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Consciously Perplexed: Coordinated Behaviour in Abuse of Dominance Policy

Carolyn McCarthy

TABLE OF CONTENTS Page Nos.

INTRODUCTION .........................................................................................................................2

SECTION 1. COORDINATED BEHAVIOUR ............................................................................3 1.1 Explicit Collusion .......................................................................................................4 1.2 Tacit Collusion ...........................................................................................................4 1.3 Conscious Parallelism ................................................................................................5

SECTION 2. THE TRADITIONAL VIEW ..................................................................................6 2.1 The Bureau’s Current Guidelines ...............................................................................6 2.2 The CANYPS and Interac Cases ................................................................................8

2.2.1 The CANYPS Case .........................................................................................8 2.2.2 The Interac Case ..............................................................................................9 2.2.3 Still No Answers ............................................................................................10

SECTION 3. THE BUREAU’S NEW APPROACH ..................................................................12 3.1 The New Proposed Guidelines .................................................................................12 3.2 The WSI / WM Consent Agreement .......................................................................12

SECTION 4. COORDINATED BEHAVIOUR UNDER THE OTHER TWO PILLARS OF CANADIAN COMPETITION LAW ............................................................................................13

4.1 Conspiracy ................................................................................................................14 4.1.1 Criminal Conspiracy ......................................................................................14 4.1.2 Civil Agreements ...........................................................................................16

4.2 Mergers .....................................................................................................................16 4.3 Merits of the Argument for Internal Cohesion .........................................................18

SECTION 5. THE EU APPROACH TO COLLECTIVE DOMINANCE ..................................19 5.1 The EU Treaty’s Article 82 ......................................................................................19 5.2 Theoretical Approaches to Collective Dominance ...................................................20

5.2.1 The Single Entity Approach ..........................................................................20 5.2.2 The Economic/Legal/Structural Links Approach ..........................................20

5.3 The DG’s 2005 Discussion Paper ............................................................................21

SECTION 6. THE POLICY IMPLICATIONS FOR THE BUREAU ........................................25 6.1 Unanticipated Consequences and Unanswered Questions .......................................25 6.2 Canada’s Wireless Industry ......................................................................................26

CONCLUSION .......................................................................................................................29

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Consciously Perplexed:

Coordinated Behaviour in Abuse of Dominance Policy I ntr oduction

The issue of coordinated behaviour in joint abuse of dominance has become increasingly

relevant in competition law policy discussions. The Competition Bureau (the “Bureau”)

introduced new proposed abuse of dominance guidelines that signal a more aggressive

enforcement of coordinated behaviour.1 In the proposed guidelines, the Bureau states that it will

now consider two or more firms to hold a jointly dominant position “where there are similar

practices”.2

This new proposed approach has some theoretical and practical difficulties. Of

particular concern is the notion of conscious parallelism and its potential to serve as the

foundation for a finding of joint abuse of dominance in Canada.

It is difficult to elaborate coherent guidelines, especially in areas where there has been very little

development in case law on the subject, and yet, it is even more important to have clear and

coherent guidelines in such areas. The issue of how to approach conscious parallelism in

oligopolistic markets is particularly difficult to resolve and it is an example of the ways in which

the Bureau’s new proposed guidelines could be theoretically and practically problematic.

This paper will discuss the Bureau’s new proposed approach to coordinated joint abuse of

dominance under several different angles. The first section will lay the conceptual groundwork

1 Competition Bureau Canada, Updated Enforcement Guidelines, Draft for Public Consultation, “The Abuse of Dominance Provisions (Sections 78 and 79 of the Competition Act)” (January 2009) [Draft Guidelines]. 2 Draft Guidelines, supra note 1 at 15.

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by explaining and defining certain types of coordinated behaviour. The second section will

outline the Bureau’s traditional view on coordinated behaviour under the abuse of dominance

provisions and discuss the two joint abuse of dominance proceedings that have come before the

Tribunal to date. In the third section, the Bureau’s new proposed guidelines will be discussed, as

well as a recent consent agreement case. The fourth section will examine the approach to

coordinated behaviour under the Competition Act’s (the “Act”)3

merger and conspiracy

provisions. We will also discuss the merits of internal cohesion. In other words, should there be a

cohesive approach under what is said to be the three pillars of Canadian competition law;

conspiracy, merger review and abuse of dominance? In section five, we will look to the

European Union and analyze the treatment of coordinated behaviour under Article 82 of the EU

Treaty, to see what lessons can be learned from their approach. The sixth section will contain a

discussion of some of the possible consequences of the Bureau’s new proposed approach,

identify some questions that should be answered and take a brief look at Canada’s wireless

industry. Finally, some suggestions for alternative approaches to the Bureau’s proposed policy

initiative will be made in the conclusion.

Section 1. C oor dinated B ehaviour

Coordinated behaviour can take various forms. It is present when actions taken by individual

firms influence the actions taken by competitors in a particular market. For example, if in raising

its prices, Firm A influences Firms B, C and D to raise their prices as well, the behaviour of all

four firms may be said to be coordinated. It is important to point out that coordinated behaviour

3 R.S.C. 1985, c. C-34.

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is not necessarily anti-competitive. Often it is simply a characteristic of a healthy, competitive

marketplace. However, coordination may have varying degrees, ranging from conscious

parallelism to tacit and even explicit collusion.

