THE COMPETITION BUREAU AND NEWSPAPERS: ANOTHER MISSED OPPORTUNITY? By Julie Mouris, Gavin Murphy, and Alice Mount. (Article)

 

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Julie Mouris

 

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 Gavin Murphy

 

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and with the collaboration of Alice Mount

 

 Executive Summary

Did Torstar and Postmedia agree to swap ownership of newspapers in an attempt to stifle competition? This was the question investigated by the Canadian Competition Bureau, after the exchange of 41 papers between the two media companies in 2017 resulted in closure of 36 of them.

The Bureau recently dropped the case, but why? Some commentators have suggested the deal is proof of anticompetitive behaviour, others say it is a simple business transaction. Nevertheless, this case is not the first time the Bureau has failed to take action in the newspaper sector.

Introduction

On 7 January 2021, Canada’s Competition Bureau announced that it had closed its investigation into allegations of conspiracy between Postmedia Network Canada Corp (‘Postmedia’) and Torstar Corporation (‘Torstar’) (1). The Bureau assists the Commissioner of Competition (‘the Commissioner’) with the administration and enforcement of the Competition Act (‘the Act’) (2).

The Commissioner opened the investigation in November 2017, shortly after Postmedia, Torstar (and its subsidiary Metroland Media Group) announced a deal that involved the transfer of 41 community and daily newspapers, and the subsequent closure of 36 of them. Most of these papers were based in Ontario, in regions served by multiple publications. Among the titles eliminated were small town papers like the daily Orillia Packet & Times (founded 1870) and the 153-year-old Barrie Examiner. In announcing the shuttering and loss of about 300 jobs, Postmedia said these actions would deliver savings in operating costs, while maintaining viable publications.

The then executive chairman and chief executive officer of Postmedia, Paul Godfrey, explained: "This transaction allows Postmedia to focus on strategic areas and core products and allows us to continue with a suite of community-based products, in a deeply disrupted industry." [3]

Bureau investigation

In response to this announcement, the Commissioner launched a criminal conspiracy investigation [4] into the transaction between Postmedia and Torstar to determine if the parties had agreed to swap papers in a bid to stifle competition [5]. In March 2018, the Commissioner obtained search warrants and the Bureau executed searches and seized materials at the offices of Postmedia, Torstar and Metroland Media Group in greater Toronto.

At the time of the search, the then Commissioner John Pecman said: "In response to news reports and questions from the media, I can confirm that the Competition Bureau is investigating alleged anti-competitive conduct contrary to the conspiracy provisions of the Competition Act.

The Bureau is also examining this matter under the merger provisions of the Act. Investigators with the Bureau are currently gathering evidence to determine the facts relating to the alleged conspiracy. There is no conclusion of wrongdoing at this time and no charges have been laid." [6]

The Commissioner then announced on 4 December 2018 that a court order was obtained from the Ontario Superior Court of Justice to further the investigation. [7] The order required one former and five current employees of Torstar to be interviewed under oath by investigators as the Bureau believed these witnesses likely had information that was relevant to its investigation. At the same time the Commissioner repeated that he had not reached a conclusion of wrongdoing, and that no charges had been laid.  In order for a conviction of conspiracy under the Act, the case must be proven beyond a reasonable doubt; the high threshold required in criminal cases. [8] As a result, the Commissioner will only refer a case for prosecution if there is ‘clear evidence’ that demonstrates an agreement to fix prices, allocate markets, or lessen or eliminate the supply of a product or service. [9]

After completing its investigation, the Bureau likely concluded that the evidence it gathered to support a finding of conspiracy, if any, did not constitute such ‘clear evidence’ and determined that further action was unwarranted. No other public information regarding the basis of the decision to close the investigation has been provided by the Commissioner.

