Mobile Number Portability: Moving with the Times

Mobile number portability (MNP) is the ability to keep one’s wireless (cellphone) number when changing wireless service providers (WSPs). While fixed-line telephone number portability is compulsory for major providers of basic telephone service in Canada, mobile number portability is not, despite the ever-increasing population who use this technology. Notably, Canada is one of the few industrialized countries that has not yet implemented MNP.
This paper discusses the desirability of MNP mandatory in Canada. The conclusions drawn are based on analysis of the following key areas: the history of the wireless communications industry and its associated regulatory scheme; the benefits of mandating MNP and the related obstacles to switching between service providers; and the costs of mandating MNP. Additionally, this report examines MNP from an international perspective, with a particular focus on the US experience with implementation. Based on the above, it is clear that the benefit to consumers of mandating MNP in Canada is significant and outweighs the cost to providers.
The principal advantage of implementing MNP is enhancing competition among wireless service providers, which is currently dominated by a few players. Customers wishing to “switch” from one WSP to another, or between a WSP and a fixed location service provider, face a number of obstacles in achieving that objective, including changing their telephone number. Studies have shown that consumers not only value their telephone numbers, but also that not having access to MNP is a significant factor preventing them from making a switch. In the absence of MNP, WSPs may settle into a comfortable oligopoly. Thus, MNP would serve a pro-competitive function.
Opponents of mandatory MNP point to what they claim are significant costs of implementation. These can be grouped into three categories: (1) Start-up costs; (2) Customer transfer costs; and (3) Operations Costs, each of which is addressed in the body of this paper. The cost of implementing MNP would likely be very small under all plausible scenarios, given technology facilitating Local Number Portability (LNP) for fixed-location suppliers is already in place and MNP could use this existing infrastructure. Incremental costs to the existing databases would be small, arising mainly from the need to increase storage and possibly upgrade processing capacity.
Making MNP mandatory in Canada would have a positive impact on competition among WSPs, and probably on competition for fixed-location service, as well. While the benefits are not likely to be large in the very short run, they may be quite significant in the longer run: in the absence of MNP, WSPs may settle down to a comfortable oligopoly. In such a situation, MNP would become important as a pro-competitive measure. On the other hand, costs of MNP likely would be very small under all plausible scenarios, given that LNP for fixed-location suppliers is already in place and MNP can “ride” on its infrastructure.
Implementation of MNP recently has been promised by the wireless industry on a less-than-aggressive schedule. Given the minimal challenges in introduction of this consumer benefit, it is in the interest of Canadians that the CRTC set an aggressive implementation schedule for MNP so that Canadians can begin moving with the times.

Mobile Number Portability: Moving with the Times
Download File Mobile Number Portability: Moving with the Times: mnp_final_web.pdf [size: 0.2 mb]

Background: Declaration of telecommunications principles

Consumers Likely To Pay Price of Proposed Telecommunications Reform

In April of this year, in response to the lobbying of Canada’s large telephone companies, the federal government created a panel of three industry experts to review the way telephone service and telecommunications should be regulated. The Telecommunications Policy Review Panel (TPRP) has received submissions from numerous interested parties and is now deliberating. To no one’s surprise, big industry players have dominated this process, filing in one case alone over 1300 pages of submissions. Most of the telephone, cable and other large companies would like to have a market virtually free from regulation that provides consumer protection: a market where what you get depends on what is offered to you by the telephone and cable companies. Just like banking, the big customers would get the discounts. The little customers (consumers) would get the right to “choice” in the market (provided any real competitors survive), but not necessarily lower rates, better service, or rights to redress when things go wrong.
We think that this rush to deregulate telecommunications is just plain wrong and contrary to nearly a century of public policy on telecommunications. And so do most Canadians. In astudy conducted in the summer of 2005 by Decima Research, over 90% of Canadians expressed the view that each of the objectives of (i) reasonable price, (ii) good quality (iii) privacy (iv) disabled access and (v) rural access were important responsibilities of the federal government. Affordable access for low income Canadians was viewed as important by 86% of Canadians. None of these issues were mentioned as priorities with the companies.
We are worried that the public interest of all Canadian telecommunications users will lose to the few large private interests who have lobbied and argued for the unimpeded access to customers’ wallets. We think telecommunications services are essential to the Canadian way of life, and should never be compromised by allowing unreasonable rates, poor quality of service and marketplace abuses to occur. If we deregulate telecommunications in the way that the big telephone companies desire, we will have abandoned meaningful consumer protection for the financial benefit of a handful of big companies.
Public Interest Advocacy Centre
November 1, 2005

Declaration of telecommunications principles in the public interest of all Canadians

RECOGNIZING THAT:

telecommunications performs an essential role in the maintenance of Canada’s identity, sovereignty, social cohesion, and economic health, as well as in the well-being of individual Canadians;
market forces are incapable, on their own, of ensuring that Canadians of all income levels and in all regions of the country have access to good quality, reliable telecommunications services at affordable and reasonable prices;
competition, like regulation, is a means to achieving policy goals, not a goal in and of itself;
deregulation and reliance on market forces in telecommunications have left many Canadians paying more for the same level of service, experiencing unacceptably poor customer service, and tolerating marketplace uncertainties and abuses that did not previously exist;
persons with disabilities face constant challenges using telecommunications services;
general competition law and institutions in Canada are incapable of effectively protecting consumers from market abuses in the telecommunications context;
there is no general consumer protection agency at the federal level in Canada;
many communities in Canada still lack access to broadband service, and of those that have access, many lack the means to make effective use of such access;
the digital divide in Canada has grown significantly over the past eight years;
the federal government, in response to pressure from incumbent telecommunications providers, has established a panel of three experts to review Canadian telecommunications policy and report back to it by the end of 2005;
most Canadians are unaware of the policy review process, the issues at stake, and the proposals being made by industry players;
the vast quantity of submissions made to that Panel are from vested private interests who have no public interest mandate;
some vested private interests are calling for an evi

THE UNDERSIGNED DECLARE THAT:

1. The Telecommunications Act should continue to recognize that telecommunications, unlike most other goods and services, plays a critical and essential role in maintaining the social and economic fabric of Canada and in ensuring the well-being of Canadians;
2. In particular, the following policy objectives currently set out in the Telecommunications Act are fundamentally important and should remain the guiding principles of Canadian telecommunications policy:

7(a) to facilitate the orderly development throughout Canada of a telecommunications system that serves to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions;
7(b) to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada;

3. Market forces should be relied upon for the achievement of policy objectives only where they have proven to be effective and efficient in doing so;
4. Government and regulatory intervention is needed to ensure that Canadians of all income levels and in all regions of the country, including those with disabilities, have access to good quality, reliable, and functional telecommunications services at affordable and reasonable prices;
5. Sector-specific regulatory intervention is needed to ensure that Canadians have access to effective enforcement and redress mechanisms, and are not held responsible for
telecommunications fraud that they cannot control;
6. Regulatory intervention should be designed to prevent the degradation of telecommunications service quality, affordability, availability, and reliability, rather than to respond to such policy failures only after they have developed;
7. Direct government intervention is needed to ensure not only that all communities in Canada have access to broadband services, but also that Canadians have the knowledge and means to make effective use of those services;
8. Proposals for regulatory reform from self-interested industry players should be carefully scrutinized from a public interest perspective keeping in mind that they are driven by private motives rather than public interest goals; and
9. Any reforms to the Telecommunications Act be subject to a full public review, five years after they have been adopted.sceration of the Telecommunications Act and radical deregulation of telecommunications, so as to remove critical social policy and consumer protection goals of the Act and related functions of the CRTC;

Sign On!

If you are in agreement, signify your acceptance by sending an email to tpr@piac.ca, clearly indicating that you wish to sign, and providing your name, address, and affiliation (if any). If an organization is signing on, please provide the name of the organization as well as the name and contact information for the head of the organization. Put “Telecom Declaration” in the subject line. We will post the list of signatories on our website, and will send the Declaration + signatories to the Telecom Policy Review Panel, as well as to the Minister of Industry and to the Prime Minister.
Si vous êtes d’accord, veuillez nous le signifier en envoyant un courriel à tpr@piac.ca. Veuillez indiquer clairement que vous désirez signer, en indiquant vos nom, adresse et affiliation (s’il y a lieu). S’il s’agit d’une organisation, veuillez fournir le nom de celle-ci, ainsi que le nom et les coordonnées de la personne-ressource. Inscrivez qu’il s’agit de la Déclaration sur les télécommunications comme objet du message. Nous afficherons en ligne la liste des signataires et nous enverrons ensuite la Déclaration accompagnée de la liste des signataires au Groupe d’étude sur le cadre réglementaire des télécommunications, ainsi qu’au ministre de l’Industrie et au Premier ministre.

