Introduction
While digital markets have been a focus of the enforcement and advocacy work of the Canadian Competition Bureau (the Bureau) for many years, they have gained specific prominence under Commissioner of Competition Matthew Boswell (the Commissioner), who was appointed for a five-year term on 5 March 2019. This increased focus aligns with broader government priorities to update the laws governing the internet and rebuild Canadians’ trust in digital markets, including commitments to protect consumers’ rights online and bring forward new regulations for large digital companies, as set out in the governing Liberal Party’s 2019 and 2021 election platforms.
The Bureau’s Strategic Vision for 2020–2024, published on 11 February 2020, which set out Commissioner Boswell’s vision for the Bureau to be ‘at the forefront of the digital economy’, emphasises this spotlight on digital markets. The Commissioner committed to creating a Digital Enforcement Office in July 2019.
In April 2021, as part of its 2021 Budget, the government committed to providing the Bureau, which had been hamstrung with budgetary constraints for years, an additional C$96 million over five years to enhance the Bureau’s ‘enforcement capacity and ensure it is equipped with the necessary digital tools for today’s economy’. Using these funds, the Bureau launched its Digital Enforcement and Intelligence Branch (CANARI), a team of competition specialists, intelligence experts, data scientists and data engineers that form a centre of expertise on digital business practices and technologies and that provide intelligence expertise for all directorates at the Bureau. CANARI stands for Competition through Analytics, Research and Intelligence, and it will be the Bureau’s high-tech version of the ‘canary in a coal mine’.
Mounting calls for reform
Shortly after Commissioner Boswell’s appointment in early 2019, he received a letter from the Minister of Innovation, Science and Economic Development, noting the need for the Commissioner to ensure that Canada’s competition infrastructure is fit for purpose and ‘responsive to a modern and changing economy’. The Bureau and others within government have been exploring this question of whether the Competition Act is fit for purpose over the past few years, and calls for reform of Canada’s competition laws have only grown stronger.
In April 2021, the federal Standing Committee on Industry, Science and Technology (the INDU Committee) held a series of four meetings to study competitiveness in Canada, Competition Act reform and related matters, and a second series of four meetings to consider the proposed merger of Rogers Communications Inc. and Shaw Communications Inc., two of Canada’s largest telecommunications companies. Certain sections of the Competition Act came under heavy scrutiny during both series of the INDU Committee hearings, including the efficiencies defence in Section 96 and the one-year statute of limitations on merger reviews. Providing the Bureau with the power to compel data from market participants for market studies was also discussed.
In June 2021, the Bureau convened a Competition and Growth Summit where the need for a ‘rigorous and comprehensive review of the Competition Act to ensure that it is fit for purpose’ was again recognised. The importance of addressing new issues arising out of digital transformation and the rise of large digital platforms acting as gatekeepers across a number of markets was identified as a notable challenge facing the Bureau and other competition authorities.
While no specific solutions were discussed, there was general agreement that competition authorities need to adapt their tools to these markets and may require additional powers and resources to carry out their mandates in this new reality. At the same time, significant emphasis was placed during the Summit on the need to promote competition to strengthen post-pandemic growth, ensure Canada’s competition law enforcement framework is robust and well-resourced, take advantage of opportunities for regulatory reform, and have the Bureau take advantage of all the tools it has available. Although digital markets were a major topic of discussion, these takeaways were framed to apply to markets broadly and not exclusively to online issues.
In October 2021, Senator Howard Wetston initiated a consultation ‘to promote additional dialogue on paths forward for Canadian competition law’ and commissioned a report on the state of the Competition Act in a digital era. Professor Edward Iacobucci found that ‘the Act is generally well-suited to addressing economic harms in digital markets’ because of its reliance on ‘general, flexible standards for assessing conduct’. Professor Iacobucci also identified opportunities for incremental substantive amendments to the Act, but cautioned that these ‘amendments do not result necessarily from the emergence of digital markets, and would be appropriate in any event.’
The Bureau filed a submission in response to the Wetston Consultation, which contained a comprehensive set of amendments it sought, which would overhaul the Canadian competition regime if fully accepted. The Bureau states that ‘the new, digital economy has grown a class of so-called ‘digital giants’ that ‘have obtained a high degree of influence across a wide range of economic activity’ through their actions ‘to collect, broker, and benefit from this new wealth of data’.