1.1 Explicit Collusion

In the case of explicit collusion, firms coordinate their actions through explicit agreements,

which can be written or verbal. Agreements or conspiracies to reduce competition may result

from explicit collusion and this type of consented action between competitors could, for

example, take the form of self-enforcing price-fixing agreements.4 Other examples of explicit

collusion include agreements to restrict production output levels or to allocate customers and

markets.5

1.2 Tacit Collusion

Tacit collusion is more difficult to identify, but its detrimental effects on competition can be just

as severe as those of explicit collusion. By definition, tacit collusion involves an absence of

explicit agreement between firms. Behaviour is coordinated tacitly, without direct

communication. Typically, firms will take independent actions, but these actions will be taken

with the full knowledge and understanding that their competitors, who are participating in the

collusion, are going to adjust their actions accordingly. As some authors have very aptly put it,

the difference between tacit collusion and explicit collusion is “the difference between a wink

4 Felix E. Mezzanotte, “Tacit collusion as economic links in article 82 EC revisited” (2009) Eur. Comp. L. Rev. at 4. 5 A. Neil Campbell & Omar P. Hamam, “Coordinated Behaviour and Conscious Parallelism Under Canadian Conspiracy, Abuse and Merger Law” (May 2003) (available online at mcmillan.ca) at 1.

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and a handshake […]”.6 As such, the examples of anti-competitive behaviour in our discussion

of explicit collusion could also be arrived at by firms through tacit collusion. Essentially, without

any explicit communication between them, competitors can arrive at an understanding by

communicating their ideas and signalling their intentions.7

From an evidentiary perspective,

however, tacit collusion can be more difficult to prove.

1.3 Conscious Parallelism

A third form of coordinated behaviour is conscious parallelism. The term is often used to

describe behaviour between firms in an oligopolistic market. Oligopolies exist where a small

number of firms dominate a market. Monopolistic firms in such a market will tend to coordinate

and act interdependently. The “oligopoly problem”, as it has been called, results from a small

number of firms acting in a parallel manner in a specific market in a way that adversely affects

competition, with the end result being harm to consumers.8 Such parallel behaviour may be

qualified as conscious parallelism. Coordinated behaviour is achieved because dominant firms in

an oligopolistic market recognize their interdependence and match, or adjust to, one another’s

behaviour.9 Conscious parallelism, while difficult to distinguish from tacit collusion, is

distinguishable by an absence of any form of tacit agreement or understanding.10

6 Ibid. at 2.

Many theorists

7 Thomas W. Ross & Andy Baziliauskas, “Lessening of Competition in Mergers under the Competition Act: Unilateral and Interdependence Effects” (2000) Can. Bus. L.J. 373 at 389. 8 Sophie Stephanou, “Collective Dominance Through Tacit Coordination: The Case for Non-Coordination Between Article 82 and Merger Control “Collective Dominance” Concepts” (October 2009) GCP: The Antitrust Chronicle at 3. 9 Ross & Baziliauskas, supra note 7 at 392. 10 Campbell & Hamam, supra note 5 at 2.

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on the subject consider conscious parallelism to actually be a natural, rational behaviour for

oligopolists to adopt, given the interdependence inherent in such markets.11

Section 2. T he T r aditional V iew

2.1 The Bureau’s Current Guidelines

The Bureau’s existing Enforcement Guidelines on the Abuse of Dominance Provisions12, which

were introduced in July 2001, explain that the Act clearly contemplates cases where a group of

unaffiliated firms possesses market power.13

A group of firms that collectively possesses market power may be able to coordinate its actions in a manner that allows the market price to be profitably increased above the non-coordinated price levels without the firms entering into an explicit agreement. Firms within an oligopoly normally base their decisions on how their rivals have behaved in the past. In addition, firms recognize that their current decisions may affect their rival’s future reactions. The fact that firms recognize these interactions over a longer time period results in competitive response strategies becoming more complex. It is possible for firms to act in a “consciously parallel” fashion, thereby achieving higher profits than would be the case in a competitive environment.

In these guidelines, the Bureau performs a brief

analysis of the market effects on firms within an oligopoly but states, however, that coordinated

behaviour in the form of conscious parallelism will not be sufficient for a finding of joint abuse

of dominance. The ways in which firms within an oligopoly can come to behave in a consciously

parallel manner, as described by the Bureau, are as follows:

14

11 See Ross & Baziliauskas, supra note 7 at 392. 12 Competition Bureau Canada, Enforcement Guidelines on the Abuse of Dominance Provisions (July 2001) online at: www.competitionbureau.gc.ca [Current Guidelines]. 13 Ibid. at 16. 14 Ibid.

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Furthermore, the Bureau clearly affirms that, in keeping with the jurisprudence relating to the

criminal conspiracy provisions at that time, conscious parallelism with respect to the abuse

provisions will not be condemned.15 According to the Bureau, “something more than mere

conscious parallelism must exist before the Bureau can reach a conclusion that firms are

participating in some form of coordinated activities”.16 Finally, on the issue of what we consider

to be tacit collusion, the Bureau’s position is that it can be dealt with under the abuse provisions.

Specifically, the Bureau states that “the ability of a group of firms to coordinate actions without

entering into an explicit agreement can be addressed under the abuse provisions”.17

One of the challenges with these guidelines is that there is no concrete guidance on how issues of

tacit collusion and conscious parallelism in joint abuse of dominance cases will actually be

addressed, other than the more general position that tacit collusion falls under the purview of

those provisions, but that conscious parallelism does not. How does one distinguish between the

two in an empirical way? And on what basis will the qualification of the coordinated behaviour

as tacit collusion or conscious parallelism be made? Will the analysis of the existing market

structure be a tributary for the qualification? These are some of the questions that the existing

guidelines raise and why they may, ultimately, be theoretically impracticable.

15 Ibid. at 17. 16 Ibid. at 16-17. 17 Ibid at 17.

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2.2 The CANYPS and Interac Cases

To date, there have only been two cases litigated before the Competition Tribunal that have dealt

with the issue of joint abuse of dominance. They are the “CANYPS”18 and “Interac”19

cases.

