there to do that.
But, you know, the tribunal in its current state is not an efficient mechanism to resolve the civil disputes that it has exclusive jurisdiction over, and I think it bears mentioning that the things that don’t have to be heard by the tribunal are yet generally heard elsewhere [laughs].
Yves Faguy: So I mean I’ve heard it suggested too that we should be expanding, you know, a private right of action under the act. And, you know, so I guess that it would be right to presume that to do so would be foolish or kind of useless in this context?
Jennifer Quaid:Well to the extent that private parties would still have to go to the tribunal and that would be the case for abuse of dominance for example, which is what everyone’s talking about. And there it’s because, you know, the suggestion is that individual firms that are being, you know, subject to anti-competitive conduct will be motivated, you know, to bring those cases to the tribunal.
I think to the extent that they’re still heard by the tribunal, you’re right, it’s not going to be much of an improvement. Maybe that will be an impetus to change the rules because it will no longer be the commissioner complaining about it, it’ll be others. I don’t know.
But private access, you know, I think offers some – and certainly the U.S. has private access as well, but I think that what you’ll find is it’ll be limited to certain types of contexts. And so, you know, it’s not a panacea, it won’t solve everything but I certainly think that it’s something that can be explored and should be explored. But that isn’t a substitute for rethinking what are the – what’s necessary to establish anti-competitive conduct or what’s necessary to seek a remedy.
I think the burden is still pretty high and in abuse of a dominant position definitely one of the things that’s on the table, which might undermine the private right of appeal maybe or the private right of access, is maybe orienting the evidence that’s required not so much towards whether or not the dominant player is engaging in abusive or disciplinary or exclusionary conduct towards another competitor, but rather is it having an anti-competitive effect which then is more general. So I don’t know if that disincentivizes other players from bringing cases or not but that’s certainly something else that’s on the table.
Yves Faguy: And so what about penalties? Then should we just fall back on penalties, bigger, larger penalties [laughs] because they’re awfully small.
Jennifer Quaid:Penalties is one of my – of the things that I’ve complained about a lot. So there are two things. I mean the act is civil and criminal. When you’re talking about criminal fines the reality is that the sentencing principles still have to be taken into account and so you do have to ultimately – we live in a world where we do no have sentencing guidelines like the U.S. There’s not an elaborate formula and, you know, way of getting to a number.
It’s ultimately what’s proportionate in the circumstances and, you know, one of the things that people don’t realize is that most – not all, most criminal cases involving at least corporations are negotiated pleas and negotiated penalties, in which case the court has very little oversight under the applicable rules set down in Anthony Cook most recently. So unless the penalty that’s being proposed jointly undermines the perception of the administration of justice, you know, in a very significant way, the court really can’t do anything except to say, “OK, thanks. I endorse your penalty.”
What that underscores is that, you know, how do we get to those penalties and how do we calculate them and in the criminal context there is some sets of parameters and under the Immunity and Leniency Program, which is how a lot of the deals are reached at in competition at least when they involve conspiracy and bid-rigging, you know, there’s some discussion well what’s the volume of commerce or what’s the amount here and, you know, they sort of play with the numbers.
One of the things that isn’t talked about a lot is that everyone says, “Oh, you know, we just have to set penalties at the deterrent level and it’ll all be fine. You know, it’s economics 101.” I have yet to see a court ever entertain the idea of what would be a deterrent penalty based on the numbers, like based on the amount of – the cost of the conduct or the impact of the conduct, the number of years it went on undetected. You’d have to have penalties that are, you know, one or two orders of magnitude bigger than what’s being imposed and I just don’t see it happening.
Yves Faguy: So I mean in the EU we’ve seen this notion of, you know, imposing penalties that are – what is it, 4 percent of I want to say [French 00:53:15]. You know, 4 percent revenues and that sort of thing. Is this the type of thing that we should be considering here?
Jennifer Quaid:I think definitely for the civil, I mean I think for the criminal side as well the idea that you just set maximum penalties as a number, you know, means that you’re very limited. First of all, it can be too high or it can give the impression of being too high when you’re talking about smaller enterprises. Although, you know, just because a maximum penalty exists doesn’t mean that that’s what’s going to be imposed, in fact usually not but it is used in Canada as an indicator of gravity.
You know, so offences that carry high penalties whether it’s imprisonment or fines, that’s meant to telegraph how serious the conduct is and I think that’s part of the reason why you have a $25 million, you know, fine and 14 years imprisonment for Section 45. It’s meant to say this is serious, right, this is serious conduct.
