Advancing Competition in a Changing Marketplace

Speech

Remarks by Interim Commissioner of Competition Matthew Boswell

Global Series 2018
October 10, 2018
Ottawa, Ontario

(As prepared for delivery)

Thank you. I’m pleased to be here to speak with you today.

Thank you Makan, for your thoughts on these important issues. They are particularly relevant to businesses, the legal community, academia and governments around the world and to all of you who are gathered here today.

Every day we see the world evolving at a rapid pace, thanks to innovation.  Development of new technologies, ways of doing business and the creation of new products have the potential to open up new areas of science, medicine and technology. Small steps lead to bigger steps.  And here in Canada, we have to be ready for both the challenges and opportunities that this is bringing to all of us.

Let’s understand what we are up against. Every year, innovation in the top industrialized countries is tracked by leading authorities on the subject. And here’s what they report about Canada in 2018.

On the plus side, Canada performs better than some others in four big areas: Human Capital and Research, Institutions, Infrastructure, and Market Sophistication.

From there, the news gets a little grey. Overall, we rank 17th among 47 high-income countries. That’s like getting a B-minus report card.

We score lower on three measures: Knowledge and Technology Outputs, Business Sophistication and Creative Outputs.

In other words, there’s a gap between what we put in and what we get out of our innovation efforts.

So why the gap?

At the Competition Bureau, we’ve asked ourselves that question and have considered carefully what we can contribute to help solve this innovation dilemma. After all: innovation in the economy is a priority for the Government of Canada. It’s an all-hands-on-deck challenge.

So for the Bureau, our innovation focus is on building our knowledge base and strengthening our enforcement capacity.

Why we do this is what’s really important to understand.

Imagine a well-functioning economy as the Starship Enterprise, with innovation thriving thanks to strong, unimpeded competition.  Captain Kirk will take risks, forge ahead and break new ground – sometimes in a disruptive fashion. Mr. Spock, on the other hand, ensures rules are followed, in a logical and predictable fashion. Just like Spock and Kirk, competition and innovation work better together.

Competition drives businesses to innovate and helps spread the gains they make throughout the economy. On the other hand, if competition is impeded, the economy may be harmed. Conduct or mergers that may harm competition are like roadblocks that could hold back innovation.

The Bureau helps clear those roadblocks. We do that by administering and enforcing the law. Fairly. And predictably. That means:

  • taking action against anti-competitive behaviour and deceptive marketing practices;
  • reviewing mergers to ensure they don’t hurt competition; and
  • empowering consumers and businesses.

And what about innovation? Why do we care so much about it? You don’t have to look far to find the answer.

The huge gains made from innovation create a lucrative race to the top. Those that innovate are often rewarded with a larger market share. We see plenty of examples in businesses worldwide about how to do that.

In Amazon’s early days, Jeff Bezos channelled company profits back into research and development, fuelling innovation there. Chatting with Alexa and having groceries shipped to your door are just two of many outcomes.

Apple famously steered their way back from bankruptcy by pledging to “innovate our way out of this.” By executing on that pledge, they changed the way we think about mobile phones and computers.

In the music industry, Spotify launched a freemium streaming application in 2008. Today, music streaming is the norm in how we listen to music online and share it legally with others.

We’ve never before been this deeply connected across the country and around the world—doing more with data and turning it into knowledge. Globally we’ve never before seen such overall improvements in education, life expectancy and quality of life as we have in just the last forty years.

The Government has a role in creating the right climate for bold ideas to take root and grow. One way this is done is by passing and enforcing competition and intellectual property laws.

Let’s take a minute and talk specifically about the Bureau’s approach to enforcement and advocacy for competition, innovation and intellectual property.

First, we reduce barriers to entry. That means those entering the market are less likely to be shut out by bigger existing firms. And those who are thinking of entering don’t see roadblocks that deter them from giving it a shot.

Next, we make it easier for those newcomers to grow and for incumbents to innovate. That sometimes means preventing mergers that would otherwise significantly lessen or prevent competition. That way, incumbents have an incentive to invest in innovation so that they can compete on the strength of their product or service.

At the Bureau, we support those businesses who seek to compete by legitimate means. Here are a couple of recent examples that support our approach.

Bayer/Monsanto

You may be familiar with the $66 billion USD Bayer/Monsanto merger that closed earlier this year. Here in Canada, we had significant concerns about the potential impacts on innovation in the agricultural sector particularly in respect to the supply of canola.

Canola has strategic importance to the Canadian economy. It’s our highest acreage crop, contributing $26.7 billion annually to our economy. Our analysis concluded that the rivalry between Bayer and Monsanto in the supply of canola seeds would have been eliminated. This could have led to a combination of increased prices for growers and a reduction in research and development of specific canola varieties.

Ultimately, we identified the roadblocks to innovation that likely would have led to consumer harm. And we obtained a remedy to avoid that outcome.

Toronto Real Estate Board

Turning to the real estate sector, we recently won a hard-fought case against the Toronto Real Estate Board, or TREB, for anti-competitive conduct that stifled innovation.

Back in 2011, we brought an application to the Competition Tribunal because we saw TREB had placed restrictions on member access and use of real estate data in the Toronto market.