Proposed amendments include reducing standards to be met when analysing the anticompetitive effects of mergers, abuse of dominance and competitor collaborations; eliminating the efficiencies defence; and extending review periods to three years following a merger.
Specific to digital markets, the Bureau has proposed extending the time during which it can challenge a merger to three years, increasing monetary penalties to up to three percent of a company’s global revenues and reducing the burden of proof it must meet to challenge the acquisition of small companies such as tech start-ups.
The federal government introduced its 2022 budget on 7 April 2022, launching a preliminary phase in modernising the competition regime designed to address concerns in digital markets, including ‘fixing loopholes; tackling practices harmful to workers and consumers; modernizing access to justice and penalties; and adapting the law to today’s digital reality’. These changes were included in the budget implementation legislation, which was passed into law on 23 June 2022. Specifically, the amendments include:
- expanding the substantive scope of the Act’s abuse of dominance provisions;
- adding wage fixing and no-poach agreements as criminal conspiracy offences and removing the cap on potential criminal fines for conspiracies;
- formally adding drip pricing to the list of prohibited misleading advertising practices;
- significantly increasing administrative monetary penalties; and
- adding a new anti-avoidance provision for the Act’s merger notification regime.
Notably, a series of factors have been introduced, likely in response to sustained criticism by the Commissioner and other commentators of the Act’s inability to address anticompetitive actions by big-tech companies in digital markets, for the Tribunal to consider when assessing the impact on competition of an act or practice in the context of abuse of dominance and non-criminal agreements between competitors and mergers. These are:
- the effect of the practice on barriers to entry in the market, including network effects;
- the effect of the practice on price or non-price competition, including quality, choice or consumer privacy;
- the nature and extent of change and innovation in a relevant market; and
- any other factor that is relevant to competition in the market that is or would be affected by the practice.
Consultations are expected to be held on whether further even more substantive changes to the Competition Act are required to address issues in digital markets. The consultations could address issues that have long been sources of criticism, such as the efficiencies defence for mergers, or more recent items identified by the Bureau, such as amending the abuse of dominance standard from the substantial lessening or prevention of competition to one that includes prevention to capture conduct targeting emerging competitors in the digital economy.
Competition law is not the only tool in the government’s toolkit for addressing consumer harms in the digital economy: to date, the approach being proposed in Canada is multi-pronged, with four different federal regulatory bodies (the Bureau, a sector-specific telecommunications and broadcasting regulator, a privacy regulator and a Data Commissioner) enforcing laws that impact marketplace conduct in digital markets.
Before the 2021 federal election, legislation strengthening privacy protections and increasing the regulation of data and digital platforms had been introduced but died on the order paper. New legislation has since been introduced, including bills targeting the relationship between large digital companies and traditional news media companies, online streaming services, privacy and cybersecurity.
Enforcement in digital markets
In the Bureau’s Strategic Vision for 2020–2024, the Commissioner identified timely and proactive enforcement action as essential given the rapid pace of change in a digital economy. The Bureau’s record in this regard is mixed, however.
Mergers
Thoma Bravo Acquisition of Aucerna
The Bureau took the unusual step of unwinding a small acquisition of a digital software company in 2019. Thoma Bravo, an American private equity firm, acquired Canadian technology company Aucerna on 13 May 2019. Quorum Business Solutions, a portfolio company of Thoma Bravo, supplied specialised software to the Canadian oil and gas industry. This product, MOSAIC Reserves Software, was the closest competitor of Aucerna’s Value Navigator software.
Thoma Bravo notified the Bureau of the transaction on 13 February 2019, although it is unclear whether the transaction met the minimum thresholds in the Competition Act. After a three-month investigation, the Bureau indicated that it had concerns with the transaction, but the transaction nevertheless closed after the statutory waiting period expired on 11 May 2019. The Bureau filed an application challenging the transaction on 14 June 2019, following which a hold-separate agreement was filed on 24 July 2019 in respect of Quorum’s MOSAIC software, and a consent agreement on 20 August 2019. Pursuant to the consent agreement, Thoma Bravo agreed to spin off and sell the MOSAIC software to a Bureau-approved purchaser.
This case illustrates the Bureau’s focus on pursuing mergers below the minimum thresholds that raise competitive issues, particularly those involving the digital economy, as well as the Bureau’s power to unwind a transaction post-closing.