2.2.1 T he C A NY PS C ase

This case came before the Competition Tribunal in 1994 and related to telephone directories

commonly known as “Yellow Pages”. The respondents were telephone companies that generally

held regional monopolies. With regards to the telephone directory publishing side of their

business, the Director of Investigation and Research (the “Director”)20 submitted that, in their

respective territories, the Respondents controlled the telephone directory publishing market and

that together they jointly controlled this class of business for the purposes of subsection 79(1)a)

of the Act.21

At issue was an agreement entered into between the Respondents according to which national

advertisers were to be allocated amongst themselves “on the basis that the Respondent in whose

territory the head office of a national advertiser was located would function as the selling

company for the placement of any advertisements which that national advertiser placed”.22

18 Director of Investigation and Research v. AGT Directory Limited, CT-1994-002 (Competition Tribunal) [CANYPS].

Essentially, this agreement constituted an allocation of markets and an agreement not to

compete. The outcome of the case was that the consent order directed the Respondents to stop

19 Director of Investigation and Research v. Bank of Montreal et al., CT-1995-002 (Competition Tribunal) [Interac]. 20 The Commissioner of Competition replaced the Director of Investigation and Research as the person granted the statutory power to submit an application to the Tribunal. 21 CANYPS, supra note 18 (Statement of Grounds and Material Facts) at 3. 22 Ibid. at 5.

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engaging in these anti-competitive practices. One notable fact is that, because of the competitive

particularities of the telephone directory industry, the consent order left the door open for the

Director to make an “application to the Tribunal at a later date in respect of anti-competitive

practices or acts engaged in by the individual respondents in the conduct of their business”.23

2.2.2 T he I nter ac C ase

In 1995, the Director applied for a consent order as a result of an application submitted to the

Tribunal against an electronic banking network created by nine banking institutions, which

together made up the group of Respondents in the case. This banking network is more commonly

known as the “Interac” network and, at the time of the proceedings, ninety percent (90%) of the

shared cash dispensing transactions were made through the Interac network.24 The electronic

network services were provided through and controlled by one association, the Interac

Association, and the nine respondents were the founding charter members of the Interac

Association.25 Ultimately, the Interac network at the time, was the link between all automated

banking machines (“ABM”s) in Canada. As a result, the competition authorities did not consider

that there was a viable substitute for the shared network services provided by the Interac

network.26

23 Ibid. at 4. 24 Gilles Ménard, “Abuse of Dominance: Some Reflections on Recent Cases and Emerging Issues” (Remarks presented to the Conference of the Canadian Institute on Competition Law and Competitive Business Practices, 10 May 1996)(available at www.competitionbureau.gc.ca) at 5. 25 Ibid. 26 Ibid.

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The Director, in its application, alleged “that through their control over Interac and the enactment

of exclusionary by-laws governing membership in and operation of the network, [the

Respondents had] engaged in joint abuse of dominance contrary to section 79 of the Act”.27 The

Director alleged that the anti-competitive practices engaged in by the members of the Interac

Association included i) restricting access to the Interac network; ii) the creation of barriers to

product innovation; and, iii) access and service pricing.28

The consent order directed the Interac Association to, inter alia, amend the eligibility

requirements in their by-laws29 and revoke the by-law provisions imposing service access fees,

replacing the service access fees with a user fee.30

2.2.3 Still No A nswer s

As previously discussed, in both those cases, the existence of joint dominance was taken as a

given.31

27 Interac, supra note 19 at 1.

This was because there was an explicit agreement between the firms involved.

Furthermore, both cases ended with a consent order being issued by the Competition Tribunal.

As a result, because there has not yet been a fully-contested joint abuse of dominance case under

Canadian competition law, the Tribunal has not been in a position to render a decision that

establishes the requisite elements for a finding of joint abuse of dominance. In order to provide a

cohesive position on joint abuse of dominance from which the business and legal communities

can obtain guidance, a thorough policy initiative still needs to be undertaken.

28 Ménard, supra note 24 at 5. 29 Interac, supra note 19 at 10. 30 Ibid. at 13. 31 Current Guidelines, supra note 12 at 16.

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In speaking on the subject of the Tribunal’s recent joint abuse of dominance cases back in May

1996, the Deputy Director of Investigation and Research, Gilles Ménard, made the following

remarks:

One of the more interesting issues that emanates from the [CANYPS] application is the applicability of the abuse provisions to situations involving joint dominance. Given the jurisprudence on the words “one or more persons”, there was no difficulty in establishing joint dominance in the presence of an agreement in the [CANYPS] application. The more interesting interpretation of the words “one or more persons” would be to situations where an informal arrangement or even just parallel behavior exists. There is a wide spectrum of behaviour ranging from explicit agreements to situations of pure recognition of each other’s mutual interest which abuse of dominance provisions address. The frontiers of this section have not been tested yet. This is certainly a challenge that we would not hesitate to take on if the appropriate circumstances should arise.32

While those remarks were made in 1996, they demonstrate just how uncharted the issue of

coordinated behaviour in joint abuse of dominance cases was and still is. Given that there is not

yet any cohesive position, it may be a worthwhile exercise to look elsewhere for inspiration, in

order to establish a thorough policy initiative. Consequently, we propose, on the one hand, to

look at how these notions of conscious parallelism and tacit collusion are addressed under the

conspiracy and merger provisions of the Competition Act and to discuss the merits of internal

cohesion between what is often said to be the three pillars of Canadian competition law. On the

other hand, we propose to look at the EU’s approach to collective dominance. In order to

complete the picture, however, we will first briefly discuss the Bureau’s new proposed

guidelines on abuse of dominance and the recent Waste Consent Agreement.

32Ménard, supra note 24 at 4.

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Section 3. T he B ur eau’ s New A ppr oach

3.1 The New Proposed Guidelines

The Bureau’s new proposed guidelines definitely do not take the same position regarding

conscious parallelism, in that the type of discussion that was present in the existing guidelines is

no longer present in the proposed guidelines. As previously mentioned, the Bureau only states in

the proposed guidelines that it will now consider two or more firms to hold a jointly dominant

position “where there are similar practices”.33

In order to serve the important function of

assisting the business and legal communities to navigate the issue of coordinated behaviour, the

Bureau’s proposed policy objectives will need to be more fully elaborated.