I think there’s some issues with how high they’ve ratcheted it up now because, you know, those are penalties that are equivalent to some pretty serious other penalties. But be that as it may, I do think that the idea of having what is called scalable penalties is interesting and should be explored more readily.
And in the civil context certainly when you talk about the penalties for misleading advertising or for abuse of a dominant position where you can have what are called administrative monetary penalties or AMPs, you know, the idea that you’ve got a max of $10 million or $15 million for a repeat offender, that’s great if you’re talking about a Canadian firm or a smaller firm but if you’re talking about a Google or a Facebook like who cares, right. So I think they do need to explore the idea of scalable penalties.
I don’t know what the magic formula is. I think that’s something on which it would be useful to have more input and more voices. You know, what are the measures that work in Europe and the U.S. Because there can be debate well what counts as revenues or, you know, almost invariably it’s not just taken off the income statement, it’s that people want to make adjustments, “Oh but this year was a really big year” or, “Oh we did this or that.” And so it’s going to be an adjusted figure so what are the kind of adjustments we would allow and that we would not allow.
And part of it I think that would be helpful if it happens that way is that it increases transparency about those these penalties actually end up being calculated. And so when you have negotiated settlements between the Crown and the defence, for example, you know, you can understand well what were the building blocks that they could use. And similarly in civil penalties, you know, the Facebook consent agreement was a consent agreement.
This was not before a judge, it was not determined externally, it was submitted as a fait accompli. In those cases you’d also like to know well how did you get to that number. Well OK, in Facebook’s case it’s like well we were one million less than the maximum. But in a future scenario where you would actually calculate that, it would be useful and I think really helpful for public confidence in the system if you understand that there was a method and this wasn’t just whatever people felt like or whatever the bureau was able to negotiate. That it has some rational foundation in something.
Yves Faguy: We’re going to have to unfortunately wrap up the interview. But I would like to ask you, you know, as we move ahead and we look at reviewing the competition law framework in this country, what are you really hoping to see emerge in the next few months through consultations, through debate. What would you like to see and where do you think that we need to and what do you think the lawmakers need to start focusing their attention?
Jennifer Quaid:I think there’s two levels to that. My first hope is that there’s actually a serious consultation that’s undertaken about the economy and about economic policy in general. And I think that that necessitates a consideration of how – who are the regulatory players that need to be at the table to talk about that; privacy, data protection, consumer protection, do the provinces have to be there, you know. So there has to be like a high-level discussion first –
Yves Faguy: Because there is a division of powers issue.
Jennifer Quaid:Yes. I mean small parenthesis, right. Everyone likes to talk about consumers, and you hear of federal politicians talking about consumers all the time, but the Competition Act is not really a consumer protection statute and there are reasons why that choice was made and the provinces would have something to say about that if all of a sudden the focus became consumers only. Which doesn’t mean that it’s wrong, but that they would have to articulate a basis for federal – you know, a more substantial federal presence in consumer protection.
So I think the first, you know, threshold issue is we’ve got to figure out the way the Europeans and the Americans are thinking about it. You know, how do we imagine, you know, the state response to the way the economy and society is evolving. And, you know, I think the backstory is of course because there are these big behemoths that have been allowed to emerge basically with almost no regulation and so everyone’s trying to play catch-up. So how will we play catch-up, I think we have to decide that.
Then there’s a second layer which I think is we do have to take a hard look at the Competition Act. There are some things in there that definitely should be looked at and evaluated for whether or not they still achieve the things that they were meant to achieve, or did they ever achieve them and are there some things that are missing. And, you know, what I hope in both of those debates is that we don’t just listen to the same voices, and I put myself in that category.
I mean I’m somebody who comments on these things but, you know, we really need to hear more voices than those who have traditionally been part of the conversation.
Yves Faguy: Who would that be?
Jennifer Quaid:Well in particular I think we have to look to representatives of segments of society that don’t have a lot of representation yet. So I’m thinking we definitely need to hear from Indigenous partners, we need to hear from racialized communities, we need to hear from small business owners, we need to hear from specialists in privacy and data protection, AI specialists. So I mean I think there’s a bunch of people who need to be around the table, but it tends to be the civil society groups.
We don’t have a very well-supported and well-resourced set of institutes and, you know, think tanks. We have a few but not a lot and, you know, it would be – I think we just need more smart people thinking about this and they don’t have to come from – you know, I think that we just need more exchange of ideas. I don’t think anyone is going to have all the answers and everyone needs to be a little bit humble and a little bit willing to compromise because that’s the way forward. I know that sounds like a Nirvana sort of like description, but I think that’s the only way we’re going to get there.