Rogers’ acquisition of Shaw
Rogers Communications announced its plans to acquire Shaw Communications on 15 March 2021. That same day, the Bureau announced its intention to review the transaction. The Bureau obtained court orders for information from industry competitors, including Xplornet Communications, BCE Inc., TELUS Corporation and Quebecor Inc., in July and August of that year. The Bureau also took the step of issuing a public request for information, seeking information from the public on specific areas of interest in September 2021.
In May 2022, the Bureau sought a court order to block the proposed transaction, alleging that ‘removing Shaw as a competitor threatens to undo the significant progress it has made introducing more competition into an already concentrated wireless services market’. The case remains before the Tribunal at the time of writing.
Abuse of dominance
Toronto Real Estate Board investigation
In a landmark dispute that began in 2011 and lasted more than seven years and touched on a number of issues common to digital market cases, the Bureau successfully challenged the conduct of the Toronto Real Estate Board (TREB) as it related to data. In particular, it was successful in setting a precedent on the control and use of data as well as the use of privacy and intellectual property as defences to abuse of dominance claims. The tension between privacy and competition was apparent in this case, where it was acknowledged that otherwise anticompetitive restrictions on access to and use of data could be valid if the restrictions were put in place to comply with privacy laws. The privacy justification was not accepted in this case.
TREB owns and operates a database containing current property listings and historical sales data, such as sold prices, for real estate transactions in the Greater Toronto Area, called Multiple Listing Service (MLS). The Bureau alleged that TREB was abusing its dominance by restricting access to, and the use of, MLS data by real estate agents. It further argued that TREB used its control of MLS data to protect its members from innovative products developed by current or potential competitors, including by restricting the use of virtual office websites.
The Competition Tribunal (the Tribunal) sided with the Bureau, the Federal Court of Appeal (FCA) denied TREB’s appeal, and the Supreme Court of Canada declined to hear an appeal of the FCA’s decision in 2018.
The TREB case illustrates that control of significant amounts of data can be a source of market power, and restrictions on access can be a barrier to entry. Further, as confirmed by the Tribunal, an organisation or company that controls data does not need to compete with the parties allegedly harmed by the conduct for there to be a finding of an abuse of dominance.
TREB argued that the limitations put in place on the access to and use of its data were justified as necessary to protect individual privacy and as a valid exercise of its intellectual property. The court rejected both arguments. On privacy, the court found that TREB had introduced the policies restricting the use of its data based on a desire to restrict competition and maintain control over the data, and that there was no evidence that the data restriction policies had been informed by TREB’s privacy policies. The court acknowledged that privacy could be a valid justification for limits on the use of, or access to, data if the limits were enacted to meet some regulatory or statutory obligation.
Regarding TREB’s argument that the restrictions were a valid exercise of its intellectual property in the MLS system, both the Tribunal and the FCA rejected this argument, finding that there was no copyright in the MLS database and that the Competition Act ‘precludes reliance on copyright as a defence to an anti-competitive act’.
Amazon investigation
On 14 August 2020, the Bureau announced its investigation into whether Amazon engaged and is continuing to engage in anticompetitive behaviour on Amazon.ca, its Canadian marketplace. The Bureau highlighted three specific areas of interest:
- any past or existing Amazon policies that may impact third-party sellers’ willingness to offer their products for sale at a lower price on other retail channels, such as their own websites or other online marketplaces;
- the ability of third-party sellers to succeed on Amazon’s marketplace without using its ‘Fulfilment by Amazon’ service or advertising on Amazon.ca; and
- any efforts or strategies by Amazon that may influence consumers to purchase products it offers for sale over those offered by competing sellers.
The abuse of dominance investigation is ongoing, and there has been no conclusion of wrongdoing thus far.
The Bureau previously investigated Amazon’s marketing practices, finding that representations made regarding the ordinary selling price of products on Amazon.ca were misleading. The investigation concluded with a consent agreement registered on 11 January 2017, and Amazon paying C$1.1 million in fines.
Deceptive marketing
Deceptive marketing has been a primary focus of the Bureau in recent years. Since Commissioner Boswell was appointed, the Bureau has been active in this area and concluded investigations into deceptive marketing practices in digital markets by way of registered consent agreements with FlightHub Group Inc.; StubHub Inc., Ticketmaster and LiveNation; and Facebook.