3.2 The WSI / WM Consent Agreement

One case has come before the Tribunal since the new proposed abuse of dominance guidelines

were introduced.34

33 Draft Guidelines, supra note 1at 15.

This case is the first time the Bureau has applied the issue of joint dominance

to two independent firms, who were said to collectively hold a dominant market share. There

was no explicit agreement between them and there is no evidence that they were acting in a

coordinated manner. The consent agreement entered into by the parties (the “Waste Consent

Agreement”) was filed with the Competition Tribunal on June 16, 2009. The two waste

management companies involved were Waste Services (CA) Inc. (“WSI”) and Waste

Management of Canada Corporation (“WM”). They were operating in the Nanaimo district of

Vancouver Island and were said to have engaged in anti-competitive contracting practices.

34 The Commissioner of Competition v. Waste Services (CA) Inc. and Waste Management of Canada Corporation (2009)(Consent Agreement), CT-2009-003 (Competition Trib.) [Waste Case].

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What is of particular interest in this case is the fact that the joint dominance theory was applied

to two independent firms. The basis on which the Bureau determined their dominant market

share was “collective”.35

Together, WSI and WM were said to hold more than eighty (80)

percent of the share of the relevant market. No evidence of an agreement, even a tacit one, was

put forward. This seems to be the first time that “similar” practices formed the basis of an

application by the Bureau under section 79 of the Act. It would be interesting to know what

degree of coordination was involved with these “similar” practices. Where on the spectrum of

coordinated behaviour did these similar practices fall?

The lack of explicit agreement between these firms is said to reflect the “more aggressive

enforcement position from the Bureau with respect to joint abuse of dominance”.36

It is certainly

quite a contrast from the position the Bureau had previously taken under the existing guidelines.

There no longer seems to be any requirement that firms show some form of coordination. This

amounts to bringing conscious parallelism under the purview of the abuse of dominance

provisions without having elaborated on the theoretical basis for this change in policy.

Section 4. C oor dinated B ehaviour under the Other T wo Pillar s of C anadian C ompetition L aw

Conspiracy, merger review and abuse of dominance are commonly referred to as the three pillars

of Canadian competition law. Therefore, an analysis of the Bureau’s policy approach to 35 Waste Case, supra note 34 at 1. 36 George Addy et al., “Canadian Competition Bureau Steps up Enforcement against Joint Abuse of Dominance” National Magazine (August 2009) (available at http://www.cba.org).

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coordinated behaviour under the abuse of dominance provisions would not be complete without

also looking at the Bureau’s approach to the same issue in conspiracies and mergers. Should the

Bureau be adopting an approach to coordinated behaviour that is consistent between all three

pillars? Perhaps the Bureau’s merger and conspiracy guidelines can help shed light on the policy

approach that should be taken under the abuse of dominance provisions. In this section, we will

briefly outline the Bureau’s approach to coordinated behaviour as it pertains to conspiracy and

merger review and then discuss the merits of an internally cohesive approach.

4.1 Conspiracy

Important amendments to the Act’s conspiracy regime, which came into force on March 12,

2010, emphasize the distinction between criminal conspiracy and new civil reviewable matters

called civil agreements.

4.1.1 C r iminal C onspir acy

Criminal conspiracy under the Act is addressed at section 45. In anticipation of the coming into

force of the amended version of that provision, the Bureau issued new guidelines in December

2009.37 According to those guidelines, the types of agreements that fall under the purview of the

new criminal conspiracy provision are agreements “between competitors to fix prices, allocate

markets or restrict output that constitute “naked restraints” on competition”.38 The term “naked

restraint” denotes restraints that do not have a legitimate strategic or collaborative purpose.39

37 Competition Bureau Canada, Competitor Collaboration Guidelines (December 2009) at 6 (online at: www.competitionbureau.gc.ca) [Competitor Collaboration Guidelines].

Other types of agreements may still be punishable under the section 90.1 civil agreements

38 Ibid. 39 Ibid.

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provision, under certain circumstances. Those agreements are discussed in the following section

of this paper, section 4.1.2. The categories of agreements described in subsection 45(1) are per se

unlawful. Therefore, there is no requirement to prove any effect on competition as a result of

those agreements.40 The Bureau goes on to explain that in determining the existence of such an

agreement, one question that will be asked is whether the parties involved “reached a “meeting

of the minds”, either explicitly or tacitly […]”.41 Furthermore, this provision can apply even if

the agreement was not implemented and the Bureau explicitly states that covert as well as overt

agreements will be subject to punishment.42

With respect to the coordinated behaviour amongst competitors that can be qualified as

conscious parallelism, the Bureau states:

The Bureau does not consider that the mere act of independently adopting a common course of conduct with awareness of the likely response of competitors or in response to the conduct of competitors, commonly referred to as “conscious parallelism”, is sufficient to establish an agreement for the purpose of subsection 45(1). However, parallel conduct coupled with facilitating practices, such as sharing competitively sensitive information or activities that assist competitors with monitoring one another’s prices, may be sufficient to prove that an agreement was concluded between the parties.43

In light of these guidelines, it is possible to affirm that, while it is not necessary to have an

explicit agreement between parties for there to be a conspiracy, more than mere conscious

parallelism between competitors is required.