Yves Faguy: But why do we have such a hard time bringing in those diverse perspectives? Is it just because, you know, competition law is one of these – I mean it is a little obscure to a lot of people?
Jennifer Quaid:Yes [laughs]. I mean –
Yves Faguy: Even though it’s getting kind of cool again.
Jennifer Quaid:Yeah. Well, you know, I think what’s happening south of the border is attracting some attention. I also think, you know, I mean it’s a bit of a chicken and egg problem. It’s a very specialized area and therefore there’s a very – you know, there’s a smaller group of people who are invested in it and then it tends to get framed that way and then it seems to – you know, the advantages tend to accrue to those who sort of participate in it.
And so there may be a perception from the outside that it’s futile to try to engage because you won’t get anywhere because the vested interests already hold so much power. And that’s why I think the current moment may be a moment to seize because it shuffles the cards a little bit because there’s a little bit more willingness to have this debate and because our partners internationally are also having this debate.
So, you know, I don’t want to overstate it, but I do think we’re in a moment where there’s a lot of things that are changing and that are in flux. So that’s a moment when maybe some who were unwilling or discouraged before from participating will become encouraged. I would also say that, you know, we certainly need some more kind of – I don’t know what the right word is, but support for just research in this area that isn’t necessarily tied to a constituency.
Just whether that’s through universities or think tanks or whatever, just more people thinking about these issues and not necessarily because there’s a bill that might be tabled but just because they’re keeping an eye on what’s happening. We need that kind of ecosystem, public policy ecosystem and maybe that there is more of an incentive to create that now. But I don’t have any magic answers.
Yves Faguy: I mean because, you know, we talked a little bit about, you know, the Chicago school of thought and a lot of what has guided our competition policy for a long time. Is that coming into question at all, do you see it coming into question at all? The Chicago school of thought being the sort of more, you know, free-market sort of orientation and perspective on competition law in general. But are you seeing it come into question a little bit throughout the Canadian landscape?
Jennifer Quaid:Yeah. Well, I mean what’s interesting about the Chicago school – I mean and it has been caricatured a lot and so I have to be a little careful about being too facile, right. There has been evolution in economic theory and even in the classical sort of Chicago school kind of perspective on things. I think what’s interesting is that Canada has always been a little more – they’ve hued closer to that perception than the Americans have in many regards.
And part of that I think is because in the U.S. with every new administration that comes in, you know, that the Attorney General for the DOJ, for example, can come out and shape enforcement policy through the issuing of these memos, right, and you’ve heard of some of them for sure. And so they’ve been able – even though, you know, legislatively nothing changes, they’ve been able to sort of culturally alter the perspective that’s being brought to how cases are analyzed and in Canada that hasn’t been as easy to bring about.
And I think some of it has to do with the fact that the bureau just doesn’t have the resources, but also that as a consequence of that they have to seek more collaboration and cooperation with stakeholders which really means those who might be subject to enforcement. And so they’ve been kind of held much closer to this Chicago school view than the Americans have and that’s just agency independence I think, or agency heft has allowed more flexibility south of the border than for us.
So I think we are getting to a point where that break is going to start happening but there’s going to be resistance. You know, the efficiencies defence I would not bet on whether it’s going to be eliminated or not, there’s going to be a fight over that.
Yves Faguy: Very interesting. Jennifer Quaid, thank you very much for enlightening us on this. Anyway I think, you know, judging by what we’ve been discussing at National Magazine, you know, it seems like competition law really is being discussed a lot and is beginning to be looked at from different angles. So it’s going to be interesting to watch.
Jennifer Quaid:Yeah. No, I’m really excited for the coming months and I’m cautiously optimistic that this will be a debate that’s good for Canada and good for Canadian competition and Canadian society generally.
Yves Faguy: Jennifer Quaid, thank you very much for joining us today.
Jennifer Quaid:Thank you.
Yves Faguy: Well we hope you enjoyed this episode of Modern Law, one of our CBA podcasts. You can hear this podcast and others on our main CBA channel, on Spotify, Apple Podcasts, Google Podcasts and Stitcher. Subscribe to receive notifications for new episodes, and to hear us in French listen to Droit Moderne. If you enjoyed this episode, please share it with your friends and colleagues. And if you have any comments, feedback and suggestions, feel free to reach out to us on Twitter @CBAnatmag and on Facebook, and check out our coverage obviously of legal affairs at nationalmagazine.ca. A big, big thank you to our podcast editor, ACD Production. We’ll catch you next month.