Facebook investigation
In a case highlighting the Bureau’s use of the Competition Act’s deceptive marketing provisions to address privacy concerns, the Bureau and Facebook ended an investigation into Facebook’s representations about the disclosure of personal information with a settlement agreement registered on 19 May 2020. Pursuant to the agreement, Facebook agreed to pay C$9 million in fines and an additional C$500,000 in costs.
From its investigation, the Bureau concluded that Facebook had given users the impression that they had greater control over access to their personal information than was actually provided; instead, access to personal information of users and their friends was provided to third party developers in a manner that was inconsistent with its privacy claims.
Facebook agreed not to make false or misleading representations about the disclosure of personal information, including about the extent to which users can control access to their personal information on Facebook and Messenger.
Facebook voluntarily cooperated with the Bureau in its investigation and entered into the settlement agreement noted above; however, an investigation by Canada’s Office of the Privacy Commissioner (OPC) on the same issues and seeking similar remedies has taken a different turn, with Facebook challenging the OPC’s application to federal court for a declaration that Facebook contravened Canada’s privacy law, the Personal Information Protection and Electronic Documents Act (PIPEDA).
FlightHub investigation
The Bureau concluded an investigation into online travel agency FlightHub by registering a settlement agreement on 24 February 2021, which included a C$5 million penalty against the company and a C$400,000 fine each for two of FlightHub’s directors. The agreement also prohibits FlightHub and its directors from making false or misleading statements or claims as well as requiring the removal of online reviews, which appear to be made by customers but were posted by the company and its employees.
The Bureau concluded that FlightHub had been misleading customers regarding the price of flights as well as the cost and terms of cancellation, seat selection and rebooking policies. FlightHub also made millions from fees that it actively concealed from consumers.
The FlightHub settlement agreement is notable for several reasons. First, the penalty is the largest levied for drip-pricing cases. Drip pricing is where a customer is shown a headline price, to which mandatory fees are then added. This form of deceptive marketing has been a significant priority for the Bureau. Second, this case represents the first time the Bureau successfully enforced rules against astroturfing – the practice of using fake reviews or engagement to create the impression of a large, supportive community of users or customers.
Other recent drip-pricing investigations involving digital markets include StubHub, which resulted in a C$1.3 million penalty in February 2020 and LiveNation/Ticketmaster, with a C$4.5 million penalty in June 2019, as well as investigations into the rental car industry, with penalties ranging from C$700,000 to C$3 million between 2016 and 2018. In addition, the amendments to the Act included in the 2022 budget implementation legislation formally added drip pricing to the Act’s civil and criminal misleading advertising provisions.
An advocate for competitive markets
While the Bureau’s enforcement record is somewhat limited, the Bureau has been actively advocating for competition in digital markets over the past few years. For example, the Bureau hosted a financial technology (fintech) workshop in February 2017, followed by a fintech market study published in December 2017 that looked at the reasons why Canada lagged behind peer nations in the adoption of fintech innovations.
The federal government introduced legislation in its 2021 budget, the Retail Payment Activities Act, which created a new retail payments oversight framework under the supervision of the Bank of Canada, including a registration process that may be subject to national security review and ongoing operating requirements. The legislation became law on 29 June 2021; however, the majority of the bill is not yet in force.
In January 2021 the Bureau provided comments to the Department of Finance’s Advisory Committee on Open Banking in support of competitive and innovative open banking regulatory design. The Advisory Committee on Open Banking’s final report was published in April 2021.
Similarly, with respect to digital healthcare, the Bureau launched a market study of Canada’s healthcare industry on 30 July 2020 to examine how pro-competitive policies can support digital healthcare through greater innovation, choice and access. The market study focuses on three broad topics:
- data and information, including whether there are barriers preventing access, use or sharing of healthcare data, and how those barriers can be reduced;
- products and services, including barriers restricting the range and scope of products and services, how to facilitate the development and approval of digital products and services, and the impact of procurement and commercialisation processes on innovation and competition in the digital healthcare market; and
- healthcare providers, including barriers limiting the ability of providers to deliver digital healthcare to patients as well as the impact of billing codes and compensation mechanisms, medical licensing rules and rules about the healthcare provider scope of practice on delivery of digital healthcare.