Re: Consumer Protection Airline Passengers

PIAC Letter to The Honourable Jean Lapierre, Minister of Transport, Re: Consumer Protection B Airline Passengers

The Honourable Jean Lapierre (613) 995-0327
Minister of Transport
Place de Ville, Tower C
330 Sparks Street
Ottawa, ON
K1A 0N5
Dear Mr. Lapierre:
Re: Consumer Protection B Airline Passengers
The Canadian Association of Airline Passengers (CAAP) is a coalition of Canadian public interest and consumer organizations who are active in transportation issues associated with airline travel in Canada. The coalition was formed in 1999 to assist in providing the public interest perspective in the resolution of issues associated with the merger of Air Canada and Canadian Airlines. The membership of the organization includes the following organizations:
Air Passenger Safety Group
Canadian Federation of Students
Consumers Association of Canada Saskatchewan
Manitoba Society of Seniors
Ontario Society of Senior Citizens= Organizations
Option Consommateurs
Public Interest Advocacy Centre
Rural Dignity of Canada
Transport 2000
We believe that the there are serious deficiencies in the current regulation of the airline industry in Canada, some of which have been brought to light by the Jetsgo failure and the subsequent impact upon passengers of that airline. We believe that there is a continuing need for the kinds of consumer protection standards associated with the Canadian Airline Passenger Bill of Rights within the carrier license framework, a position that we have previously urged upon your ministry. We are writing today on behalf of CAAP to recommend some immediate and pressing problems
be addressed.

Licensed carriers must conform to advertising standards currently in place in Ontario and Quebec that promote transparency by ensuring full disclosure of all fees, surcharges etc. so that a final all-in ticket price is apparent. The questionable promotion tactics of advertising one price and assessing a far different one to the enticed consumer is a practice that is incompatible with reasonable airline operation and must be stopped.
Licensed carriers must be part of a self-insurance scheme similar to those in operation for travel suppliers in British Columbia, Ontario and Quebec. This may require the adoption and maintenance of more rigorous financial fitness rules for carriers. However, it is unreasonable to visit upon other industry stakeholders, such as travel agents in the aforementioned provinces, or jilted passengers, the financial effects of carrier failure where such stakeholders may not be in a position to know the financial circumstances of the carrier prior to a transaction.
The office of the Airline Complaints Commissioner must be immediately reinstated. There is no evidence that the need for the Commissioner’s office has diminished: indeed, if anything there is evidence that there is likely a need to strengthen the Commissioner’s powers beyond publicity and persuasion. We are not aware of any effort on the part of Transport Canada or the Canadian Transportation Agency to consult with consumer and public interest stakeholders prior to the cancellation announcement. The suggestion that market forces can now deal with the problems formerly handled by the Commissioner lacks a basis in reality.

We are increasingly concerned that the actions of your department are exclusively supplier driven. Experience in this, and other jurisdictions, has demonstrated that important public services such as airlines require a clear set of consumer protection rules that will ensure that reasonable customer expectations are met. This is particularly the case in Canada where geography and population size constrain the ability of competition on the basis of quality of service to be effective.
We are writing to request a meeting at your earliest convenience to discuss the above. We understand that you have had the benefit of representations from industry stakeholders in relation to the making of airline policy. We wish to ensure that similar access is afforded to the representatives of the Canadian traveling public.
Thank you.
Yours truly,
Original signed
Michael Janigan
Executive Director/General Counsel

Canadian Consumer Initiative Identity Theft Policy Position

Identity theft affects consumers

Identity theft is a crucial issue for today’s consumers. Identity theft is deeply disturbing emotionally, financially debilitating and unfortunately, largely beyond the control of consumers.¹Victims find that learning of ID theft is only the first hurdle. Attempting to stop the losses in a timely fashion is a time-consuming and frustrating experience and resolving credit problems is a long-term task.

Business and government, not consumers, must lead the battle on ID theft

Business and Government have to lead the ID theft battle, not consumers. Business practices cause many ID theft opportunities and may impede consumer recovery. Opportunities for ID theft often result from the implementation of technology to improve the corporate bottom line. Businesses that handle sensitive personal information may not be implementing procedures required to protect this data.
Business must limit collection of personal data to the minimum necessary for the purpose of the transaction. Expansive collection for potential secondary marketing purposes simply risks over-collection and subsequent data loss or risks abuse. Use of sensitive personal identifiers such as Social Insurance Numbers (SIN) and drivers license numbers (DLN) exacerbates this problem and provides identity thieves with the golden key to unlocking victims’ personal finances.
Simple changes to business models must be made immediately. For example,truncating credit card number receipts should be demanded by business of credit card and debit card terminal suppliers, not simply waited for when eventually rolled out. Secure destruction of personal information holdings after appropriate hold periods for privacy and other legal challenges should be routine. Business should carefully check ID, should not give out account details to third parties and should be extremely careful in extending credit. Phasing out of reliance on SINs and DLNs is essential. Above all, consumers should be immediately notified when personal information leaks occur.
Credit bureaus stand at the cross-roads of detecting, responding to and preventing ID theft, however, consumers lack meaningful awareness of, and control over, their credit reports.
Business and government must realize that they hold personal information in trust for consumers. ID theft due to their information holdings and handling practices is a real possibility and business and government must take steps to manage the risk.

Legislation is required

While many businesses and governments have taken measures to protect against ID theft, a patchwork of initiatives with no mechanisms for enforcement and compliance poses a serious threat to consumers.
The individual and collective impact of ID theft is far too serious to be left to the whim of governments and businesses that may not always place consumer interests ahead of established business models and data handling practices.
An effective war on ID theft requires specific legislation and real enforcement measures.
The CCI recommends that Canada’s federal and provincial governments move quickly to develop and adopt the following new laws to protect consumers in the personal information and identity theft age:

Data leaks notification. Require business and government to report leaks of personal information to CONSUMERS not just credit bureaus and police.
1. Notice should be made as soon as possible and no later than 48 hours.
2. Notice should include what was compromised and steps consumers should take to protect their identity (e.g. contact credit bureaus).
3. Notice should be given if there is a breach or potential breach.
SIN use. Business must ERADICATE its reliance on SINs. (Two year phase out).
1. SINs are used for ID theft more often than anything else.
2. The Office of the Privacy Commissioner of Canada has advised directly against its use for all but income reporting and direct employment purposes.²
3. Business should not be permitted to ask for SINs for any other purpose.
4. Business must develop and alternate unique identifier.
5. Use of similar sensitive identifiers (DLNs, Health Card Numbers) likewise should be prohibited for identity or other business information-processing purposes.
Credit Freeze. Consumers should have a free credit freeze facility
1. The consumer should be permitted to lift credit freezes with a special code or for certain creditors either permanently or for a period of time.
2. Consumers should be notified of attempts to access credit reports or credit scores after a credit freeze has been issued.
3. Consumers should have a right to a credit report clean-up where entries relating to fraudulently obtained credit are removed.
4. Businesses and credit bureaus should educate consumers on the central role of the credit bureaus in detecting and preventing loss through ID theft.
Identity Theft Criminal Offences. Criminalize identity theft related offences.
1. Police are presently unable to prosecute many identity theft related crimes effectively due to a lack of criminal offences relating to ID theft.
2. Consumers require police reports and investigations to support their efforts to halt identity theft and re-establish their identity and credit.
3. Making ID theft specifically illegal provides consumers with additional remedies in other contexts such as making valid insurance claims and in dealing with creditors.

Secondary Threats of Identity Theft

Identity theft is spawning a number of secondary threats to Canadian consumers.
The first of these is the trend to making consumers pay for combating identity theft. This takes the form of credit monitoring services and identity theft insurance. For the most part these forms of monitoring and insurance cannot stop identity theft and may be an unnecessary expense. It is inappropriate for businesses to have improper or insecure data safeguards and then charge consumers for this shortcoming. Businesses should not profit from ID theft.
Secondly, identity theft has frequently been cited politicians and others as an excuse for implementing national ID cards or similar schemes, often with biometric identifiers. Identity cards with or without biometrics will not significantly impact identity theft, as most major ID theft occurs from sloppy information handling by government or business coupled with easy credit. Identity cards and biometrics will, however, reduce civil liberties by requiring consumers to self-identify in a traceable way as they go through life. Identity theft must not be used as an excuse to introduce privacy-invasive technologies such as biometrics and national ID cards.

One Stop Shop

Government can do more to help stop identity theft. In the U.S., the Federal Trade Commission is a “one stop shop” for consumers with identity theft questions. Canada should have a similarly convenient and authoritative government resource for Canadians dealing with the threat of identity theft.
Notes

See P. Lawson and J. Lawford, “Identity Theft: The Need for Better Consumer Protection”, November 2003, Public Interest Advocacy Centre. Online:http://www.piac.ca/our-specialities/identity-theft-the-need-for-better-consumer-protection/
Office of the Privacy Commissioner of Canada, “Fact Sheet: Best Practices for the use of Social Insurance Numbers in the private sector”, August 2004. Online:http://www.privcom.gc.ca/fs-fi/02_05_d_21_e.asp Specifically, the OPCC states:

The Office of the Privacy Commissioner of Canada has long held the position that the Social Insurance Number (SIN) should not be used as a general identifier and that organizations should restrict their collection, use and disclosure of SINs to legislated purposes.