40 Ibid. at 6. 41 Ibid. 42 Ibid at 6-7. 43 Ibid. at 7.

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4.1.2 C ivil A gr eements

There is now a new provision, section 90.1, that pertains to civil agreements. The agreements

entered into under section 90.1 are not criminally punishable, nor are they illegal per se. Unlike

the new criminal conspiracy requirements, a demonstration that a civil agreement is likely to

substantially lessen or prevent competition is necessary. Furthermore, the section 90.1

agreements will be examined by the Bureau in a way that is consistent with the approach taken

under the Merger Enforcement Guidelines.44 The Bureau, in its guidelines, explains that, “[a]s

with subsection 45(1), the civil agreements provision can apply to all forms of agreements and

arrangements between competitors, regardless of degree of formality”.45 The Bureau will look at

whether the parties reached a consensus, either explicitly or tacitly. Yet, conscious parallelism is

still not considered sufficient. On that issue, the Bureau explains that it “does not consider that

the mere act of adopting a common course of conduct with awareness of the likely response of

competitors, commonly referred to as “conscious parallelism”, is sufficient to establish an

agreement for the purpose of section 90.1”.46

4.2 Mergers

Merger review policy under the Competition Act is concerned with the substantial lessening of

competition that can result from such a transaction. Section 91 of the Act broadly defines a

merger as “the acquisition or establishment, direct or indirect, by one or more persons, whether

by purchase or lease of shares or assets, by amalgamation or by combination or otherwise, of

44 Competition Bureau Canada, Merger Enforcement Guidelines (September 2004) online at : www.competitionbureau.gc.ca [Merger Guidelines]. 45 Competitor Collaboration Guidelines, supra note 37 at 19. 46 Ibid.

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control over or significant interest in the whole or a part of a business of a competitor, supplier,

customer or other person”. The fundamental test established by the merger review provisions is

whether the merger or proposed merger lessens or is likely to lessen competition in a specific

market. This lessening of competition can be achieved through coordinated behaviour.

There is very little that merger review can do to prevent anti-competitive market structures prior

to any proposed merger. However, as some authors explain, “merger review allows […] action

[to be taken] ex ante to prevent the change in market structure and dynamics that contribute to

[…] interdependence”.47

On the issue of coordinated behaviour, the Bureau’s Merger Enforcement Guidelines48

A merger may result in coordinated effects when a group of firms (that includes the merged entity), is able to profitably coordinate its behaviour because of each firm’s accommodating reactions to the conduct of others. The Bureau assesses whether a merger makes such coordinated behaviour among firms more likely or effective. Coordinated behaviour can involve tacit or express understanding on price, service levels, allocation of customers or territories, or any other dimension of competition.

state:

49

The guidelines, however, remain silent on the issue of conscious parallelism. Based on

the Bureau’s assertion that coordinated behaviour can involve tacit or express

understanding, conscious parallelism does not seem to be sufficient.

47 Ross & Baziliauskas, supra note 7 at 394. 48 Merger Guidelines, supra note 44. 49 Ibid. at 23.

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4.3 Merits of the Argument for Internal Cohesion

Each of the three pillars has its own role to play in Canadian competition law. Abuse of

dominance, for example, is concerned with pre-existing coordination, whereas the

merger review process is concerned with coordination that can result from a merger.

Furthermore, there are important differences in the burden of proof required to

demonstrate coordinated behaviour under each pillar. The burden of proof under the

criminal conspiracy provision is particularly high, requiring proof beyond a reasonable

doubt, whereas the burden of proof in relation to abuse of dominance is on the balance

of probability. The effect on competition is also evaluated differently. Agreements that

are not conspiracies or mergers can be examined under section 90.1, but they can also

be examined under the abuse of dominance provisions.50

There is no requirement to

demonstrate the effect on competition under section 45, whereas it is necessary to do so

under section 90.1. Under section 79 abuse of dominance, the negative effect must

affect a competitor in an exclusionary, predatory or disciplinary manner and have or be

likely to have a negative effect on competition.

This discussion, while not exhaustive, demonstrates some of the important differences

between the three pillars of Canadian competition law. These differences, however, do

not justify a different approach when dealing with coordinated behaviour, particularly

conscious parallelism. Therefore, there should be a cohesive approach between all three

pillars of Canadian competition law.

50 Competitor Collaboration Guidelines, supra note 37 at 2.

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Section 5. T he E U A ppr oach to C ollective Dominance

As has been the case in Canada, lawmakers in the European Union have struggled with

establishing a coherent theoretical framework for addressing coordinated behaviour in the case of

joint abuse of dominance, also called “collective dominance”.

5.1 The EU Treaty’s Article 82

Collective dominance under the EC’s Treaty51 is addressed at Article 82 which can apply when

one or more undertakings abuse of a dominant position. The term “undertakings” in the EC’s

Treaty is another word to describe firms. There are a certain number of elements that are

required in order to conclude that several undertakings are abusing their collectively dominant

position. A three-pronged test has been proposed by the European Court of Justice in the

Compagnie Maritime Belge judgment52 : (i) a collective position or collective entity, (ii)

dominance by that position or entity, and (iii) abuse by the collectively dominant position or

entity.53

It is particularly the first prong which merits discussion, as it falls within the subject

matter of this paper.

In order to conclude that two or more undertakings are abusing their dominant position, it is

necessary to establish that they are acting in a coordinated fashion in a particular market. There 51 Treaty of Nice, 2003. 52 Joined cases C-395/96 P and C-396/96 P, Compagnie maritime belge transports SA (C-395/96 P), Compagnie maritime belge SA (C-395/96 P) and Dafra-lines A/S (C-396/96 P) v Commission of the European Communities, 2000, ECR I-1365. 53 Frederic Depoortere & Georgio Motta, “The Doctrine of Collective Dominance: All Together Forever?” (October 2009) GCP: The Antitrust Chronicle; Lia Vitzilaiou & Constantinos Lambadarios, “The Slippery Slope of Addressing Collective Dominance Under Article 82 EC” (October 2009) GCP: The Antitrust Chronicle at 2.

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are two main approaches that can be used: the single entity approach and the

economic/legal/structural links approach.