TREB allowed its members to share data with clients by hand, email, or fax. However, it prevented the same data from being displayed online through secure portals, where brokers could provide information on listings to their customers and clients.

TREB also prevented its members from using this information to innovate. In effect, holding back the development of sophisticated analytical tools that buyers and sellers were crying out to have.

As we see it, TREB’s practices had a direct impact on new and innovative business models and services: ones that were a competitive threat to certain TREB members. So we took legal action. And we won.

In 2016, the Tribunal found that TREB’s rules amounted to an abuse of their dominance. And in August of this year, the Supreme Court of Canada decided to not hear TREB’s appeal. Case closed. It marked a big win for competition, for consumers and for innovation.

It’s worth noting that the TREB case also presented questions and challenges related to the enforcement of the Act on matters of intellectual property. TREB argued that its restrictions were the mere exercise of its intellectual property rights and therefore was not subject to the abuse of dominance provisions.

These arguments were not successful. Both the Competition Tribunal and the Federal Court of Appeal found that TREB had not proved the existence of its copyright. And the Tribunal and the Federal Court found that TREB’s conduct in attaching anti-competitive conditions to the use of its intellectual property did not benefit from the statutory exception that relates to the exercise of IP rights.

The outcome here is that we unravelled anti-competitive practices to allow competition and innovation to flourish.

Addressing the growth and use of big data 

Next, let’s turn to what the Bureau is doing as a law enforcement organization in the area of big data. This industry is bigger than ever, and it’s growing at a fast pace. Technology companies that use it extensively are among the biggest in the world: Google, Amazon, Facebook, Apple—to name just a few.

There has been a lot of talk about how they use this data. And there has been a lot of active enforcement in the area, too.

For example, we’re all familiar with the European Commission’s recent record-breaking $5 billion fine against Google for breaking their antitrust laws. And more recently, the EC announced they have begun a preliminary investigation into Amazon’s use of data from merchants that sell through its online platform.

For competition enforcers, big data must be an important consideration at the front-end of our work: not an afterthought.

Consistent with that way of thinking, in September 2017 the Bureau released a white paper examining key competition policy and enforcement themes related to big data. Our goal was to spark a discussion and identify the challenges of analyzing big data cases.

We learned a lot. In particular, that there’s no need for hasty moves in this area. The current competition framework is up to the task.

Our review showed us there’s ample theorizing about the many potential ways competition and efficiency could be harmed by big data.

But antitrust enforcement ought to require more than theory. It needs evidence first to justify action. If competition is being harmed in the marketplace, we’ll act. If competition is not being harmed, we won’t.

A recurring concern is about how large some of these firms have become. But big doesn’t necessarily mean bad. We will only take enforcement action if there’s evidence showing anti-competitive conduct that’s hurt competition and consumers in the market.

To act without evidence could cause more harm than good. To do no harm is our prime directive.

Advocacy work as a vital contributor to innovation

So far, I’ve talked about how the Bureau is taking enforcement action to uphold the law so that innovation can flourish. There’s another area of activity we pursue to achieve that end. And that’s by advocating for competition.

We want to open up a broader dialogue to ensure that competition is not throttled by regulatory overreach. And to make sure the spark of innovation isn’t dampened by old ideas about regulation.

Regulation needs to keep pace with the needs of the marketplace. It should be evidence-based and not overly restrictive.  In doing work like market studies and white papers, the Bureau is moving the conversation forward with regulators, policy makers and stakeholder groups. We do this so we all have a deep understanding of the issues at play today. So we can evaluate the impact that their activities may be having on competition.

For example, we recently took a look at regulations in the eyewear industry and how they may be having an impact on consumer access to prescription eyewear.

Currently, Canadians can purchase prescription eyewear online, at a retail store, or from an eye care professional. However, there is a patchwork of different regulations across the country and ongoing litigation that could be having a negative impact on how online retailers operate.

It’s clear that Canadians want more choice and access to options. The conversation should focus on how to remove or reduce conditions that hinder this while still addressing legitimate public policy issues.

The role of the sharing economy in boosting innovation

Let’s talk for a minute about the sharing economy, where goods and service transactions take place in an online community. This rapidly growing sector of the economy plays a role in pushing the innovation needle in the right direction. As an advocate for competition, the Bureau urges regulators to recognize the sharing economy as a golden opportunity to bring greater competition to Canada’s marketplace.

Read the news in cities across North America today and you’ll find debates about municipal taxi regulations and the entrance of services such as Uber and Lyft. You’ll find resistance, too. But sometimes, resistance is futile.

It’s an issue we’ve discussed at length in a 2015 white paper on modernizing regulation in the Canadian taxi industry.

Some municipalities have made room for the innovation that ride sharing has brought to the market – allowing their residents to enjoy the competitive benefits of ride-sharing apps alongside existing taxi services. Others are preventing access as they struggle with regulatory issues.

Addressing FinTech

Another area of study for the Bureau has been on FinTech. We studied the industry for 18 months and published a Market Study report in December 2017. There, we made 30 recommendations to Canada’s regulators and policy makers. Eleven of these focused more broadly on how to strike the right balance in regulation to ensure Canadians are protected while also promoting innovation.