The Bureau will not be considering issues pertaining to privacy, digital infrastructure including access, or the appropriateness and efficacy of specific products and services as part of the market study.
With respect to telecommunications markets, the Bureau conducted a market study in 2018 into competition in Canada’s broadband internet sector and made submissions to the Canadian Radio-television and Telecommunications Commission (CRTC) in response to notices of consultation relating to mobile wireless services. The Bureau has also sought an order from the Tribunal blocking the acquisition of Shaw Communications by Rogers Communications, two of Canada’s largest telecommunications companies.
Interaction with other parts of government
The approach being proposed in Canada to the regulation of digital markets is multi-pronged, with four different federal regulatory bodies enforcing laws that impact marketplace conduct in digital markets. The re-election of the Liberal Party in September 2021, together with the Supply and Confidence Agreement signed with the New Democratic Party in March 2022, means that unrealised priorities of the previous parliament, including legislation to update the Broadcasting Act and PIPEDA, have been introduced and may pass into law in the coming years.
Bill C-11
Bill C-11, the Online Streaming Act, proposes to bring all audio and audiovisual content sent and received through the internet under the oversight and regulation of the CRTC. The bill would allow the CRTC to set conditions for online undertakings, including Canadian content requirements, regulate spending on Canadian content by categories or individual undertakings, and levy administrative monetary penalties (AMPs) of up to C$15 million. As of the 2022 summer recess, the bill has passed all three readings in the house and will be reviewed by the Senate in the fall.
Bill C-11 has faced significant and sustained criticism, as did a similar bill that was introduced in the previous session of Parliament but died on the order papers when the 2021 federal election was called. Legal and privacy experts have expressed concern about the bill’s discoverability requirements, whereby the CRTC would set rules requiring Canadian content to be prioritised and other content to be deprioritised in Canadians’ feeds. The goal of these requirements is to promote Canadian stories and content.
These requirements, it is argued, would have undermined the principles of net neutrality by obliging companies that provide content – such as Spotify, YouTube and Facebook – not to treat all content in a neutral, equal fashion. There is also concern that the discoverability requirement would threaten freedom of speech, as the CRTC would be able to mandate the targeted promotion or suppression of content uploaded by individuals onto social media platforms by the social media platforms themselves. The bill would exclude individuals who post content on social media platforms from being subject to CRTC oversight.
Bill C-18
The Online News Act was introduced in April 2022 with the stated purpose of regulating online platforms to enhance fairness in the Canadian digital media news marketplace and to contribute to the sustainability of the news media industry. It has passed second reading and was referred to the Canadian Heritage Committee, where it has not yet been taken up.
The legislation would create a framework requiring online platforms that are used to access news content to enter into agreements with news organisations to compensate the organisations for their content. The framework would apply to ‘digital media intermediaries’, which have a significant bargaining power imbalance with news media organisations. These intermediaries would be obliged to participate in a bargaining process with news businesses, acting alone or as a group, regarding the intermediary’s making available of news content produced by news outlets identified by the news businesses. There is a final offer arbitration backstop if the bargaining process fails.
The CRTC would be required to publish a code of conduct governing the bargaining process, including provisions addressing the obligation to bargain in good faith and addressing the information the parties will need to make informed business decisions. The legislation would also introduce AMPs of up to C$15 million and would permit the CRTC to disclose information to the Commissioner of Competition if the information is determined to be relevant to competition issues being considered in the proceedings or matter before the CRTC. Such information may only be used by the Commissioner of Competition to facilitate his participation in the proceedings or matter before the CRTC that led to the disclosure.
Conclusion
Steps taken by the government, including the Bureau, over past years demonstrate that the government has been exercising diligence in evaluating the various tools it has available to ensure proper functioning digital markets in Canada.
With some exceptions, the government is attempting to strike a balance between regulation that promotes trust and fairness in digital markets, while at the same time preserving and encouraging incentives to innovate. Building on actions and promises in its previous mandate, the government has moved decisively and appears positioned to take additional, substantive actions to address concerns through changes to the Competition Act and other legislative efforts.
Similarly, the Bureau has provided an aggressive set of policy changes that it would like to see implemented and is expected to focus the additional funding and resources it will receive from the government on digital markets. It remains to be seen the extent to which this wish list of amendments will be reflected in a future, substantive bill to update the Act.
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