5.2 Theoretical Approaches to Collective Dominance

5.2.1 T he Single E ntity A pproach

On the one hand, the single entity approach is based on the “presentation on the market

criterion”. This criterion is the predominant legal standard the EC courts have used to establish

that undertakings are collectively dominant.54 According to this criterion, firms that present

themselves on the market as a single entity can be found to be in a collectively dominant

position.55

A possible consequence of the “presentation on the market” standard could be that a number of

undertakings who together hold a collectively dominant position, but who do not present

themselves as a single entity cannot be found to be collectively dominant under Article 82.

Oligopolistic interdependence, or conscious parallelism, would therefore not be sufficient for a

finding of collective dominance under the single entity approach.56

5.2.2 T he E conomic/L egal/Str uctur al L inks A ppr oach

On the other hand, the economic/legal/structural links approach can also serve as the basis for a

finding of collective dominance. Such links can stem from cooperation or tariff agreements,

54 Depoortere & Motta, supra note 53 at 3. 55 Ibid. 56 Ibid. at 4.

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interconnections between undertakings, such as shared management and cross-shareholdings,

and even tacit collusion between undertakings in a tight oligopoly.57 In this last case, as one

author writes, “the concept of collective dominance is one that can apply where the relationship

between the abusing firm is one of tacit collusion; that is, where the market conditions are such

that there is effectively no competition between the firms and they act as one.”58 Ultimately, the

tacit collusion that results from the existing market conditions plays the role of economic link

between the undertakings involved.59

5.3 The DG’s 2005 Discussion Paper

The DG has also taken the position that tacit collusion can act as a foundation for collective

dominance in its own discussion paper. The DG states that “[i]n the case of collective dominance

the undertakings concerned must, from an economic point of view, present themselves or act

together on a particular market as a collective entity.”60 It is not necessary for them to act in an

identical fashion in every respect, but they must be able to adopt a common policy on the market

and act in a way that is independent of their competitors.61

The DG goes on to explain that the types of factors that can lead to a connection between

undertakings are factors such as cooperation agreements or links in law such as interdependent

57 Mezzanotte, supra note 4 at 3. 58 Stephanou, supra note 8 at 4. 59 Mezzanotte, supra note 4 at 2. 60 Commission of the European Communities, “DG Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses” (2005) at 9. 61 Ibid. at 16.

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ownership interests.62 These types of agreements or links in law, however, according to the DG,

are not necessary. The DG clearly states that a finding of collective dominance “may be based on

other connecting factors and depends on an economic assessment and, in particular, on an

assessment of the structure of the market in question. It follows that the structure of the market

and the way in which undertakings interact on the market may give rise to a finding of collective

dominance.”63

Coordination between undertakings in oligopolistic markets can be considered a connecting

factor sufficient for a finding of collective dominance. According to the DG:

Undertakings in oligopolistic markets may sometimes be able to raise prices substantially above the competitive level without having recourse to any explicit agreement or concerted practice. Coordination is more likely to emerge in markets where it is relatively simple to reach a common understanding on the terms of coordination. The simpler and more stable the economic environment, the easier it is for undertakings to reach a common understanding. Indeed, they may be able to coordinate their behaviour on the market by observing and reacting to each other’s behaviour. In other words, they may be able to adopt a common strategy that allows them to present themselves or act together as a collective entity. Coordination may take various forms. […] The ability to arrive at and sustain such co-ordination depends on a number of factors, the presence of which much be carefully examined in each case.64

The discussion paper goes on to establish three factors that must be examined. They are the

following: (i) each undertaking must be able to monitor whether or not the other undertakings are

adhering to the common policy, (ii) the implementation of the common policy must be

62 Ibid. at 16. 63 Ibid. 64 Ibid. at 16-17.

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sustainable over time , (iii) it must be established that competitive constraints do not jeopardise

the implementation of the common strategy.65

In our view, this type of common strategy, as

discussed by the DG, can be qualified as tacit collusion.

In our view, there are some problems with the DG’s reasoning. If tacit collusion can be the basis

for a finding of collective dominance, in the absence of any form of economic or structural link

between the undertakings, how does one prove tacit collusion and what are the required

thresholds in order to arrive at a conclusion that there is tacit collusion? By definition, tacit

collusion is the absence of an explicit agreement between parties. As previously mentioned, the

DG, in its discussion paper, argues that coordination between oligopolies, established through an

assessment of the structure of the market, can be a sufficient connecting factor. If one takes the

reasoning a step further, the market itself can become the justification for a finding of collective

dominance. When it is the market itself influencing the behaviour amongst competitors, in our

view, it is no longer a case of tacit collusion but rather a case of conscious parallelism. Even in

the absence of legal or economic links, oligopolistic interdependence, according to the DG’s

guidelines, becomes sufficient for a finding of collective dominance. In other words, if the

undertakings are adopting similar business practices in response to the existing oligopolistic

market structure, the competition authorities would simply have to add their individual market

shares in order for them to be found collectively dominant.66

65 Ibid. at 17.

There no longer would need to be a

demonstration of tacit collusion and a form of conscious parallelism in response to the existing

oligopolistic market structure would become punishable.

66 Ibid. at 6.

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The difficulties inherent in establishing effective policies and juridical tests to address the issue

of coordinated behaviour resulting from collective dominance, and tacit collusion and conscious

parallelism more specifically, are evidenced by the fact that the DG removed any mention of

collective dominance from the guidelines in its Article 82 enforcement priorities that were

published in 2009. These guidelines explicitly state that they relate only to abuses committed by

a single dominant undertaking.67

Therefore, in spite of the need for clear, effective policies on

the subject, the DG has abstained from providing any answers.

