Over the past week, the Commissioner of Competition has made a number of comments relevant to big tech companies and the digital economy. These comments were made on a panel at the Data Forum Discussing Competition Policy in the Digital Era in Ottawa on May 30th, at a conference hosted by the Organisation for Economic Co-operation and Development in Paris on June 3rd and during an interview with CBC News. The key comments are summarized below.
Competition Bureau to Monitor Acquisitions by Big Tech Companies
As noted in our recent blog post titled “Competition Bureau Expands Merger Investigation Activities”, the Commissioner announced that the Competition Bureau has placed more focus on identifying non-notifiable mergers that could potentially raise competition law concerns. In fact, according to the Commissioner, the Bureau has already detected two potentially problematic non-notifiable transactions that it is now reviewing.
At the time this initiative was announced, the Commissioner did not identify which sectors of the economy the Merger Intelligence and Notification Unit would be focused on. However, the Commissioner recently stated that the Bureau would be more vigilant about monitoring the acquisition of small firms by big tech companies.
The Bureau’s focus on these types of transactions should come as no surprise, particularly given that such acquisitions touch on two priority areas for the Bureau – namely innovation and the digital economy. The policy rationale behind the increased scrutiny is understandable. For example, over the past 10 years, the five largest digital companies in the world have acquired over 400 firms globally. None of these acquisitions were blocked, and very few had conditions attached to approval or were reviewed by competition authorities at all (see Unlocking Digital Competition: Report of the Digital Competition Expert Panel). The Bureau’s focus on the digital economy is also consistent with recent actions by the U.S. antitrust agencies.
While it is recommended that parties to non-notifiable mergers always perform a pre-merger assessment of the potential anti-competitive impact of their proposed transaction, this is especially important where a big tech company is proposing to acquire a small start-up firm. Moreover, if the assessment identifies potential competition concerns, the parties should discuss the pros and cons of providing advance notice to the Bureau. This is a complex topic that involves the consideration of a number of factors, including the likelihood of complaints from market participants.
Commissioner Critical of Efficiencies Defence
The Commissioner stated that the efficiencies defence, which prevents the Competition Tribunal from making an order where it finds that the efficiencies likely to arise from a merger are greater than and offset its anti-competitive effects, is “particularly ill-suited to the digital economy”. Among other things, the Commissioner noted that (a) the defence “is poorly adapted to take into account dynamic competition”, which the Tribunal described as “the most important type of competition” in its decision in the Toronto Real Estate Board case; (b) the Commissioner’s burden of quantifying non-price effects (including those resulting from a reduction in dynamic competition) is much more difficult than the merging parties’ burden of “estimating cognisable efficiencies such as savings from cutting duplicative jobs”; and (c) “[c]ompetition in the data-driven economy in particular has many different characteristics from traditional types of markets for the export of goods.”
While the Commissioner has acknowledged that “the efficiencies defence is a reality in Canadian competition law”, his comments suggest that he may be skeptical of this defence in the case of transactions involving the digital economy – especially when the balancing exercise involves the consideration of non-price effects and dynamic competition. In these cases, it may be more difficult for the parties to establish to the satisfaction of the Commissioner that the defence has been met.
Other Points Relevant to the Digital Economy
The Commissioner has also made a number of other points applicable to the digital economy, including the following:
- The Federal Government should increase penalties to more effectively deter anti-competitive behaviour and promote compliance by tech giants and other firms in the digital economy. According to the Commissioner, “[t]he maximum penalties for anti-competitive behaviour are, quite simply, not high enough in Canada” and “lack the teeth necessary to deter anticompetitive behaviour, particularly when you are talking about large, multinational tech firms”.
- While Canada’s competition law is “generally up to the task” of dealing with big data, the Bureau needs new tools in the context of the digital economy. In particular, the Commissioner noted that there are “several gaps” in the competition regime “that simply don’t measure up to best practices”. For example, the Commissioner noted that the Bureau lacks the power to conduct market studies and to compel the production of information for purpose of such studies.
- Countries have to work together to deal with the challenges of tech giants and the digital economy. In this regard, the Commissioner stated as follows: “The rapid rise of the borderless digital economy is a truly global phenomenon, which requires competition authorities to collaborate and cooperate on an almost daily basis. I believe that the best way to look at global conduct that may cause concern is by taking a globally-coordinated approach to enforcement.”