Indeed, one legal commentator had earlier suggested that it was difficult to understand how the Torstar-Postmedia deal could be considered contrary to the Act (s. 45), as the Bureau’s own Competitor Collaboration Guidelines [10] indicate that the Commissioner will only bring about cases under s. 45 and other criminal provisions of the Act for the most egregious forms of cartel agreements or ‘naked restraints’ on competition. He said: "Once the investigation is completed, the Commissioner will determine whether there is sufficient evidence to prosecute the case. If the Commissioner believes that there is sufficient evidence, it will refer the matter to the Public Prosecution Service of Canada, which will review and ultimately decide if a prosecution should be initiated."

(...) [I]t is difficult to discern how the conduct at issue, an asset swap likely animated by the typical business considerations at play in a transaction (for example, tax treatment), could be considered contrary to section 45. [11]

Upon hearing the news of the closure of the investigation, Postmedia president and chief executive officer Andrew MacLeod stated:
"From the outset we have adamantly maintained that Postmedia has done nothing wrong and now, more than two years later, the Competition Bureau has closed the investigation. We are happy to have this matter and the associated pressure and cost behind us and look forward to continuing the important work of keeping Canadians informed with ambitious, trusted and high-quality journalism and delivering high-value and data-driven marketing solutions to businesses and advertisers. We will continue to urge the Bureau to apply its considerable resources to address the impacts of foreign digital monopolies on our industry and others in Canada." [12]

Same old, same old?

This decision will likely not sit well with many Canadians. A systematic elimination of papers has continued in Canada for more than a decade, according to one commentator, with transactions that result in the shutdown of these papers essentially going unchallenged. He noted: "Newspaper companies in both Eastern and Western Canada have engaged in anti-competitive behaviour since 2010 by exchanging titles, increasingly through trades, and then closing them to create more lucrative local monopolies. This phenomenon reached its height in late 2017 when the country’s two largest chains, Postmedia Network and Torstar Inc., traded 41 mostly Ontario titles and closed almost all of them. The chains claimed there was no collusion involved, but a Competition Bureau investigation reportedly found detailed memos and noncompete agreements." [13]

These newspaper closures are reminiscent of those in 1980 when two competitors almost simultaneously closed daily papers in Winnipeg and Ottawa, thereby allowing the other to have a monopoly in each market. Beyond the establishment of a Royal Commission at the time to look into the state of the Canadian newspaper industry, [14] little action was taken. [15] The 2017 investigation was the Bureau’s ‘one last chance’ to show it could effectively regulate antitrust behaviour in the newspaper industry, [16] but this now appears to be a missed opportunity.

Notwithstanding this decision, the Commissioner made clear at the outset of the COVID-19 pandemic that the Bureau still functions and remains committed to scrutinising evidence that companies or individuals have not violated Canada’s competition laws. [17] In late January 2021 he added in a speech in Vancouver: "Acting decisively to help preserve the level of competition in affected markets is crucial, given the lessons learned from previous economic crises. Crises can be prime opportunities for dominant firms to consolidate market power and harm competition, through by buying up weakened competitors, fixing prices, or reducing output.

This kind of conduct can worsen an existing economic crisis, and even delay recovery. Paired with fiscal stimulus to protect vulnerable firms through the crisis, strong enforcement of competition laws [Commissioner’s emphasis] ensures firms cannot insulate themselves from the forces of competition during a crisis." [18]