While recognizing that some private-sector organizations are required by law to request customers’ or employees’ SINs, we remain opposed in principle to the practice of requesting the SIN for general purposes of identification. We recommend that no private sector organization request the SIN from a customer, and that no customer give the SIN to a private-sector organization, unless the organization is required by law to request it.

Treatment of Efficiencies in the Competition Act

PIAC comments on the Competition Bureau’s Consultation Paper, “Treatment of Efficiencies in the Competition Act”

PIAC comments on the Competition Bureau’s Consultation Paper
Download File: cb_efficiencies.pdf [size: 0.1 mb]

INTRODUCTION

The Public Interest Advocacy Centre (PIAC) welcomes this opportunity to submit comments in response to the Competition Bureau’s Consultation Paper, “Treatment of Efficiencies in the Competition Act”. PIAC has been representing consumer interests before various regulatory and administrative tribunals for over twenty-five years, in particular as concerns questions of economic regulation. As a result, PIAC can bring a consumer perspective to bear on the questions raised by the Consultation Paper.
Consumers generally benefit greatly from competition. Lower prices, greater product and service innovation, and expanded variety and choice are all benefits of properly working competitive markets. PIAC strongly supports measures to block the prevention or substantial lessening of competition, through mergers and other structural reorganizations.
PIAC recognizes that in some circumstances competition may need to be subordinated to other factors. One such instance may be the potential of significant efficiency gains arising from a merger. However, such situations should be exceptional. Further, “efficiency gains” must be considered in the context of the other objectives stated in s. 1.1 of the Competition Act, and of the welfare of Canadian society in general.
Although the “efficiency defence” is available under provisions of the Act other than s. 96, it has never been invoked there, and, in PIAC’s view, it likely never will be. Accordingly, in what follows, PIAC addresses the “efficiency defence” as it applies to mergers under s. 96.

CHANGES IN THE CANADIAN ECONOMY

As the Competition Bureau’s Consultation Paper states, the present Competition Act was enacted some 17 years ago, when Canada’s economy was very different. It was still making the transition from resource-based to a much more broadly diversified mix that is overwhelmingly services and manufacturing. The Canadian economy was small relative to other national economies, and tariff barriers to exports were high, as were transport and communications costs. As a result, it was believed, Canadian companies were largely limited to a small domestic market and faced a significant challenge in achieving economies of scale. This would hurt the domestic economy. More importantly at the time, it was also expected to keep Canadian companies uncompetitive on the world stage; in turn, this would harm job creation at home.
The “efficiencies defence” in s. 96 was in large part designed to help Canadian companies overcome this disadvantage. Mergers would be allowed if they would likely bring about gains in efficiency that would be greater than, and would offset, anti-competitive effects. Given the relatively small size of the domestic market, and the difficulties of exporting, this was a key measure to help the Canadian economy achieve economies of scale.
Meeting foreign competition was emphasized in s. 96⁽²⁾. Particular attention was to be paid to efficiency gains that would result in a significant increase in exports or a significant substitution of domestic products for imports. The mergers provisions of the Competition Act were to be consistent with an active trade policy for Canada, in a world of protectionism and significant trade barriers.
In PIAC’s view, the Canadian economy has changed since the mid-1980s. Lower transport and communications costs have redefined geographic markets. Decreases in tariffs and non-tariff trade barriers, through bilateral agreements such as NAFTA and multilateral agreements such as the Uruguay Round, have also contributed. As a result, where they were once local and national, markets are now continental and global in scope.
Technological and institutional change has also broadened the definition of product markets. For example, convergence in telecommunications is resulting in the breakdown of the distinction between telephony and cable television. In the financial services sector, consumers in 1987 were obliged to have separate bank accounts, brokerage accounts, and insurance accounts. Increasingly, all of these functions can be supplied by any one of these accounts.
As a result, Canadian firms are in a better position, relative to firms in other countries, to obtain economies of scale and scope without restricting the level of competition in the Canadian economy. As well, encouraging exports and import substitution should have a lower priority than at the time the Act was passed. This has important consequences for the interpretation of the “efficiencies defence”.

THE OBJECTIVES OF THE ACT

S. 1.1 of the Competition Act lists a number of objectives, without however prioritizing them or relating them to each other. The purpose of the Act is “to maintain and encourage competition in Canada”, in order to

promote the efficiency and adaptability of the Canadian economy
expand export opportunities while at the same time recognizing the role of foreign competition in Canada
ensure that small and medium-sized enterprises “have an equitable opportunity to participate in the Canadian economy”
provide consumers with competitive prices and product choices.

The first objective, promoting the efficiency and adaptability of the Canadian economy, while laudable, cannot be an end in itself. Rather, it is a means to an end.¹ More precisely, efficiency gains are desirable because they allow for a higher level of consumption, now or in the future; or because they make possible more leisure or a more agreeable environment; or because they lead to a higher level of employment in Canada. Thus, “efficiency” must be read in conjunction with the other objectives, and as a means of better attaining them.
The second objective is to improve Canada’s trade balance, encouraging exports and discouraging imports. In the area of mergers, it is reflected explicitly in s. 96⁽²⁾, which contemplates allowing reductions in competitiveness so that Canadian companies could attain critical size relative to world markets. However, as noted in the previous section, with the dramatic expansion of geographic and product markets over the last twenty years, concerns as to market size have abated. It is also interesting that, to PIAC’s knowledge, s. 96(2) has never been used as a defense to allow a merger that would otherwise substantially lessen competition.²
In PIAC’s view, the objective in s. 1.1 of increasing exports and decreasing imports, through favorable treatment of mergers that would otherwise reduce significantly competition, are no longer consonant with Canada’s economic position, and should be reviewed. It is PIAC’s understanding that, in practice, the provisions of s. 96(2) do not guide the Competition Bureau or the Competition Tribunal’s review of a merger. This should continue.
The third objective of the Act is to give small and medium-size businesses “an equitable opportunity to participate in the Canadian economy”. This objective would seem to be grounded in a historic desire to preserve small independent firms, for political and social reasons, and to protect them from “trusts” and large companies.³
PIAC supports the principle of providing equitable opportunities to all businesses, large and small. However, there should be no bias in favour of smaller businesses when considering mergers and the efficiencies defence. Larger firms should not be impeded from realizing economies of scale and other efficiencies, through mergers or otherwise, just to protect smaller firms. Accordingly, the third objective of the Act should not come into play when considering mergers.
The fourth objective, to provide consumers with competitive prices and product choices, is directly linked to a higher standard of living and a better quality of life.4 At the end of the day, the purpose of efficiency gains, a better balance of trade, and higher employment, is to allow individual members of our society to consume more, to enjoy more leisure, to live a healthy life in a sound environment, and to build worthwhile social institutions.
While there are other, more important goals than material consumption, the Competition Act was not designed to address them. Rather, the focus of the Competition Act is on the well-being of members of society as consumers. Lower prices and greater variety should be the first priority of the Competition Act in today’s economy. Increasing efficiency should be seen as a means of attaining this priority objective.5

