Canada's Federal Industry Minister, Maxime Bernier, tabled proposed amendments to the Competition Act ("Act") on December 7, 2006 that would authorize the Competition Tribunal to order telecommunications service providers to pay an administrative monetary penalty ("AMP") of up to $15 million in cases of abuse of dominant position.  It appears that this may be part of a broader legislative package regarding the regulation of telecommunications companies that is to be announced shortly.

Under the proposed amendments, the Tribunal would determine the magnitude of the AMP based on factors such as: gross revenues from sales affected by the practice; actual or anticipated profits from the practice; financial position of the dominant firm; and history of compliance with the Act – all areas open to significant legal and factual debate. 

AMPs for abuse of dominance under the Act are currently only available for the airline industry, and no such order has ever been sought.  In 2004, the Competition Bureau proposed amendments that would have given the Tribunal the general authority (i.e., not industry specific) to impose AMPs for abuse of dominance.  This proposal was heavily criticized on a number of grounds, including that it was unconstitutional, and was never enacted.

The Government's announcement comes at a time when the Bureau has signalled that it expects the abuse of dominance provisions of the Act to take on increasing importance in the telecommunications field as the CRTC sheds its regulatory oversight.  In particular, the Bureau is currently in the midst of a consultative process regarding its draft Information Bulletin on the Abuse of Dominance Provisions as Applied to the Telecommunications Industry (the "Telecom Bulletin").

Many question whether it is appropriate to target the telecommunications sector with specific provisions in the Act, which is considered to be generally applicable "framework" legislation.  The "Backgrounder" accompanying the Minister's announcement states that "certain characteristics of the telecommunications industry warrant special consideration".  Yet, it does not go beyond this statement to explain why the Government believes that telecommunications service providers are more deserving of fines under the Act than firms in other industries.  The Bureau's draft Telecom Bulletin itself recognizes that distinguishing anti-competitive from pro-competitive conduct in the telecommunications industry may often be very difficult.  For example, a particular concern noted both in the draft Telecom Bulletin and the Backgrounder is that some service providers must rely on access to a competitor's network to compete.  However, competition law generally discourages agreements among competitors, which can give rise to conspiracy concerns.  The proposed amendments now signal that a denial of access to a competitor's network could lead to an order for abuse of dominance.  This conflicting liability is essentially uncharted legal territory, which would seem to make the prospect of ordering fines of up to $15 million all the more problematic. 

The imposition of fines also appears at odds with the Bureau's previously stated position that the abuse of dominance provisions are intended to remedy market imperfections, not be punitive.  In addition, questions remain about the constitutionality of imposing large fines for abuse of dominance, which is a civil, not criminal, matter.

The Minister's press release accompanying his announcement notes that the March 2006 final report of the Telecommunications Policy Review Panel "recognized the value of administrative monetary penalties".  However, the Panel specifically recommended that the CRTC be the agency authorized to impose AMPs under the Telecommunications Act.

The Minister's press release and backgrounder are available at: http://www.ic.gc.ca/cmb/welcomeic.nsf/ICPagesEPrint/85256A5D006B97208525723D0050EEBD

The foregoing is a summary of a recent development in Canada's competition law.  If you would like additional information about this topic or any aspect of Canadian competition or foreign investment review law, please contact George Addy, John Bodrug, Mark Katz, or Richard Elliott in the Toronto office at (416) 863-0900, or Hillel Rosen in the Montréal office at (514) 841-6400.

Davies Ward Phillips & Vineberg LLP, with over 235 lawyers, practises nationally and internationally from offices in Toronto, Montréal, New York and an affiliate in Paris and is consistently at the heart of the largest and most complex commercial and financial matters on behalf of its North American and overseas clients.

The information and comments contained herein are for the general information of the reader and are not intended as advice or opinions to be relied upon in relation to any particular circumstances.  For particular applications of the law to specific situations, the reader should seek professional advice.