REFERENCES
[1] Competition Bureau, “Competition Bureau closes investigation of Postmedia and Torstar,” 7 January 2021, online: https://www.canada.ca/en/competition-bureau/news/2021/01/competitionbureau-closes-investigation-of-postmedia-and-torstar.html [accessed 29 January 2021].
[2] Competition Act, RSC 1985, c. C-34 (as amended), online: https://canlii.ca/t/54cq0 [accessed 29 January 2021].
[3] Postmedia, “Postmedia Announces Community Newspapers Transaction with Torstar”, 27
November 2017, online: https://www.postmedia.com/2017/11/27/postmedia-announcescommunity-newspapers-transaction-with-torstar/ [accessed 29 January 2021].
[4] A parallel merger inquiry was also initiated to determine if the transaction would result in a
substantial lessening or prevention of competition in the newspaper sector as per s. 91 of the Act.
This review was later dropped, and the Bureau focussed on whether there had been a violation of s.
45.
[5] Section 45(1) of the Act says: “Every person commits an offence who, with a competitor of
that person with respect to a product, conspires, agrees or arranges
(a) to fix, maintain, increase or control the price for the supply of the product.
(b) to allocate sales, territories, customers or markets for the production or supply of the product.
or
(c) to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product.”
[6] Competition Bureau, “Statement from the Commissioner of Competition regarding searches in the greater Toronto area”, 12 March 2018, online: https://www.canada.ca/en/competitionbureau/news/2018/03/statement-from-the-commissioner-of-competition-regarding-searches-in-thegreater-toronto-area.html [accessed 29 January 2021].
[7] Competition Bureau, “Competition Bureau obtains court order to advance ongoing investigation of Postmedia and Torstar”, 4 December 2018, online: https://www.canada.ca/en/competitionbureau/news/2018/11/competition-bureau-obtains-court-order-to-advance-ongoing-investigationof-postmedia-and-torstar.html [accessed 29 January 2021].
[8] Section 45(2) of the Act says: “Every person who commits an offence under subsection (1) is
guilty of an indictable offence and liable on conviction to imprisonment for a term not exceeding 14
years or to a fine not exceeding $25 million, or to both.”
[9] See Competition Bureau, endnote 1.
[10] Available at: https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03177.html[accessed 29 January 2021].
[11] Sean Stephenson, “An update on the Torstar-Postmedia investigation,” the Canadian Bar Association, competition law section, 29 November 2019, online: https://www.cba.org/Sections/Competition-Law/Articles/Torstar-Postmedia [accessed 29 January2021].
[12] Postmedia, “Competition Bureau Closes Investigation of Postmedia and Torstar,” 7 January 2021, online: https://www.postmedia.com/2021/01/07/competition-bureau-closes-investigation-ofpostmedia-and-torstar/ [accessed 29 January 2021].
[13] Marc Edge, “Conspiracy to Commit Murder? Canadian Newspaper Trades and Closures, 2010-2017”, CJMS Winter 2018 at 28, online: https://cjms.fims.uwo.ca/issues/16-01/Edge.pdf[accessed 29 January 2021].
[14] Royal Commission on Newspapers, 1981, online: https://epe.lac-bac.gc.ca/100/200/301/pcobcp/commissions-ef/kent1981-eng/kent1981-eng.htm [accessed 29 January 2021].
[15] An anti-trust proceeding was brought against the two publishers in April 1981 but later
dismissed.
[16] Edge, endnote 13, at 41.
[17] Gavin Murphy, “The Canadian Commissioner of Competition issues a statement on the
application of competition rules during the COVID-19 virus outbreak”, Concurrences, 20 March
2020, online: https://www.concurrences.com/en/bulletin/special-issues/competition-law-covid-19-
en/the-canadian-commissioner-of-competition-issues-a-statement-on-the-application [accessed 29
January 2021].
[18] Mathew Boswell, Commissioner of Competition, 2021 Vancouver Competition Policy Roundtable speech, 26 January 2021, online: https://www.canada.ca/en/competitionbureau/news/2021/01/2021-vancouver-competition-policy-roundtable-speech.html [accessed 29 January 2021].

Note: An earlier version of this article appeared as: Mouris and Murphy, ‘The Canadian Competition Authority closes its investigation in to an alleged conspiracy by large media companies (Postmedia / Torstar’, Concurrences, February 2021, online: https://www.concurrences.com/en/bulletin/news-issues/february-2021-en/the-canadian-competition-authority-closes-its-investigation-into-an-alleged [accessed 17 Feb 2021].