MERGERS AND THE EFFICIENCIES DEFENCE: TOTAL SURPLUS STANDARD

Mergers may prevent or substantially lessen competition in a market. S. 92 of the Competition Act gives the Competition Tribunal the power to take appropriate steps to prevent this harm. However, the Act recognizes that mergers may also lead to efficiency gains. S. 96(1) provides that a merger will be allowed if it is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that is likely to result.
The Consultation Paper makes clear that efficiency gains may include allocative, productive, and dynamic efficiency gains. In practice, efficiency gains from a merger may include productive efficiency gains, due to larger production runs and increased economies of scale. Dynamic efficiency gains from a merger, such as innovation and improved use of technologies and information, may also be important, but they are typically extremely hard to quantify.⁶ As to allocative effects, typically a substantial lessening of competition would be expected to lead to a reduction of efficiency as output is reduced below competitive levels, leading to “dead-weight” losses. Such losses are to be netted out against productive and dynamic efficiency gains.
According to the “total surplus standard”, advocated by many economists, as long as the efficiency gains (usually productive and dynamic efficiencies) from a merger outweigh the efficiency losses from any resulting significant lessening of competition (usually allocative efficiency losses), the merger should be permitted.⁷
But the total surplus standard ignores income redistribution consequences of the merger. A substantial lessening of competition is normally accompanied by a significant non-transitory price increase: indeed, this is the measure used by the Competition Bureau and many others. This redistributes income from consumers of the merged firm’s products to the firm itself.8 The total surplus standard assumes that, if efficiency gains are positive, the “winners” of the redistribution could compensate the “losers” and still be better off.⁹
This is consistent with the view that the only objective of competition policy should be maximization of efficiency. However, it is not necessarily consistent with the objectives in the Competition Act.¹⁰
Some observers suggest targeting the Competition Act just to efficiency objectives, leaving to other policy instruments the task of correcting any unwanted side effects such as redistribution of income:
The use of competition policy to achieve not merely efficiency but an equitable distribution of wealth would result in an excessively complex and non-transparent set of legal rules that would be both uncertain and arbitrary – being determined by the opinions or values of whoever was sitting on the tribunal in a particular case. Government instruments such as taxes and social insurance are much better suited for the goal of distributing income equitably.¹¹
However, these other instruments may be very costly, and often may not be politically feasible. As a result, the negative non-efficiency impacts of a merger may never be corrected through taxation, social insurance, and other such measures.12 Indeed, there is a long tradition in the economics literature that claims that adjusting relative prices is one of the more effective means of income redistribution.¹³
In any event, s. 96(1) says that efficiency gains are to be greater than, and offset, “the effects of any prevention or lessening of competition”. While these effects include efficiency losses (typically allocative efficiency losses), the wording does not limit “effects” to these. In particular, a merged firm with increased market power would generally be expected to raise its prices, inter alia redistributing income from purchasers of its products to the merged firm. It is PIAC’s view that this redistribution is an effect of the substantial lessening of competition, and should be included when balancing efficiency gains against anti-competitive effects.
Indeed, it is not possible to separate the efficiency effects of a merger from the redistributive effects, without making strong assumptions as to interpersonal comparisons of individuals’ income utility. For example, the total surplus approach implicitly assumes that redistribution does not affect overall utility, i.e. that one person’s losses can simply be netted out against another’s gains. But that is true only if their marginal utilities of income are equal. This is a questionable assumption.
As an illustration, consider a merger that results in a net efficiency gain of $1 million, accompanied by an increase in prices that transfers $100 million from consumers to the merged firm. While the final incidence of that $100 million may be different from the initial incidence, for simplicity assume that the entire $100 million goes to the firm’s shareholders.¹⁴ The net result is that shareholders as a group are better off by $101 million, while consumers are worse off by $100 million. If a dollar in shareholders hands were valued by consumers at $1.02 or more, society as a whole would be worse off. Approving the merger would be welfare-reducing, even though the “total surplus” test is met.
The standard assumption in the economics literature is that an extra dollar has more value to a person with a lower level of income. It is reasonable to suppose that, on average, shareholders are better off financially than consumers.¹⁵ If so, evaluation of any measure, that redistributes income from consumers to shareholders, must take into account the loss in aggregate welfare it causes. The “total surplus” test in mergers analysis does not. It is incomplete and should not be used.
Three other factors reinforce the proposition that redistribution from consumers to firms and their shareholders is welfare reducing. First, in the typical case, a firm has many more consumers than shareholders. Thus the redistribution concentrates wealth, inflicting a (smaller) loss on the many, and a (larger) gain on the few. Even if consumers and shareholders started at identical income levels, this redistribution would lead to a loss in welfare (due to declining marginal utility of income).
Second, results in the behavioural economics literature systematically suggest that persons feel a loss twice as keenly as they do gain of the same size.¹⁶ This suggests that the weight to be attached to a monetary loss should be about twice that to be attached to a monetary gain.
Third, the total surplus standard assumes that the decrease in consumer surplus (other than the deadweight loss) results in a corresponding increase in producer surplus: the result is a pecuniary transfer from consumers to producers with no consequences for resources and hence no consequences for social welfare. But the merging firms will likely expend significant resources in getting their merger approved, and in defending their increased market power, through collusion with other producers or otherwise. As a result, much of the increased producer surplus may be dissipated in rent-seeking that is wasteful from the point of view of society.¹⁷ These are efficiency losses that are not counted in the total surplus standard.
In PIAC’s view, in light of the above discussion, the “total surplus” approach described in the Consultation Paper is flawed and should be rejected.

MERGERS AND THE EFFICIENCIES DEFENCE: BALANCING WEIGHTS STANDARD

Currently, the Canadian approach to the efficiencies defence in mergers uses “balancing weights”, as required by the Federal Court of Appeal.18 Essentially, income redistribution effects will be considered in the efficiencies defence. The weight to be given to a dollar of income distribution, relative to a dollar of efficiency gain, is to be determined on the circumstances of the situation, and may depend on the different socio-economic status of customers and shareholders. Indeed, it is possible that different weights should apply to different classes of customers.
Attempts to attach different weights to impacts on different socio-economic groups have a long history. For example, the issue has long been debated in performing developmental project appraisals in developing countries.19 In theory, this approach is attractive, allowing the flexibility and discretion to take into consideration the circumstances of each case. In practice, however, this very flexibility and discretion leads to significant disadvantages.²⁰
First, how are the different classes of affected customers and shareholders to be determined? If weights are to vary according to income levels or socio-economic status, how many categories should there be, and what are the cut-off levels? Should other factors, such as geographic location, be important, e.g. if the losses are to customers in Canada but the gains largely to shareholders in another country? To the degree that some of the costs or benefits flow to employees, rather than to customers or shareholders, should these be identified and weighted separately?
Second, should losses and gains be weighted differently? This suggestion follows from the finding in behavioural economics that on average people are more concerned by a loss than by a gain of equal magnitude.
Third, once the categories are chosen, how are the weights to be selected? Should benefits to one category receive one and a half times the weight of those to another category? twice the weight? three times the weight? Is there a risk that the process to choose weights would become highly politicized?
Fourth, before the weights can be applied, gains and losses must be measured by category. Presumably it is the final incidence of these gains and losses that is important. But such measurements require large quantities of information that might be very difficult to obtain.
These considerations lead PIAC to conclude that, while the balancing weights approach has many attractive features in theory, in practice it would be extremely difficult and controversial to implement. Further, it would cause considerable uncertainty among parties contemplating a merger. Since the weights might vary from case to case, the case law would be of limited use in reducing this uncertainty.
Over and above the practical difficulties of implementation, PIAC has some reservations about the moral justification for the balancing weights approach. Essentially, its underpinning is a utilitarian one, whereby it is acceptable for certain members of society to lose, as long as others gain enough to be able to more than make them whole.²¹ Note however that the approach does not require the winners to actually compensate the losers, only to have the potential to do so. The losers remain losers.
It is not clear to PIAC why, in the context of a merger that prevents or substantially lessens competition, it is acceptable for shareholders to obtain benefits that exceed the magnitude of the efficiency gains generated, where the surplus comes at the expense of losses to customers.
In this context, PIAC notes that the present wording of s. 96(1) requires efficiency gains that will be greater than, and will offset, anticompetitive effects. PIAC reads these words to mean that the offset must actually occur; it is not good enough to demonstrate a hypothetical offset that could happen.

MERGERS AND THE EFFICIENCIES DEFENCE: CONSUMER SURPLUS STANDARD

A third approach would require that, for the efficiencies defence to succeed, customers should not lose because of the merger. In particular, prices should not substantially increase, relative to what they would be, absent the merger.²² Equivalently, consumer surplus should not decrease.²³
This approach has the advantage of limiting the efficiency defence to mergers that are Pareto-improving: nobody in society is worse off, and at least some (presumably the shareholders) are better off.
PIAC finds this approach attractive.²⁴ Shareholders would be free to enjoy the efficiency gains generated by their firms through the merger. At the same time, customers would be no worse off, and may be better off, in terms of the prices they pay. There would be no uncompensated transfer of wealth from one group to the other.
This approach is also relatively simple to implement. The focus, from the customer end, is on the level of prices. For ease of administration, a price index for the firm could be constructed, as a weighted average for all the products sold by the pre-merger firms. For the efficiencies defence to be successful, a requirement might be that it be likely that this price index not increase for a given period of time post-merger.²⁵
A critique of the consumer surplus standard is that it is too stringent: relatively few mergers would be saved under it. The difficulty is that, absent a combination of high price elasticity of demand and low incremental costs, it is commercially rational for a merged firm with newly increased market power to raise prices.
In such a case, the merger might nevertheless be permitted to take place if the merged firm were to commit not to increase prices, as measured by a price index, for a given period, say three to five years. Such a commitment could easily be monitored by the Bureau or an independent third party, with civil liability for breach.
Ongoing monitoring would run counter to the traditional approach found in competition policy, and resembles some elements of price cap regulation.26 However, the Competition Act now contains provisions for the continuing monitoring of a specific industry, air transport, e.g. ss. 4.1 and 104.1.²⁷ Monitoring of an undertaking not to raise prices for a well-defined period of time after a merger would be much less intrusive and much easier to carry out than the air transport provisions in the Act. Indeed, such monitoring could be left to an independent third party.
Finally, PIAC notes that, as reported in the Consultation Paper, the consumer surplus standard is used in the four other jurisdictions surveyed at page 30: the United States, European Union, United Kingdom, and Australia.²⁸ Adoption of a consumer surplus standard by Canada would be a step toward harmonization with these countries.

CONCLUSION

PIAC concludes that the efficiency defence found in s. 96 should be retained. However, to justify a merger, efficiency gains must satisfy the “consumer surplus” standard, i.e. they must not result, or be likely to result, in significantly higher prices to customers.
Some parties might consider this standard to be too stringent, in that it might block mergers that would otherwise generate efficiency gains large enough to more than compensate customers for redistributive losses. PIAC recommends that, in such situations, the merged firm undertake to not increase its average price for a reasonable period of time, say three to five years. In this way, society will benefit from the efficiency gains, shareholders will profit and hence be motivated to seek out such efficiency gains, and customers will not be made worse off.
26 Competition law authorities have traditionally been reluctant to take on ongoing surveillance of a firm or an industry. See for example Posner, op. cit., at footnote one on page 2: “It might be possible to have one’s cake and eat it by limiting the price charged by the efficient monopolist. That is the premise of public utility regulation, but, as I believe all competent students of antitrust agree, it is not a feasible project for antitrust law.” However, there have been counterexamples in the U.S., the best known being Mr. Justice Harold Greene’s ongoing oversight of the Bell System divestiture and accompanying constraints in the 1980s and early 1990s.

