Supreme Court ruling makes need for Competition Act reform urgent

The following originally appeared in The Conversation and was reprinted on the National Post website, on Cartt.ca (subscription), and on J-source.ca.

History’s habit of repeating itself has once again hamstrung Canadian antitrust law when it comes to preventing media monopolies. This time, however, the Supreme Court of Canada has left the door wide open to once again increasing our already world-leading levels of media ownership concentration.

The decision to allow a hazardous waste landfill monopoly in northern B.C. went little noticed at the time outside the competition law community. It triggered long dormant provisions in the Competition Act, however, that make preventing monopolies much more difficult, especially in vulnerable media industries. It set a precedent that prioritized cost-cutting “efficiencies” and, in some very poor timing, was soon followed by federal approval of yet another “devastating” news media merger, as a parliamentary report would describe it..

This points up once again the need for reform of the Competition Act, as has been urged by successive federal media inquiries dating back a dozen years. After all, covering the news more “efficiently” with fewer and fewer journalists employed by bigger and bigger media monopolies can’t be good for democracy.

When the Competition Act was enacted in 1986, it aim was to use civil procedures such as court orders to prevent monopolies better than the old antitrust law had by using criminal charges. Not a single merger case had been successfully prosecuted under the Combines Investigation Act in its 76-year life due to the higher criminal burden of proof beyond a reasonable doubt.

The Combines Investigation Act had been rendered ineffective against media monopolies in particular by a 1972 Supreme Court of Canada ruling. Prosecutors initially won a conviction on charges of monopoly against the Irving Oil family, which had acquired all five daily newspapers in New Brunswick. It was overturned on appeal, however, after the Supreme Court ruled the crown must prove not only a lessening of competition but also a detriment to the public.

The Irving press monopoly persists to this day as a result, allowing little news coverage of the family’s economic dominance of that province.

The Competition Act, according to one legal scholar, “literally rewrote the book on competition law in Canada, particularly with regard to merger control and the review of the activities of dominant firms.” It has unfortunately proved just as incapable of preventing media monopolies, and now the Supreme Court has made its job even more difficult, if not impossible.

As a 2006 Senate report on news media pointed out, the Competition Act allows only economic factors, such as advertising revenues, to be considered in adjudicating mergers and takeovers. “The result,” the Senators noted, “has been extremely high levels of news media concentration in particular cities or regions.” They recommended allowing a panel of experts to review media mergers and take the public interest into account.

It didn’t happen because a deregulationist Conservative government led by Stephen Harper had already gained power in Ottawa and would hold it for almost a decade. It presided over even more consolidation of Canada’s newspaper industry, including the takeover of our largest and then second-largest chain by U.S. hedge funds, despite supposed limits on foreign ownership.

The Competition Bureau, which enforces the Competition Act, approved the 2014 takeover of Sun Media by Postmedia Network without holding hearings. It oddly concluded the sale was “unlikely to substantially lessen or prevent competition” despite it giving Postmedia 21 of the country’s 25 largest newspapers, including eight of the nine largest in Western Canada and both dailies in four of our six largest cities.

Postmedia said it expected to save $6-10 million in cost cutting efficiencies from the takeover. It promised, however, that the competing newspapers it acquired in Calgary, Edmonton, and Ottawa would maintain separate newsrooms, as its dailies in Vancouver had for decades, by government order.

Falling ad revenues, however, soon forced Postmedia to seek another $50 million in efficiencies, mostly to service the company’s massive high-interest debt held by its own hedge fund masters. It thus announced in early 2016 that, despite promising not to, it would merge the newsrooms of its four newspaper duopolies, including in Vancouver.

A parliamentary committee chaired by Vancouver MP Hedy Fry quickly convened hearings into media and local communities, at which Competition Bureau officials testified they were powerless to stop the consolidation. The Fry committee’s report issued in mid-2017 renewed the call made by senators for reform of the Competition Act.

My research has found that the Supreme Court of Canada ruling in the case of Tervita v. Canada, set a precedent against preventing what the Fry report called a “devastating” news media merger. Even worse, the ruling enables even more mergers by badly hobbling the Competition Bureau.

The judgment was delivered in early 2015, even as Postmedia’s takeover of Sun Media was under federal review. In allowing the hazardous waste monopoly the Competition Bureau had blocked, the Supreme Court required the feds to quantify the anti-competitive effects of a merger or takeover. If their calculated dollar value does not outweigh the efficiencies that acquiring companies show will result from the deal, it must be allowed despite otherwise amounting to an illegal monopoly.

The so-called “efficiencies defence” had always been in the Competition Act, but it went untested for almost 40 years before the Supreme Court ruling gave it life. The defence was “unique among competition/antitrust statutes around the world,” according to one analysis.

It was included because the then-Conservative government “had high hopes that it would play a significant role in facilitating efficient restructuring in Canada.” Those hopes went unrealized, however, and with the Tervita ruling the provision seems to have now backfired.

The effect of the ruling, lawyers noted, was to raise the bar for the Competition Bureau to prevent monopolies. It put Canadian merger law, according to a pair of economists, “far out in front of the wave” of integrating economic principles into merger law. It prompted Competition Bureau head John Pecman to boast in a speech to lawyers that economists are now the “rock stars of competition law enforcement.”

The Competition Bureau, however, did not quantify the anti-competitive effects of the Sun Media takeover to weigh them against Postmedia’s planned corporate efficiencies. It simply rubber stamped the deal using some very questionable logic.

The savings available from mergers of news media companies are considerable, but they invariably involve cuts to expensive journalism. The cost to the public of a reduction in news coverage is arguably the impairment of democracy, but how do you put a dollar figure on that?