The EU courts have not been particularly helpful in resolving the issues either as, to date, there

has not been a case of collective dominance under Article 82 where the undertakings involved

did not have some type of contractual or structural link between them.68

Therefore, in spite of the more developed discussion of collective dominance in the DG’s 2005

discussion paper, very little guidance can be garnered from examining the EU’s approach under

Article 82. Perhaps the only lesson that should be taken from the DG’s approach would be to not

attempt to issue guidelines for an issue that is so fraught with theoretical pitfalls.

67 Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, (September 24, 2009) at para. 4. 68 Depoorterre & Motta, supra note 53 at 5.; Ibid.

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Section 6. T he Policy I mplications for the B ur eau

6.1 Unanticipated Consequences and Unanswered Questions

In our view, the Bureau’s proposed new policy approach needs to be more fully elaborated, as

there could be some uncertainty resulting from the proposed guidelines in their present form.

Uncertainty in the business world can have unanticipated, adverse consequences and we propose

to briefly mention a few of those possible unanticipated consequences. Firstly, if there is a risk

that any type of parallel behaviour can be considered sufficient under the abuse of dominance

provisions, firms may have an incentive to collude, since they will not be able to justify the

efforts required to ensure that they comply.69 Secondly, even if the result does not go so far as to

provide an incentive, the perceived risks associated with being found to have violated the abuse

of dominance provisions may produce a chilling effect on competition and impede healthy

competitive behaviour.70 Thirdly, another possible consequence could be that firms feel they

need to adjust their behaviour in such a way that it could not be perceived as being parallel,

coordinated behaviour. As a result, they may ultimately find themselves “having to take ‘non-

parallel’ actions that would be contrary to their individual economic interests” to avoid the risk.71

The legal and business communities need clear guidelines to assist firms in their business

planning. With that goal in mind, it may be useful for the Bureau, through its policy initiatives,

to answer some of the following questions. Concretely, what are the conditions that would have

to be present in order to conclude that there is joint abuse of dominance through coordination?

69 Vitzilaiou & Lambadarios, supra note 53 at 6. 70 Sandra A. Forbes & Anita Banicevic, “Abuse of Dominance: The New Frontier – Lessons Learned from Canada Pipe and the Road Ahead” (November 2005) (available at www.dwpv.com) at 17. 71 Campbell & Hamam, supra note 5 at 14.

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Could pre-existing conditions in the market be misinterpreted as coordinated abusive acts?72

How could an order be structured, where there is oligopolistic pricing, without having it amount

to price regulation?73

Developing some answers to these questions could help provide the kind of

certainty that the legal and business communities need. To assist in finding the answers,

lawmakers need to be plugged-in to the realities of the law’s application in the real world.

Therefore, let us look at Canada’s wireless industry as an example.

6.2 Canada’s Wireless Industry

Canada’s wireless industry is a prime example of an oligopolistic market, because it has three

main dominant firms which together hold a ninety-four (94) percent market share.74

Although

the market distribution may be changing as a result of new entries on the market, since the 2008

wireless spectrum auction, there is still limited spectrum available and this industry is still

fraught with competitive challenges. Many consider the dominant firms in this market to be

engaging in anti-competitive practices and yet a strong argument could be made in defence of

such a position. One could argue that the market is structured that way and that the oligopolistic

competitors’ coordinated behaviour is only coordinated to a degree that could be qualified as

conscious parallelism. In other words, it is a result of the existing market structure and not any

kind of express or tacit agreement or understanding between the dominant firms.

72 Ibid. at 18. 73 Paul S. Crampton, “The Law and Economics of Mergers and Abuse of Dominant Position” (Paper presented at the 1996 Annual Competition Law Conference) at 4. 74 CRTC Communications Monitoring Report, 2009, (available at http://www.crtc.gc.ca/eng/publications/reports/policymonitoring/2009/cmr55.htm) at 1.

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Legislative attempts have been introduced to address some of the purported anti-competitive

practices that exist in Canada’s wireless market. In Quebec, amendments to the Consumer

Protection Act75 came into force on June 30, 2010.76 Those changes are said to have been made

in part to “prohibit what [are] abusive business practices by communications service providers

like cellphone companies.77

Some of the new restrictions placed on cellular companies’

contracting practices include limits on the penalties that can be imposed upon cancellation of the

contract. Those penalties will no longer be allowed to exceed the value of the cellphone provided

when a customer signs a contract. Also, fixed-term contracts will not be automatically renewable

for more than sixty (60) days and contract terms will not be unilaterally modifiable. These new

restrictions, however, will only apply to contracts entered into on or after June 30, 2010.

This legislative initiative, however, is limited to contracting practices within Quebec and many

wireless companies operate nationally. Furthermore, while consumer protection legislation

protects consumers, many of the effects on competition that stem from anti-competitive practices

cannot be addressed by such legislation. Therefore, the Act may be a better-suited vehicle for

addressing the purported anti-competitive practices in Canada’s wireless industry.

In 1996, the Deputy Director of Investigation and Research, Gilles Ménard, affirmed that the

Bureau would not hesitate to take on the challenge of testing the frontiers of the abuse of

75 R.S.Q., c. P-40.1. 76 Bill 60, An Act to Amend the Consumer Protection Act and other Legislative Provisions, 2009, c. 51. 77 Kathryn Leger, “Little Guy Wins Big Under New Consumer Laws” The Gazette (July 2, 2010) online: Montreal Gazette <http://www.montrealgazette.com> .

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dominance section “if the appropriate circumstances should arise”.78

The “appropriate

circumstances” may just have arisen with the introduction of the Bureau’s new proposed

guidelines that signal a more aggressive approach to coordinated behaviour.

When AMPs were added to the abuse of dominance provisions, the Library of Parliament

report79 on the bill that amended the Act demonstrated that they were highly controversial, and

yet, one of the proposals put forward was that the Tribunal be authorized to impose AMPs of up

to $15 million for abuse of dominance by telecommunications service providers.80 In addition,

the Bureau’s new proposed guidelines expressly state that firms that are engaging in “similar”

anti-competitive practices can be considered jointly dominant for the purposes of the provisions.