Footnotes

1 Considering efficiency as a goal in itself is analogous to accumulating gold and other forms of money for their own sake, as the seventeenth-century French mercantilists advocated. We no longer believe money is intrinsically desirable; what is desirable is the goods and services the money will buy.
2 In addition, it is not clear whether or not s. 96(2) runs counter to Canada’s obligations under the WTO.
3 This thrust was especially strong in the United States. See for example Richard A. Posner, Antitrust Law, 2nd Ed. (Chicago: University of Chicago Press, 2001) at 25. Protection of smaller firms seems to have played a much lesser role, if any, in enforcement of competition laws in Canada, which is as it should be.
4 Following the usage of the Consultation Paper, PIAC uses the term “price” to include non-price attributes of a product, such as quality.
5 Many economists hold that increasing efficiency should be the only goal of competition policy. Other goals, according to them, should be pursued through other policy instruments. See for example Michael Trebilcock et. al., The Law and Economics of Canadian Competition Policy (Toronto: University of Toronto Press, 2002) at 39. However, these other policy instruments are not always available, or may be very costly to use. In a second-best world, it is important that competition policy, even if it should not be the primary tool to resolve problems such as income redistribution, at least should not aggravate them.
6 All of the efficiency gains expected from a merger are very hard to quantify. Indeed, some observers believe that the uncertainty in measuring efficiency gains and losses is so massive that “there should be no general defense of efficiency”: Posner, op. cit., at 133
7 Significant lessening of competition may also result in reduced incentives for productive and dynamic efficiency gains.
8 In turn, the increased revenues will be passed on, in part to employees through higher salaries and benefits, and in part to shareholders through an increase in earnings that is translated into increased share prices. The magnitude of the final incidence is an empirical matter. To simplify the discussion, we refer to shareholder effects and do not discuss employee effects. This has no impact on the arguments advanced.
9 This is the well-known Kaldor-Hicks criterion for welfare maximization. See Richard A. Posner, op. cit., at 23.
10 “The purely legal arguments for total surplus as a criterion to be read directly in section 96 of the Competition Act are not persuasive… Section 96 of the Act is ambiguous.” Trebilcock et. al., op. cit., at 149.
11 Trebilcock et. al., op. cit., at 40.
12 For example, it is difficult to imagine a tax limited to producers of propane, and tax credits or subsidies targeted just to consumers of propane.
13 For example, see J de V. Graaff, Theoretical Welfare Economics (Cambridge: Cambridge University Press, 1957) at 155 and 171: “By far the simplest way of securing the distribution of wealth we desire is through the price system… [T]inkering with the price system is one of the more feasible and generally satisfactory ways of securing whatever division of wealth is desired.”
14 As pointed out above, some of the $100 million will likely also be captured by employees, depending on various elasticities of substitution and the demand for and supply of the kind of labour used by the firm.
15 Some economists question this assumption. They point to the increasingly broad ownership of common stock, both directly and through mutual funds and pension plans (Posner, op. cit., at 24). In cases of luxury goods , such as the Whistler Mountain ski resort, the consumers may be wealthier than the shareholders (Trebilcock et. al., op. cit., at 150). However, recent statistics show that dividend income is heavily concentrated in the upper income levels of Canadians. Thus, for returns reporting income of less than $20,000, 9.6% reported receiving dividends, while for returns reporting income of more than $100,000, 52.3% reported receiving dividends. Put another way, grossed-up dividends made up 0.6% of the income of those with income below $20,000, but 6.8% of the income of those with income above $100,000. Put yet a third way, of the total amount of dividends reported, 0.9% were reported by taxpayers with incomes of less than $20,000, while 56.8% were reported by taxpayers with income of more than $100,000. (Calculated from Canada Revenue Agency, Income Statistics 2002 – 2000 tax year, Final Basic Table 2). This calculation does not reflect dividends received within RRSPs or pension plans. Nevertheless, using receipt of dividends as a proxy for share ownership, clearly share ownership is concentrated at upper income levels, where the marginal utility of money is less.
16 Tversky, A. and D. Kahneman (1992), “Advances in prospect theory: cumulative representation of uncertainty”, 5 J. Risk and Uncertainty 297. See also Barberis, N. and R. Thaler, “A Survey of Behavioral Finance”, Chapter 18 in Constantinides, G.M., M. Harris and R. Stultz, eds., Handbook of the Economics of Finance (Elsevier Science, 2003) at 1080.
17 See Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and its Practice, 2nd Ed. (St. Paul, Minn: West Publishers, 1999) at 502: “A profit-maximizing firm will be willing to spend substantial resources in an effort to acquire or retain a certain amount of monopoly power.” See also Posner, op. cit., at 13: ”[A]n opportunity to obtain a lucrative transfer payment in the form of monopoly profits will attract real resources into efforts by sellers to monopolize and by consumers to avoid being charged monopoly prices.”
18 Commissioner of Competition v. Superior Propane Inc. (2001), 11 C.P.R. (4th) 289 (April 4, 2001)
19 “The use of variable weights on gains and losses to different income groups has been the most controversial issue in cost-benefit analysis in recent years. Many considerations have been raised in discussions of this issue, ranging from practical and procedural questions to moral values and political process.” Anandarup Ray, Cost-Benefit Analysis: Issues and Methodologies (Baltimore: Johns Hopkins Press for the World Bank, 1984) at 22.
20 Trebilcock et. al., op. cit., at 150; Posner, op. cit., at 24
21 This is the Hicks-Kaldor criterion for welfare-enhancing changes.
22 The reader is reminded that here “price” is intended to include non-price attributes, such as quality.
23 The Federal Court of Appeals has rejected this approach in Commissioner of Competition v. Superior Propane Inc., [2003] F.C.A. 53. Thus, a legislative amendment may be required to implement it.
24 As do many observers. See, e.g., Hovenkamp, op. cit., at 503. Furthermore, the consumer surplus standard is more consistent than the total surplus standard with the objectives of the Competition Act.
25 The details of constructing such a price index have been explored in depth in a number of industries in Canada, such as telecommunications and energy, that are subject to price cap regulation. A number of industries in Canada, such as telecommunications and energy, are subject to price caps regulation. Simplifying greatly, an average price index is calculated each year for firms that have market power. The firms must obey the constraint that this index cannot exceed a cap determined by the rate of inflation and by the productivity gains that can reasonably be expected in that industry.
27 Bill C-19 proposes removing industry-specific measures from the Act.
28 According to Massimo Motta, Competition Policy: Theory and Practice (New York: Cambridge University Press, 2004) at 274: “So far, the EC in its decisions has not explicitly ruled out the possibility of using an efficiency defence, but it has not showed much sympathy for this argument either. Whenever cost reductions have been claimed by the merging parties, the EC has dismissed those claims on various grounds.”

APPENDIX

In its Consultation Paper, the Competition Bureau invites parties to comment on a set of specific questions. The following are PIAC’s observations.
1. At present efficiencies gains constitute a defence under s. 96. The Consultation Paper suggests that instead of a defence, efficiency gains could be one of a list of factors, found at s. 93, that inform the Competition Tribunal whether or not a merger is likely to substantially lessen competition.
In PIAC’s view, the presence or absence of efficiency gains does not affect any lessening of competition. Rather, it is a balancing factor in deciding whether a merger should be allowed, despite its anti-competitive effects. Thus, efficiency gains are not a factor on a par with the other factors in s. 93, and should not be confounded with them.
2. As explained above, PIAC favours the continuation of an efficiencies defence. However, the defence should employ a “consumer surplus” standard, i.e. it should be available only if the merged firm undertakes not to increase prices for a reasonable period of time.
3. The principal lesson to be learned from other jurisdictions, in PIAC’s opinion, is the desirability of a consumer surplus standard in the efficiencies defence.
4. Savings from a reduction in output and gains that are redistributive in nature should never be counted as part of efficiency gains. Redistributive effects do enter the consumer surplus standard, however, in that redistribution from customers to shareholders as a result of a merger would not be permitted. Efficiency gains that are likely to be attained by another means should, in principle, also be excluded. However, if there are extra costs associated with “another means”, avoidance of those extra costs could be counted as an efficiency gain attributable to the merger.
5. If efficiencies were to be treated as a factor in determining whether a merger significantly lessens competition, it is not clear what weight should be given to it. If efficiencies are a defence, either the standard is met or it is not. There may be some comfort in larger efficiencies gains, in that measurement is imprecise and a larger measured gain is less likely to reflect a true gain that is zero or negative, but otherwise the size of the gain should not matter. By contrast, if efficiency gains are one factor to be balanced against others, the size of the efficiency gains do matter. Thus, in the face of relatively modest efficiency gains, a merger may nevertheless be blocked.
6. PIAC agrees that any assessment of efficiencies is highly complex and requires elaborate evidence. PIAC notes that use of a balancing-weights standard would make this burden even heavier, whereas use of a consumer surplus standard would not. Incorporation of efficiency gains as a factor under s. 93 would require the complexity of developing appropriate weights, explicitly or implicitly, for that factor.
7. In today’s economy, increases in exports and in import substitution are no longer relevant and should not be the subject of special attention. S. 96(2) should be repealed.
8. Efficiency gains in all markets, whether the one in which the merger is taking place or another, should be counted. It is total welfare of society that should be maximized. PIAC recognizes, however, that evidence on efficiency gains in other markets may be difficult to obtain.

