From: Edward Iacobucci
To: Competition law observers
Date: March 15, 2023
Re: The Competition Bureau’s Misguided Approach to Merger Remedies
It is a fundamental principle of the rule of law that like cases be treated alike. The Competition Bureau has recommended an approach to merger remedies that is inconsistent with this principle.
In particular, it has advocated for a requirement that the remedies for an anticompetitive merger must restore competition to pre-merger levels. This would not treat like cases alike, and is problematic under ordinary rule-of-law principles.
Before elaborating, it is helpful to start with the target of the Bureau’s disagreement: The Supreme Court of Canada’s 1997 decision in Southam. In this case, the Competition Tribunal concluded that a merger involving various local newspapers would substantially lessen competition in North Shore Vancouver real estate advertising. The Tribunal, and eventually the Court, concluded that a proper remedy must eliminate the substantial lessening of competition – but would not be required to restore pre-merger competition – and ordered the divestiture of one newspaper.
The Bureau, citing authorities elsewhere in the world, contends the Southam precedent ought not to govern, and that remedies to an anticompetitive merger should restore pre-merger competition.
The Bureau’s recommendation fails to respect the principle that the law should treat like cases alike.
Consider the following scenarios under current law. In the first, parties propose a merger without any pre-consummation divestitures. The Bureau challenges the merger. The Tribunal concludes that the merger is likely to lessen competition substantially, but, following Southam, accepts the parties’ submission that divesting a division, call it Asset A, will eliminate the substantial lessening of competition. The divestiture of Asset A does not restore pre-merger competition – only a prohibition of the merger outright would accomplish this – but that is not necessary under Southam.
The second scenario has the same two parties merging, but they propose divesting Asset A before merging. Since the divestiture implies that the merger does not lessen competition substantially, the merger is approved by the Tribunal.
Under current law, the two scenarios are treated identically: A merger with divestiture may proceed in each scenario, but not without it. The competitive situation is identical post-divestiture in each scenario, and like cases are treated alike.
Now consider the Bureau’s suggested approach. Under its proposal, the first scenario would be treated differently. The merger would be forbidden outright because that is the only remedy that preserves pre-merger competition.
On the other hand, the second scenario would see the Tribunal allowing the post-divestiture merger to proceed since it does not lessen competition substantially. Two cases that involve the same merger – a merger following the divestiture of Asset A – have starkly different outcomes. This violates the principle that like cases ought to be treated alike.
A response might be that there is a difference in that divestiture is only proposed first scenario after a finding that the merger would substantially lessen competition, whereas the parties in the second began with the divestiture. This is a distinction without a meaningful difference.
First, the law does not in general punish parties for proposing mergers found to be anticompetitive. If authorities conclude that a proposed merger is anticompetitive, then the merger may be subject to an order, but there is nothing wrongful in proposing the merger in the first place. Yet a rule that a merger that is found to substantially lessen competition must have a remedy that restores pre-merger competition effectively penalizes the firms for initially proposing the merger without divestiture.
Moreover, even if a penalty for proposing an anticompetitive merger were appropriate for some reason, the Bureau’s proposal penalizes the firms in an undesirable way.
There is a good reason why the law only forbids mergers that substantially lessen competition, as opposed to those that merely lessen competition.
Mergers have the potential to generate private and societal economic gains. If that were not true, mergers policy in competition law would be straightforward: Ban mergers.
Indeed, such gains may exist even where there is a lessening of competition. The law trades off the potential for gains with the potential for competitive losses by allowing mergers that lessen competition, but generally not allowing those that substantially lessen competition. (Canadian law also makes such a trade-off explicit in allowing the efficiencies defence to mergers.) Preventing a post-remedy merger that only lessens competition in order to punish the parties for initially proposing a more anticompetitive merger forecloses the private and social gains that the law assumes such mergers generate. This is an economically perverse way to penalize the parties even assuming that a penalty is appropriate.
If the Competition Bureau wishes to advance the blanket proposition that any merger that lessens competition, as opposed to substantially lessens competition, ought to be prohibited, it is of course free to do so. But as long as the mischief that the law addresses is a substantial lessening of competition, the remedial rule in Southam is consistent with the requirement that the law treat like cases alike.
Edward Iacobucci is a C.D. Howe Institute Fellow in Residence, former dean of law and Toronto Stock Exchange Chair in Capital Markets at the University of Toronto.
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The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.