OTTAWA — With the launch Thursday of a long-awaited review of competition policy in Canada, the Liberal government is putting a lot on the table. 

Over the next few months, Ottawa will consider rewriting the Competition Act to apply more directly to digital business models and overhauling the rules governing mergers and acquisitions. The review comes as price inflation and service disruptions have both lawmakers and consumers training their ire on corporate Canada, and amid a global push to update antitrust laws. Here’s what you need to know.

Rules for the internet age: A 125-page discussion paper Innovation, Science and Economic Development Canada (ISED) published Thursday notes that the country’s current competition law rests on policy pillars erected in the 1970s and 1980s. That’s before Amazon’s everything store or Google became the generic term for searching online.

Some policy experts have called for competition rules to be updated accordingly, citing new laws and enforcement strategies in the U.S., U.K. and EU. Ottawa promised the review in April’s federal budget, following calls from current commissioner Matthew Boswell. Thursday’s much-anticipated paper will help set the terms of the debate over any changes, and signals what Ottawa may be planning.

Thursday’s discussion paper is “more directive” than Ottawa’s last review of antitrust policy, which culminated in a June 2008 report, according to Subrata Bhattacharjee, national chair of the competition and foreign investment review group at the law firm BLG. The government is “putting issues on the table and then seeking feedback” on specific proposals, rather than simply soliciting ideas. 

Canada’s current laws are “deficient or unimaginative about” the “challenges of data and digital markets,” said Vass Bednar, executive director of McMaster University’s Master of Public Policy Program, noting the paper addresses those issues. 

A digital firm’s growth into a tech giant may not cost customers in the form of rising prices, since it may offer its marquee services for free, or cheaper than traditional alternatives. But some consumer advocates and small businesses have expressed concern about some business practices like self-preferencing, where a platform prioritizes its products over those of other vendors they also host, and copycatting, where it uses seller data to inform its own offerings. For example, the Competition Bureau is investigating Amazon’s behaviour with third-party businesses selling via its marketplace.

If the bureau believes a company is abusing its dominant position in a particular sector or market, it currently must pass a “relatively onerous” test before it can take action, the discussion paper notes. Ottawa will consider modifying that requirement to let the regulator act if it believes a firm is trying to reduce competition, or if its practices could have that effect.

While these business practices are increasingly evident in the digital economy, “our policy interventions can’t over-focus on these large technology firms,” she said; a February study commissioned by ISED that Bednar co-authored noted, for example, that grocers may self-preference to benefit their private-label brands. 

The paper suggests Ottawa may see need for “a specifial set of rules … to apply to things digitally,” said Bhattacharjee. The EU has similarly written tech giant-specific laws in the Digital Markets Act, which requires “gatekeeper” platforms to open up data, features and networks to third-party vendors. Bhattacharjee noted the federal government has previously created sector-specific rules within the Competition Act, such as for the airline industry in June 2002. “There is some precedent.”

Let’s make a deal, part one: The paper also contemplates changes to how regulators approach M&A in the tech sector. Silicon Valley’s tech giants in particular have bought hundreds of startups, using their then-valuable stock and rich balance sheets to enter new markets. Skeptical lawmakers have deemed some of these deals “killer acquisitions”—meaning they’re done specifically to stifle or co-opt an emerging or potential competitor. 

The value of such deals could easily fall below the current $400-million threshold over which firms must notify the bureau, the paper states. The regulator must also typically spot any anti-competitive outcomes within a year if it wants to take action. Ottawa is considering lengthening that deadline, possibly to three years. And it could also force more firms to notify the bureau of their M&A activity about smaller deals if they operate in a sector the government considers sensitive. 

Some antitrust experts caution that limits could have unintended consequences. . Many of the smaller, innovative companies that are the target of so-called killer acquisitions would never have been founded if an eventual sale weren’t an exit option, because financiers wouldn’t back them, noted Melanie Aitken, co-head of Bennett Jones’s competition and foreign-investment practice, in a February interview with The Logic. “They went into this not to compete with Facebook, [but to] cash in on their sweat equity.”

Let’s make a deal, part two: The Competition Act’s “efficiencies defence” lets companies combine even when doing so removes choice or increases prices, if it also creates cost savings for the firms and other organizational benefits. And if the regulator tries to prevent a merger it requires them to prove with numbers that the negatives outweigh the positives. Competition commissioner Matthew Boswell has taken aim at the provision. It’s among the rules that enable “high levels of economic concentration—even monopolies—in the Canadian economy,” he told the Canadian Bar Association’s (CBA) competition-law conference in Ottawa last month.

Policy watchers have predicted Rogers and Shaw may invoke the efficiencies defence in their ongoing merger attempt, which the telecom firms forecast would create over $1 billion in annual “synergies,” and which the bureau is attempting to forestall.

ISED’s paper cites the “added importance of non-price competition in the digital economy,” noting that the impact of “more abstract concepts such as privacy and innovation” may be particularly hard to litigate. Ottawa is considering how to give those factors more weight, or limiting the efficiencies defence to certain types of mergers, where consumers or suppliers wouldn’t face any fallout.

The CBA opposes new limits on the use of the efficiencies defence. Some lawyers argue it isn’t the deus ex machina that critics describe it as, rescuing otherwise anti-competitive deals from being blocked. But even if they disagree on how the defence should be changed, many stakeholders agree it’s time for Ottawa to review it. 

Bhattacharjee said the efficiencies defence is high on the list of provisions most likely to be changed when the government puts forward legislation after the consultaiton.

Doing the research: Boswell has also repeatedly asked to be given the ability to force firms to turn over information the regulator can use to study a sector for possible competition issues. At Innovation Minister François-Philippe Champagne’s direction, the bureau recently began looking into the grocery business, but noted it would be limited by the lack of those powers.

The regulator’s peers in other countries have trained such market studies on the digital economy. In November 2020, following a review, the U.K. government unveiled plans for a regulator to enforce a new code for large tech platforms that sell digital ads, like Facebook and Google. 

The paper suggests the bureau could be given the expanded market-study powers; more limited ones it could use only when asked to by lawmakers or courts; or powers confined to specific circumstances or types of information. 

But the current system goes far enough, according to the CBA, which expressed concern that sector reviews could be used as “fishing expeditions.”

Speak now: ISED’s discussion paper kicks off a consultation that will run through the end of February. Competition lawyers and policy experts have already gone through a rehearsal for the debate that’s about to ensue, in a consultation run by then-senator Howard Wetston late last year. 

In a tweet, the bureau welcomed the launch of the review. “Our economy is changing and markets are modernizing,” it said. “Our tools to promote and protect competition need to reflect that.”

The point of it all: Some policy observers have called for competition laws and regulators to consider issues like privacy, sustainability and labour issues, a more expansive approach its opponents have labelled “hipster antitrust.” ISED’s discussion paper notes the government welcomes feedback outside of the language of the act itself, soliciting suggestions on other areas of federal policy.

“People talk about competition all the time” without using the word, said Bednar, calling the invitation for other ideas encouraging. It will let stakeholders generally concerned about the economy but not engaged on competition issues feel heard, according to Bhattacharjee. “Now the discussion turns to what the law is ultimately for,” he said. While the discussion paper lays out the scope of the review, “it’s always an open question as to what happens from the consultation to actual legislation to the court.”