Consumer Privacy and State Security: Losing Our Balance

Report: Consumer Privacy and State Security: Losing Our Balance

The Full Report is available in PDF. [pdf file: 0.48mb]

EXECUTIVE SUMMARY

Canadian citizens and consumers are facing an unprecedented challenge to their privacy rights. State security measures implemented in Canada since the terrorist attacks of September 11, 2001 have seriously reduced these privacy rights. There has been little public debate over the public policy and legal changes made in Canada to support the “war on terrorism”. However, these changes have made Canadians’ privacy rights possible “collateral damage” in this war. Canadians seem largely unaware of these measures and still supportive of government efforts to quell terrorist threats.
Nevertheless, Canadians are protective of many privacy rights that are necessarily or unnecessarily compromised in seeking to boost national security. These include the right and expectation that their movements and other clues they give about themselves as they purchase and live their way through life will not systematically be made available to government. They continue to have an expectation of privacy in their personal communications, whether these are conducted over the phone or over the Internet. They do not like surveillance of their daily activities. They do not appreciate business helping the government to collect profiles of their consumer habits. In short, they do not accept that their personal privacy necessarily must be compromised to increase national security. Above all, they are concerned that the Canadian government will allow the sharing of their personal information with other countries, especially the United States.
This report examines three challenges to Canadian privacy rights posed by the new security agenda of government and business. First, it looks at legal requirements that rely upon, or that risk, a systematic violation of usual privacy rights, including: the collection, use and disclosure of airline flight information; the outsourcing of personal information processing to entities subject to the USA PATRIOT Act; and the information requirements of the US VISIT traveler information program. Second, the report examines the increase in surveillance technologies of all kinds that has been hastened and expanded by national security concerns, including: interception of private communications; national identity cards/biometrics; and closed-circuit television and video surveillance of the public. Third, the report focuses on marketplace-driven and -assisted potential privacy violations, including: radio-frequency identification; datamining; and, finally, the virtual conscription of Canadian business into being “agents of the state” to collect and process “suspicious” data on Canadians.
The Report includes significant national polling results of Canadians’ attitudes towards, and knowledge of privacy and national security conflicts. The poll reveals Canadians wish to assist with national security efforts but are unclear on the trade-offs with personal privacy involved. The poll finds, significantly, that most Canadians expect a similar treatment of their privacy rights even in the new post 9/11 world.
The costs of reducing privacy rights to increase state security, both financial and in terms of lost confidence in business and government, has the potential to be large and appears to be growing. The report concludes with calls for increased accountability of government and business in this “balancing” of privacy rights and security measures.

SOMMAIRE

Les citoyens et les consommateurs canadiens doivent faire face à un défi sans précédent concernant les droits de la protection de leurs renseignements personnels. Les mesures de sécurité nationale mises en place au Canada depuis les attaques terroristes du 11 septembre 2001 ont sérieusement restreint ces droits. Les débats sur la politique publique et les changements juridiques effectués au Canada visant à appuyer « la guerre contre le terrorisme » sont rares. Néanmoins, ces changements aux fins de cette guerre peuvent causer d’éventuels « dommages collatéraux » aux droits de la protection des renseignements personnels des Canadiens. La plupart des Canadiens semblent ignorer ces mesures et approuvent encore les efforts du gouvernement visant à dissiper toute menace terroriste.
Cependant, les Canadiens protègent de nombreux droits de la protection des renseignements personnels qui sont nécessairement ou inutilement compromis aux fins d’une meilleure sécurité nationale. Ces droits comprennent le droit et la présomption que leurs mouvements et toute autre information qu’ils communiquent lors d’achats et dans leur vie quotidienne ne seront pas systématiquement mis à la disposition du gouvernement. Ils continuent de croire que leurs communications personnelles sont protégées, que ce soit par téléphone ou par Internet. Ils n’aiment pas la surveillance de leurs activités quotidiennes. Ils n’apprécient pas les entreprises qui aident le gouvernement à dresser le profil de leurs habitudes en matière de consommation. En bref, ils n’acceptent pas que la protection de leurs renseignements personnels soit nécessairement compromise dans le but d’améliorer la sécurité nationale. Ce qui les inquiète le plus est le fait que le gouvernement canadien puisse permettre le partage de leurs renseignements personnels avec d’autres pays, surtout les États-Unis.
Ce rapport examine trois questions relatives aux droits de la protection des renseignements personnels canadiens que pose le nouvel ordre du jour en matière de sécurité établi par le gouvernement et les entreprises. Tout d’abord, il étudie les prescriptions d’une loi fondées sur, ou posant le risque de, la violation systématique des droits au respect de la vie privée habituels, dont : la collecte, l’utilisation et la divulgation de l’information des vols des compagnies aériennes, la sous-traitance du traitement des renseignements personnels confiée aux entités assujetties au Patriot Act (Loi patriote) des États-Unis, et les renseignements qu’exige le US VISIT traveler information program (programme d’information du voyageur visitant les États-Unis). Le rapport aborde ensuite l’augmentation des technologies de surveillance de tout genre qui ont été dépêchées et dont le nombre s’est multiplié suite aux inquiétudes quant à la sécurité nationale, dont : l’interception des communications privées, la carte d’identité nationale/biométrie, la télévision en circuit fermé et la surveillance vidéo du public. Finalement, le rapport souligne les violations possibles du respect de la vie privée que le marché génère et multiplie, y compris : l’identification des fréquences radio, l’exploration des données, et pour conclure, la conscription virtuelle des entreprises canadiennes comme « agents d’état » recueillant et traitant les données « suspectes » des Canadiens.
Le rapport inclut les résultats de sondages nationaux significatifs sur les attitudes des Canadiens concernant la connaissance du respect de la vie privée et des conflits de sécurité nationaux. Le sondage révèle que les Canadiens souhaitent participer aux efforts visant une sécurité nationale plus efficace mais sont incertains des compromis affectant le respect de leur vie privée. Le sondage montre, de manière significative, que la plupart des Canadiens s’attendent à un traitement similaire des droits au respect de leur vie privée, même après les évènements du 11 septembre.
Les coûts affaiblissant les droits du respect à la vie privée aux fins d’une sécurité nationale plus efficace, que ce soit du point de vue financier et de celui de la perte de confiance dans les entreprises et le gouvernement, peuvent être importants et pourraient croître. En guise de conclusion, le rapport appelle à une plus grande responsabilité du gouvernement et des entreprises afin de préserver l’« équilibre » entre les droits de la protection des renseignements privés et les mesures de sécurité.

Letter to Privacy Commissioner of Canada

Letter to Privacy Commissioner of Canada urging Commissioner to name names of respondents in Commissioner Findings PDF [pdf file: 0.12mb]
December 18, 2003
Ms. Jennifer Stoddart
Privacy Commissioner of Canada
Office of the Privacy Commissioner of Canada
112 Kent Street
Ottawa, Ontario K1A 1H3
BY FAX & MAIL
Dear Ms. Stoddart:
Naming Names of Respondents in Commissioner Findings
I am writing to you on behalf of the Public Interest Advocacy Centre. Firstly let us congratulate you on your appointment as Privacy Commissioner of Canada. We look forward to your able stewardship of this most important public office.

Naming of Respondents in Findings

PIAC is calling on you to consider naming the respondents in the findings of the Privacy Commissioner of Canada, effective January 1, 2004. The Office of the Privacy Commissioner of Canada has become an invaluable resource for Canadians seeking to vindicate their privacy rights. In particular, the Commissioner’s findings have convinced many federally-regulated businesses to mend their ways and respect Canadians’ privacy rights as guaranteed in the Personal Information Protection and Electronic Documents Act (PIPEDA).
However, these findings are significantly weakened as an enforcement tool by the anonymization of the organization whose practices have been challenged. Identification of parties is a matter of course in the courts and in administrative tribunals, including those dealing with such sensitive matters as human rights. The reason for this is obvious it keeps the parties honest, and it informs the public. “Justice should not only be done, but manifestly and undoubtedly be seen to be done.” Lord Hewart.