Furthermore, new entrants on the wireless market, since the 2008 wireless spectrum auction, are

said to be facing new anti-competitive practices introduced by the dominant wireless firms.

Some of these new entrants have been focusing on expanding their market share in the lower end

of the market, for what has been termed the “bottom tier of the cellphone market”.81 In response,

dominant firms are introducing brands to compete in these same markets. As one new entrant has

claimed: “They’re coming in virtually trying to destroy the little guy”.82

78 Ménard, supra note 24 at 4.

The Act explicitly states

that such acts are anti-competitive practices, at paragraph 78(1)d), where it says that anti-

competitive acts include the “use of fighting brands introduced selectively on a temporary basis

79 Legislative Summary LS-552E, Bill C-41 : An Act to Amend the Competition Act (Ottawa : Library of Parliament Parliamentary Information and Research Service, 20 March 2007)(Revised 24 September 2007) [Report]. 80 Omar Wakil, The 2010 Annotated Competition Act (Toronto : Thomson Reuters, 2009) at 211. 81 Iain Marlow, “Wireless Upstart Slams Rogers over New Brand” The Globe and Mail (June 9, 2010) online: The Globe and Mail <http://www.theglobeandmail.com>. 82 Ibid.

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to discipline or eliminate a competitor”. Perhaps the frontiers of the abuse of dominance section

should now be tested with Canada’s wireless industry.

Conclusion

The difficulties inherent in making a judicially sound case against Canada’s wireless companies,

which is the likely reason why the Competition Bureau has not taken action, to date, suggest that

perhaps the abuse of dominance provisions may not be the appropriate forum for regulation of

coordinated behaviour in interdependent oligopolistic markets. There may be a more appropriate

basis for dealing with this type of consciously parallel behaviour.

Conscious parallelism is primarily a response to existing market conditions and the actions of

other firms in the market. The practices engaged in by firms in such a market are practices that

are widespread in that market and the Act regulates practices that are widespread in a market

under a number of the other reviewable practices provisions, in Part VIII. Therefore, the abuse of

dominance provisions should be reserved for coordinated behaviour that is more than mere

conscious parallelism and anti-competitive behaviour that results from conscious parallelism in

oligopolistic markets should fall under the purview other reviewable practice provisions.

Let us look at section 77 as an example. Although there is a certain degree of overlap between

section 77 reviewable practices - exclusive dealing, tied selling and market restriction - and

section 79 abuse of dominance, there are several reasons why section 77 would be a more

appropriate paradigm for dealing with those behaviours, when they are the result of consciously

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parallel behaviour between firms. Firstly, according to subsection 77(2), in order for the Tribunal

to make an order, even when exclusive dealing and/or tied selling are present, one of the other

conditions that must be met is that the practice be engaged in by a major supplier or be

widespread in a market. This could serve as the foundation for practices, such as conscious

parallelism, that result from the existing market conditions in an oligopolistic market. In contrast

with section 77, section 79 does not expressly apply where conduct is simply widespread in a

market.83

Secondly, it is very difficult to pinpoint where on the spectrum of coordinated

behaviour one would have to fall for the abuse of dominance provisions to apply, and yet, there

is no mention of a required level of collaboration under the section 77 reviewable practices

provision. Thirdly, section 79 does not use general multi-firm type phrasing. Rather, it ties the

concept of joint abuse to persons who together control a class of business. Yet, general multi-

firm type phrasing would more aptly describe the coordinated behaviour that constitutes

conscious parallelism.

Lastly, and perhaps more importantly, the penalties that can be imposed under the abuse of

dominance provisions can be much more serious than those under the reviewable practices

provisions. Specifically, the Tribunal may order that administrative monetary penalties (“AMP”)

be paid for violating the abuse of dominance provisions. Such AMPs are not one of the available

penalties under section 77. A firm in an oligopolistic market is reacting to the existing market

structure by engaging in consciously parallel behaviour. If that firm had a low market share, for

example, and did not think that they were dominant in any way, but could be considered with

83 Wakil, supra note 80 at 210.

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others to be jointly dominant, it could conceivably be punished for responding to other

competitors’ actions. The abuse of dominance provisions govern behaviour that is not inherently

anti-competitive. It only becomes so once the Tribunal concludes that it is,84

and the Tribunal, in

examining section 77 reviewable practices, is not precluded from also determining whether there

has been abuse of dominance. Given that the statutory penalties are more serious in the case of

abuse of dominance, the concept of “joint” dominance under section 79 has to mean something

more than mere conscious parallelism. For all these reasons, an alternative approach to conscious

parallelism may be in order.

The impact on a market from coordinated behaviour will be very similar, whether it is the result

of explicit collusion, tacit agreement or even conscious parallelism. However, conscious

parallelism, as discussed, is typically a response to existing market conditions. Is this similar

impact sufficient for conscious parallelism to be covered by the abuse of dominance provisions?

After all, as section 1 of the Act states, its purpose is essentially to maintain and encourage

competition so as to promote the efficiency and adaptability of the Canadian economy, ensure

that businesses have an equitable opportunity to participate in the Canadian economy and

provide consumers with competitive prices and choices. If the economic effect is the same,

perhaps the degree of active firm involvement should not be a factor. Yet, one should be

concerned about the consequences of a finding of abuse of dominance. They are potentially too

severe not to ask whether the conscious parallelism we have been discussing should be included

as a form of coordinated behaviour that is punishable under the abuse of dominance provisions.

84 Report, supra note 79 at 6.

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Until a more viable policy for dealing with coordinated behaviour, such as conscious parallelism

in cases of abuse of dominance, can be elaborated, the legal and business communities in Canada

will just have to remain consciously perplexed.