The role of competition law in emerging industries

By Holly Lake October 5, 20185 October 2018

The role of competition law in emerging industries

 

In a world where one of the few constants is change and the pace of it is relentless, emerging industries are among the drivers, with chaos and disruption often parked in the front seat.

Also regularly along for the ride? Arguments by some that these industries are shiny, new and different, and should therefore be regulated differently — or not at all.

But for Vicky Eatrides, acting senior deputy commissioner of the cartels and deceptive marketing practices branch at the federal Competition Bureau, it’s not a question of whether competition law and policy applies to artificial intelligence (AI), blockchain, cannabis or the “app economy.”

"It’s pretty clear that it does,” she told a panel at the Canadian Bar Association’s Competition Law Fall Conference in Ottawa in September.

Ian Disend, a senior competition policy analyst at Innovation, Science and Economic Development Canada, said the question is more a matter of whether the Competition Act is well suited for a changing marketplace.

Pointing to the bureau’s recent white paper on big data and innovation, he said “it’s pretty difficult to dilute that certainly the law is able to cope with a changing and increasingly digital landscape.”

Case in point? The introduction of e-commerce, which brought huge change to the marketplace, possibly the biggest in generations.

“But if you look at what happened with competition law, the answer is not a whole lot,” Disend said. “For the most part the framework is broad enough to operate. It does work even in spite of a completely different way of doing business.”

Eatrides said whether they’re dealing with new or old ground, the general framework set out in the act is the same. And while they may ask slightly different questions during a review of an emerging industry, their approach and analysis are consistent.

After all, regardless of the industry, ultimately, they want to know whether there is a risk that competition within it will be impeded by regulatory barriers and restrictions? Will anti-competitive conduct impede it? And is there a technological innovation that could potentially provide new ways for firms to restrict competition or deceive consumers?

“The answers to those aren’t always clear-cut, especially when the industry is nascent, but it provides a good structured way of thinking through things,” she said.

That’s not to say there aren’t challenges.

“There are lots of big-picture questions of a more practical nature and they keep us up at night because they don’t have easy answers,” Eatrides said.

In the case of AI, for instance, what happens if a business uses robots to engage in anti-competition conduct? Who do you go after in a situation like that?

“This is part of a third bucket of weird issues that new technologies raise,” she said.

“Given the nature of these industries, speed is also an issue.”

Asked if it’s a losing battle for the law to try and keep up with the pace of technological change, Eatrides preferred to call it a challenge — much like a game of regulatory whack-a-mole.

“We’ve always had to adapt to new markets and products, but now I think the extent of innovation and the implications are larger than they used to be,” said Michael Kilby, a competition lawyer at Stikeman Elliott LLP in Toronto.

“That’s prompted something of a rethinking, with the question being how fundamental of a rethinking is it? Does it completely change our approach or is it something incremental and we adjust as we always have in the past? My sense is that for now and in the short term, things will continue to be as they have been.”

Recently, his firm has worked with a number of cannabis companies ahead of the October 17 legalization and he’s found the framework to be responsive.

“It’s not a way of doing things or a new technology that upends old techniques or old technologies. Instead it’s a new product market effectively. It’s of a different nature than blockchain, but it does at the same time present its challenges.”

For most industries that are disruptive, it happens gradually, with one development after another, Kilby noted. But with cannabis, there is a date on which the recreational market will be legal.

“Everyone is at the starting line and they’ve been gearing up for some time. The gun will be fired at the same moment, which has created an interesting lead-up period,” he said. “It’s a little unusual.”

While there are informational deficits that exist — including a lack of meaningful market share data, wildly varying estimates of potential Canadian demand, no pricing history and unknowns around product segmentation — “I think what’s fair to say is that the bureau, from my perspective, has applied the same principles it would to any industry.”

While that may be the case, Debbie Salzberger of McCarthy Tétrault LLP in Toronto said cannabis isn’t particularly novel from an analytical perspective. For other emerging industries, however, there are practical issues and gaps.

Among them? The treatment of non-price effects.

“While they’re important aspects of competition … how do you quantify a price effect to measure against a non-price effect in an app economy where apps are offered for free and the business model has nothing to do with the pricing of the product,” she asked.

Salzberger also thinks that at times the framework doubts the competitive impact of innovators. Its interest in market share is also problematic as many of the traditional ways of measuring it don’t apply to the digital economy.

“What’s market share when you have multiple apps that any one user can use? It’s not like buying a dishwasher or something tangible, where you need one,” she said.

“And yet, I don’t think I’ve put in a submission to the bureau in 20 years that didn’t have some reference to market share.”

Salzberger said it’s such “a knee-jerk expectation” that if you don’t put it in, there’s often some suspicion as to why.

“In those areas there may be room, not necessarily for a complete rethink, but at least for some enhancements to the framework.”

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