History of the Anonymous Findings Policy

The previous Privacy Commissioner, Mr. Radwanski, continued the practice of the first Commissioner, Mr. Phillips, of anonymizing the parties and offering the public the findings only in summary form. Apparently, there was some concern expressed by the industries likely to be most affected by PIPEDA during its early years (banks, telcos, transport companies), that publication of their names would be unfair and counterproductive to their efforts to comply. PIAC and others have in the past expressed the opposing view to Mr. Radwanski. However, we now feel the forbearance and restraint shown by the previous Commissioners has outlived the rationale of protecting the “early adopters”.

Recent Developments

We note that in a recent speech the B.C. Information and Privacy Commissioner, Mr. Loukidelis, has come out strongly in favour of publishing the names of the participants in any public hearing he holds in B.C. under the new B.C. privacy legislation (which is likely to apply in B.C. in place of PIPEDA). ¹
This will also likely occur in Alberta and is also the case when matters come to a hearing in Quebec, as you know. In the interests of consistency of privacy law in Canada, publication of names should not depend where one’s corporation is headquartered.
We understand that the Office of the Privacy Commissioner of Canada, like the B.C. Information and Privacy Commissioner, is intending to adopt a dispute resolution model for the vast majority of complaints. This is to be applauded and will likely greatly aid citizens in providing fast, informal and better resolutions of complaints. It will also help the privacy commissioner in reducing misunderstandings and narrowing the issues for those complaints that do proceed to a formal hearing or investigation. However, we feel the naming of names will complement this approach, not harm it.

Policy and the Finding Process

When the issue truly is a difficult one, with corporate interests lined up against an individual complaint of a privacy violation, a formal investigation process is needed. A final finding will be invaluable to companies seeking to comply with privacy legislation and to citizens wishing to protect their privacy rights. But presently citizens cannot modify their behaviour by shunning a non-compliant organization or, as is more likely, demanding change from the organization they simply don’t know who it is. And the organization has no real incentive to change its practice a recipe for recidivism.
For example, the Interim Commissioner, Mr. Marleau, recently had to chastise “the bank” again for not implementing a previous finding and Commissioner advice on how to handle alternatives to taping telephone conversations with customers. Which bank? Only your office, “the bank” and one “lucky” customer know.
As Mr. Loukidelis notes, “the publication of the name of a non-compliant organization is a necessary and legitimate sanction for non-compliance and an incentive for compliance.” Of course, those organizations that are found to have been compliant with PIPEDA will be able to trumpet this fact. However, we do not see this as a drawback. Instead it will be a market-driver: organizations may sell themselves on their privacy stance and competitors will be able to state they can equal or better it. This is a true “privacy pay-off”.

The Law

There is some statutory reference to the issue in s. 20 of PIPEDA. Unfortunately it is general in nature. However, since the wording is key to your jurisdiction, we hope you will permit us to quote it, and to tolerate our following attempt at statutory interpretation.
Confidentiality

20. (1) Subject to subsections (2) to (5), 13(3) and 19(1), the Commissioner or any person acting on behalf or under the direction of the Commissioner shall not disclose any information that comes to their knowledge as a result of the performance or exercise of any of the Commissioner’s duties or powers under this Part.

Public interest

(2) The Commissioner may make public any information relating to the personal information management practices of an organization if the Commissioner considers that it is in the public interest to do so. [. . .]

At first glance, subs. 20(1) seems to prohibit the Commissioner from publishing anything at all about complaints. However, it must be read in conjunction with the Commissioner’s duty to report the findings under subs. 13(1). Nonetheless, the Commissioner’s past stance regarding non-publication of names could appear to be justified by subs. 20(1) and subs. 13(1).
Note however, that subs. 20(1) is subject to subsection 2, that is, subject to the public interest. Under subs. 20(2) the “Commissioner may make public any information relating to the personal information practices of an organization” if it is in the public interest. It is futile to detail the poor information practices of an organization without naming it. The public, in whose interest this power has been enacted, cannot act unless the personal information practices in question can be linked to the perpetrator. Otherwise subs. 20(2) is a dead letter. Parliament should not be assumed to have created a little black privacy box which spews only good advice of a general “feel good” nature. This is not in the public interest.
We are aware of the reasons of the Supreme Court of Canada in Lavigne v. Canada (Office of the Commissioner of Official Languages), [2002] 2 S.C.R. 773, which considers s. 72 of the Official Languages Act, that has nearly identical wording to subs. 20(1) of PIPEDA. However, a close reading of Lavigne reveals a concern with anonymity for the complainant, not the respondent, in such “ombudsman”-like proceedings. We are, in fact, highly supportive of an asymmetrical naming policy by the Commissioner. For all the reasons given in Lavigne, we feel it is not appropriate to name complainants, who may therefore be victimized a second time by publicity.
Organizations, however, the vast majority of which are major corporations, cannot expect such privacy. These businesses increasingly collect, use and disclose (often for secondary marketing) personal information of real, live human beings. This means these businesses cannot have a reasonable expectation of privacy for their dealings with other people’s personal information. If they will trade in it, they will be accountable for it.
Rather than being a barrier to making the names of respondent public, section 20, on a common-sense reading, appears to be aimed squarely at protecting valuable commercial or other information of respondents. This is indeed the interpretation given in The Canadian Privacy Law Handbook by Murray Long and Suzanne Morin.²
Should you be willing to consider naming respondents, we hasten to point out the Commissioner and staff cannot be held criminally or civilly liable for any statements made in the course of their duties: s. 22 PIPEDA.
We therefore recommend that the Commissioner name respondents in findings as a matter of course.

Mandatory Arbitration and Consumer Contracts

Full Report can be downloaded here. [pdf file: 0.73mb]

Executive Summary

This report examines the use of mandatory arbitration clauses in consumer contracts. A mandatory arbitration clause is a clause in a contract that requires two parties (a service provider and a consumer) to arbitrate any dispute that may arise from the contract instead of taking the dispute to court. Arbitration is a form of dispute resolution, which is viewed as an alternative to traditional court processes. It involves two or more parties agreeing, through an arbitration agreement, to submit their dispute before a neutral decision maker who will make a decision that will be binding upon both parties. Arbitration clauses in consumer contracts usually appear in the form of a mandatory requirement written into a standard form contract, which the consumer is not able to negotiate or change.
In the commercial context, arbitration has been heralded by some as being superior to court processes in terms of reduced cost, speedier and more effective resolution of disputes, fairness to both parties and reduced complexity of proceedings. The authors examine these claims in the context of consumer to business disputes. Research from other jurisdictions where mandatory arbitration clauses are much more predominant, such as the United States suggests that claims about the superiority of arbitration over court processes do not hold up and that may in fact result in increased costs, with no discernable reduction in time taken to resolve the dispute or reduce the complexity of the proceeding. The negative impacts may also include: lack of transparency, lack of protection for class proceedings, limits on damages, risk of inconsistent results, lack of impartiality on the part of the adjudicator, and imbalance between the parties due to businesses being able to take advantage of repeat appearances before arbitrators. The report assesses the U.S. experience with mandatory arbitration and contrasts it with other jurisdictions. The European Union (where consumer protection is now generally addressed) has taken a stronger stand against mandatory arbitration clauses in consumer contracts. It issued a directive on unfair terms in consumer contracts, which includes mandatory arbitration clauses. The United Kingdom and France have generally prohibited pre-dispute arbitration clauses in consumer contracts. New Zealand has extended its statutory protection against mandatory arbitration clauses to all consumer contracts. Australia has no arbitration legislation. The reason would appear to be a function of its widely privatized utility industry characterized by the prevalence of private ADR, mitigating the need for business to employ mandatory arbitration clauses in consumer contracts.
In Canada the use of mandatory arbitration clauses in consumer contracts is a relatively recent phenomenon. Our research suggests that they are not yet extensively used by Canadian businesses. Recent jurisprudence in Ontario has upheld mandatory arbitration clause in a consumer Internet service provider contract. This caused the Ontario government to adopt provisions in its consumer protection legislation to counter this decision. The legislation states that any term in a consumer agreement that requires disputes arising out of the agreement be submitted to arbitration is invalid insofar as it prevents a consumer from exercising a right to commence an action in the court. The legislation also specifically protects a consumer’s right to commence a class proceeding.
Ontario is the only province with legislation that specifically addresses mandatory arbitration clauses. Other provinces have general provisions about unconscionable trade practices but they may not be strong enough to withstand judicial scrutiny in the face of an arbitration provision. Consumer protection acts that have created statutory rights of action but have not supplemented these with a non-derogation clause will not protect consumers from mandatory arbitration clauses.
Quebec’s treatment of mandatory arbitration clauses is examined in the final section of the report. Quebec does not have any legislation that specifically prohibits the use of mandatory arbitration clauses. Arbitration agreements are defined in the Civil Code of Quebec and the courts have upheld their authority. However, the Civil Code also specifically recognizes and defines consumer agreements and contracts of adhesion. Under both contracts, a clause can be declared null or the obligation under it can be limited if a court finds that it is abusive (a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is therefore not in good faith). Mandatory arbitration clauses may also be limited by the application of the rules of public order. The rules of public order are rooted in the legislative powers of the province and describes two types of laws: 1) moral laws which protect the institutions that form the basis of social order and 2) the social and economic laws that characterize the desire of the state to regulate economic exchanges. The Quebec Consumer Protection Act and the Civil Code rules governing contracts of adhesion and consumer contracts are examples of this second category of public laws. The courts have held that an arbitration award is not contrary to the public order. An arbitrator may dispose of a question relating to rules of public order since they may be the subject matter of an arbitration agreement. However, under the Code of Civil Procedure, a court may assess an arbitration award to determine whether the decision itself violates principles that are matters of public order. The report describes a case in which a class action was upheld in the face of a mandatory arbitration clause on the basis that it would have frustrated the authority of the Quebec government to adjudicate an action founded on a consumer contract. This decision is being appealed.
The report calls on provinces to introduce legislative changes that will prohibit the use of mandatory arbitration clauses and protect consumers’ right to voluntarily choose a range of dispute settlement mechanisms in their dealings with businesses, whether arbitration, small claims court or class actions.