One of these recommendations was that regulation should be tech neutral and device agnostic – not, for example, limited to one type of device. Many consumers still face instances where service providers require face-to-face interactions to collect personal information and verify identity.

But the Internet and mobile computing have changed how consumers wish to consume services—and how providers provide them.

In practice, we saw the B.C. Securities Commission release a consultation in February 2018 on its Securities Law Framework for FinTech Regulation which focused on a number of regulatory challenges.

In our submission to their consultation, we applauded the BCSC’s consideration of automation to meet compliance obligations for “know-your-client” assessments.

This signals a shift away from relying on face-to-face conversations to ensure compliance. It paves the way for automation and artificial intelligence to improve the quality and efficiency of investment advice that is tailored to each customer.

This is only one example of the changes we’ve seen since the release of our Market Study Report.

Making the case for humility on what we regulate

Advances in technology make the future hard to predict. Recent history has shown us plenty of examples of seemingly unassailable products that have been overtaken by innovative new products, such as Canada’s BlackBerry. These advances illustrate the increased importance of an evidence-based approach.

In 2015, former FTC Chair Maureen Ohlhausen warned against prescriptive regulation. She said: “We need to make every effort to tolerate complex phenomena and to develop institutions that are robust in the face of rapid innovation.”

In my view, this means we must take a careful approach to how we address certain issues. As I’ve said before, our focus should be to do no harm and not to overreach.  At the same time, we are guided by the strength of our institutions in setting sensible rules and enforcing them.

Antitrust enforcement does not and should not address all problems.

Competition perspective on IP

Uncertainty as to how competition enforcement and IP intersect can restrict innovation. The Bureau views IP laws and competition law as complementary instruments of government policy that promote an efficient economy. IP laws provide incentives for innovation and technological diffusion by establishing enforceable property rights. Competition law ensures that all participants in the marketplace are able to compete on a level playing field, fuelling innovation in the process.

Despite their common objective, the interface between competition and IP policy occasionally poses challenges for competition law enforcement.

We have dealt with fewer significant IP cases than the US, but we know it’s important that businesses have clarity on what raises competition concerns versus what does not.

That’s where the Bureau’s Intellectual Property Enforcement Guidelines, or IPEGs, come in. These define the interface between competition policy and IP rights. They also describe how the Bureau determines whether conduct involving IP raises an issue under the Act.

In recent years, the IP world has changed dramatically. To keep pace, we undertook substantial updates to our guidelines in March 2016.

We considered the current global economic and technological environment. In particular, the rapid rate of technological changes occurring in many industries.

Consider this hypothetical example from the IPEGs.

In the pharmaceutical sector, innovators who develop new drugs want to protect their product. But conduct that may delay or prevent the entry of a generic product, such as product switching, must be watched carefully.

Take for instance a company with a brand name product whose patent is set to expire. The company pulls it from the market and substitutes a drug that treats the same illness, but in a new form.

In response, physicians prescribe the new drug. Later, when a generic version of the first drug is ready to enter the market, physicians have largely stopped prescribing it. And pharmacies cannot substitute the generic drug for the new one, because the generic is an equivalent only to that first drug.

In a case like that, the Bureau would likely examine conduct under the abuse of dominance provisions of the Act.

That’s just one example of the kind of conduct involving IP that we must be mindful of.

We also made a commitment to review and update the IPEGS on an annual basis. The goal is to ensure that we are incorporating the latest decisions of the Competition Tribunal and the courts, as well as that of experience and changing circumstances.

This past year we’ve seen some changes. The Canadian regulations that govern the entry of generic pharmaceuticals before patent entry were updated. And in the TREB case, we saw a decision by the Federal Court of Appeal with respect to the IP exception for the Act’s abuse of dominance provision. These developments will be reflected in an update to our IPEGs, which we will be issuing for public consultation shortly.

The questions related to the intersection between IP and competition remain challenging and the discourse is strong and dynamic. We want to hear from you—including those of you in the legal community—so we get this done right.

Conclusion

To conclude: Canada’s economy will fire on all cylinders when competition is unhindered in its ability to drive firms to innovate.

Getting the economy to that state won’t happen by accident. We need to create ideal conditions for both competition and innovation to thrive. That includes instilling a level of tolerance to risk among governments. If you move too fast to regulate or overregulating, you risk hurting the very businesses you’re trying to help.

The same goes for enforcing the law in this area. Antitrust enforcement is powerful and necessary. But it should be exercised only based on evidence. There are plenty of examples where that’s the case.

But our work doesn’t stop there. We also must provide guidance to the marketplace. That includes IPEGs and market studies to prompt conversations between regulators, stakeholders and policymakers

We must consult. That includes the areas of broadband, big data and fintech. And last but never least, we need collaboration with people like you. Events like this one show the benefit of exchanging ideas. We all get a clearer sense of how best to tackle innovation for a better, stronger more competitive Canada.

When competition and innovation are both strong, we all win. Together, they allow us to boldly go where no one has gone before.

May you live long and prosper.


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