Corporate Retaliation Against Consumers

Report: Corporate Retaliation Against Consumers: The Status of Strategic Lawsuits Against Public Participation (SLAPPs) in Canada

The Full report is available as a PDF
Download File: slapps.pdf [size: 0.45 mb]

Executive Summary

This report examines the phenomenon of Strategic Lawsuits Against Public Participation (SLAPPs) in Canada. SLAPPs are lawsuits or the threat of a lawsuit, directed against consumers or individual citizens when they publicly criticize products or services or advocate for change. The lawsuit usually takes the form of an action for defamation.
The purpose of a SLAPP is to intimidate the target of the lawsuit into silence. By moving a dispute into the legal arena, the consumer is immediately placed on the defensive for exercising a right to complain and faced with the prospect of legal costs as well as potential liability if the suit is lost. As a result, many SLAPPs may fly under the public radar, as the threat of a SLAPP may intimidate its target into withdrawing the public complaint or criticism.
The report describes a number of lawsuits or threats of a lawsuit in Canada that fit the definition of a SLAPP. This evidence suggests that SLAPPs are very much a Canadian phenomenon and have been initiated against consumers for public criticism of products or services as well as against individuals for advocating on environmental issues.
The report briefly analyses the constitutional questions raised by SLAPPs and draws comparisons to the constitutional and judicial treatment of SLAPPs in the United States. Targets of SLAPPs and some legal analysts have suggested that SLAPPs infringe on the freedom of expression rights outlined the Canadian Charter of Rights and Freedoms. Unlike the United States, legal actions between non-governmental parties (which is the form of most SLAPPs) have not had the protection of the Charter. The report examines two cases that have made strong statements about the consumer’s right of free speech, suggesting that there may be a widening of the application of the Charter to cases involving consumer free speech.
Finally the report examines legislative responses to SLAPPs in Canada and the United States. A number of U.S. states have enacted anti-SLAPP legislation. Canada has a much more limited experience with anti-SLAPP legislation. British Columbia is the only province to have enacted anti-SLAPP legislation, which is was in force only for a short period before repeal by an incoming provincial government.
The report concludes by suggesting that SLAPPs require a legislative response. The evidence suggests that the SLAPP phenomenon is very much alive in Canada. An understanding of the purpose behind SLAPPs and the nature of the legal process indicate that judicial responses are not adequate to protect consumers from the damaging effects of SLAPPs. Because SLAPPs ultimately engage the critically important right of freedom of expression, a legislative response is warranted.
The report offers some analysis of what the components of anti-SLAPP legislation in Canada should contain. Such components would include: mechanisms for early dismissal of a SLAPP, a mandatory cost provision for successful defendants of SLAPP suits on a solicitor and client basis, providing a defence to defamation actions and defining a right of public participation.

Sommaire

Ce rapport a pour objet le phénomène des actions stratégiques contre la participation aux affaires publiques (ASPAP) au Canada. Les ASPAP sont des procès ou des menaces de procès, dirigés contre des consommateurs ou des citoyens qui critiquent publiquement des produits ou des services ou plaident pour un changement. Le procès prend généralement la forme d’une action en diffamation.
L’objectif d’une ASPAP consiste à intimider la(les) personne(s) visées par le procès et à la(les) réduire au silence. Le litige étant transféré devant les tribunaux, le consommateur est tout de suite sur la défensive pour faire valoir ses droits et déposer une plainte. Il doit s’attendre à assumer non seulement des frais de justice mais aussi une éventuelle responsabilité s’il perd son procès. Par conséquent, de nombreuses ASPAP peuvent passer inaperçues, étant donné que la menace d’une ASPAP peut intimider la(les) personne(s) visée(s) et la(les) contraindre à retirer sa(leur) plainte ou critique.
Le rapport décrit plusieurs procès ou menaces de procès au Canada qui répondent à la définition d’une ASPAP. Ces différents témoignages semblent suggérer que les ASPAP constituent un véritable phénomène canadien et ont été mises en œuvre non seulement contre les consommateurs afin de les dissuader de critiquer publiquement des produits ou des services, mais aussi contre les particuliers afin de les interdire de défendre l’environnement.
Le rapport analyse brièvement les questions constitutionnelles que soulèvent les ASPAP et dresse des comparaisons avec le traitement constitutionnel et juridique des ASPAP aux États-Unis. Les personnes concernées par les ASPAP et quelques analystes juridiques estiment que les ASPAP transgressent le droit à la liberté d’expression tel qu’il est mentionné dans la Charte canadienne des droits et libertés. Contrairement aux États-Unis, les poursuites entre les parties non gouvernementales (qui constituent la majorité des ASPAP) ne sont pas régies par la Charte. Le rapport examine deux cas dans lesquels le droit à la liberté d’expression du consommateur a revêtu une part importance dans le procès et semble suggérer qu’il soit possible que l’application de la Charte puisse s’appliquer aux affaires touchant à la liberté d’expression du consommateur.
Enfin le rapport examine les solutions législatives aux ASPAP au Canada et aux États-Unis. Plusieurs États américains ont promulgué des lois anti-ASPAP. Le Canada ne dispose que d’une expérience limitée en matière de législation anti- ASPAP. La Colombie-Britannique est la seule province à avoir édicté une loi anti- ASPAP. Celle-ci n’a été en vigueur que pour une courte durée seulement avant son annulation par un nouveau gouvernement provincial.
En guise de conclusion, le rapport suggère la création d’une solution législative visant les ASPAP. Les témoignages aboutissent à la même conclusion : le phénomène des ASPAP est très présent au Canada. Les objectifs des ASPAP et la nature des procédures judiciaires indiquent que les solutions juridiques ne sont pas suffisantes pour protéger les consommateurs des effets dévastateurs causés par les ASPAP. Étant donné que les ASPAP enfreignent de toute évidence le droit, essentiel, à la liberté d’expression, une réponse législative est justifiée.
Le rapport offre une analyse des éléments devant figurer dans une loi anti-ASPAP au Canada. Ces éléments sont les suivants : des mécanismes pour le rejet précoce d’une ASPAP, des dispositions obligatoires quant aux honoraires pour les défendeurs qui ont gagné leur procès selon une base avocat-client, la possibilité d’assurer une défense contre toute diffamation et la définition du droit à la participation aux affaires publiques.

Mobile Number Portability: Moving with the Times

Background: Declaration of telecommunications principles

Consumers Likely To Pay Price of Proposed Telecommunications Reform

Declaration of telecommunications principles in the public interest of all Canadians

RECOGNIZING THAT:

THE UNDERSIGNED DECLARE THAT:

Sign On!

Re: Consumer Protection Airline Passengers

PIAC Letter to The Honourable Jean Lapierre, Minister of Transport, Re: Consumer Protection B Airline Passengers

Canadian Consumer Initiative Identity Theft Policy Position

Identity theft affects consumers

Business and government, not consumers, must lead the battle on ID theft

Legislation is required

Secondary Threats of Identity Theft

One Stop Shop

Treatment of Efficiencies in the Competition Act

PIAC comments on the Competition Bureau’s Consultation Paper, “Treatment of Efficiencies in the Competition Act”

INTRODUCTION

CHANGES IN THE CANADIAN ECONOMY

THE OBJECTIVES OF THE ACT

MERGERS AND THE EFFICIENCIES DEFENCE: TOTAL SURPLUS STANDARD

MERGERS AND THE EFFICIENCIES DEFENCE: BALANCING WEIGHTS STANDARD

MERGERS AND THE EFFICIENCIES DEFENCE: CONSUMER SURPLUS STANDARD

CONCLUSION

Footnotes

APPENDIX

Consumer Privacy and State Security: Losing Our Balance

Report: Consumer Privacy and State Security: Losing Our Balance

EXECUTIVE SUMMARY

SOMMAIRE

Letter to Privacy Commissioner of Canada

Naming of Respondents in Findings

History of the Anonymous Findings Policy

Recent Developments

Policy and the Finding Process

The Law

Other Problems with the Finding Process

Mandatory Arbitration and Consumer Contracts

Executive Summary

Corporate Retaliation Against Consumers

Report: Corporate Retaliation Against Consumers: The Status of Strategic Lawsuits Against Public Participation (SLAPPs) in Canada

Executive Summary

Sommaire