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KENT COMMISSION—1
Measure in years the wait for a real competition policy

By Gordon Mclntosh

 

"I think monopoly in anything is a bad thing for the public, but I like it for myself. I always like monopolies when I am operating them because, obviously, they are very profitable"

Roy Thomson, September, 1961

 

Ottawa may have given the illusion its Combines Investigation Act has some authority over newspaper monopolies when federal investigators were rooting about the offices of Thomson Newspapers and Southam Inc., in the wake of the simultaneous closings of the Ottawa Journal and Winnipeg Tribune this summer. And it may have shown itself to be concerned when it anounced the creation of the Kent commission into the effects of concentrated newspaper ownership.

But within a few months, the public is likely to learn what lawyers and monopoly experts have known since 1976, when the Supreme Court of Canada effectively nulled Canada's merger policy by ruling that the K.C Irving chain did not have a monopoly detrimental to the public, even though it owned all five English-language newspapers in New Brunswick. The feds have little regulatory control over mergers and monopolies in general, and almost none when it comes to newspapers.

The combines investigators are supposed to determine whether there is evidence the two newspaper chains enjoy a monopoly to the public detriment and have lessened competition. But it's actually another round between old acquaintances in an ongoing game of monopoly, in which the country's newspaper giants have been under scrutiny at least five times in the last 20 years, while the feds rarely have been able to get past go, frustrated by legislation some say is absurd.

In the most publicized case, the government did actually win a conviction against the Irving chain in the New Brunswick Supreme Court in 1974, when prosecutors argued successfully that the company enjoyed a full monopoly with detrimental effects to the public. Irving was ordered to divest itself of the two Moncton newspapers.

But things turned in Irving's favor, when the Supreme Court of Canada ruled in 1976 that Ottawa had only proven there was a monopoly. It had not proven there was detriment to the public. The government had to go back two spaces and an entire province retained its right to read Irving newspapers.

If you have trouble understanding that case, try this one. Earlier this year, the court ruled the country's three giant sugar companies had indeed lessened competition, but not unduly.

Economist William Stanbury says that if one were to take the supreme court's logic in the Irving case a step further, one firm could acquire all the daily newspapers in Canada, and provided the newspapers were not in direct competition with each other and the papers appeared to give wide coverage to national and local news, it could not be convicted of a merger of monopoly offence.

"There's a total vacuum in policy...the emperor has no clothes," he says.

Lawyer Jeff Sack, who acted for The Newspaper Guild in making application for the current combines investigation, says the Combines Investigation Act is more than absurd, it's obscene.

It's not enough to say one could drive a truck through the loopholes in the law, he says. There isn't very much there to drive through.

"One of the myths of society is that the government will look after your interests with corporate mergers," says Gil Reschentaler, a professor at the University of Alberta. "The fact of the matter is no one is looking after your interests."

It shouldn't be any surprise for anyone to discover that Ottawa has never been able to win a contested merger or monopoly case, since it was given powers to conduct such cases in 1910.

The truth of Canada's merger and monopoly law is that it recognizes the right of a monopoly to exist. Because it's Criminal law, it presumes all monopolies are innocent until proven guilty, as it does with ordinary citizens. But while monopolies' rights are so strenuously defended, the government must go through a maze of requirements that can be as arbitrary as those found on the cards of a Parker Brothers' game.

The government must prove in tangible detail the public has been hurt. How is that applicable in the abstract question of how newspapers serve the democratic process? It isn't.

"Logically, it doesn't make sense to have the Crown prove beyond a reasonable amount of doubt future possibilities," says Jack Quinn, an associate professor of law at the University of Western Ontario.

Should Ottawa go ahead with a case against Thomson and Southam, it will have to do more than show the court a complicated whodunit. It would have to show the court very clearly who it was done to and that would be impossible without very specific evidence, says a lawyer close to the court who asked not to be named.

What's needed, according to those most familiar with Canada's competition policy, is a civil law that takes into account economic and social consequences of gargantuan mergers. Then the government would not have to show proof beyond a reasonable doubt of public detriment, just a balance of probabilities.

In other words, criminal law is the wrong arena to deal with most merger and monopoly cases.

Andre Ouellet, minister of consumer and corporate affairs, says he intends to work for the passage in 1981 of tougher anti-monopoly legislation. "It's our last chance," he says. "We have to act now because if we don't it might be too late."

Determined words, but, ironically, it was the Liberals before their hiatus from office in 1979 who shelved a set of amendments to the Combines Investigation Act that would have given federal officials some powers under civil law.

First proposed in 1977, the anti-monopoly reforms would have included creation of a review tribunal. But the reforms were withdrawn after strenuous protests from the business community. Since 1971, the Combines Investigation Act has been undergoing an overhaul in its other areas of jurisdiction, giving the Crown tougher powers that have resulted in convictions, particularly for misleading advertising.

The reforms Ouellet wants would bring Canadian competition policy closer to that of the United States and United Kingdom where civil law is used. Even if Ouellet's reforms are passed in 1981, by the the time they are tested in the courts it could be years before Canada has any kind of effective competition policy.

After the sale of FP newspapers to Thomson Jan. 30, many in the news business took comfort in thoughts the takeover might mean an infusion of new money and competitive vigor for an ailing newspaper chain, even from a group not noted for editorial expertise or generosity. Such thoughts were naive and the Canadian newspaper industry—had it been willing to look— would have realized the medicine from such a merger was bound to mean severe surgery and amputation.

Because of a furious bidding war, Thomson paid an inflated price for FP, $164 million. Of that, the company would have to realize an after-tax profit of $25 million to make the investment worthwhile. That would have been almost twice what FP earned in its best year in 1974.

In other words, the merger of FP and Thomson, while making business sense to somebody, was bound to be bad news for any one who cared about diversity in Canadian journalism.

Through its consolidation and amputations of the parts it didn't want, Thomson has cut the purchase price by more half for the parts it did want, including The Globe and Mail, a prize that had eluded the Thomson family since the late Roy Thomson lost a bidding war for it in 1955. In other words, Thomson has gone from paying a price considered excessive by most analysts to what amounts to a steal.

In the same fashion that the Toronto Telegram was worth more dead than alive, FP has turned out to be worth more to its new owners dismembered. There's no question the cannibalism of FP would have been an issue before a tribunal since it could have been predicted by anyone owning a calculator and an unclouded mind.

In fact, Ouellet says that had there been a requirement that companies report mergers to the federal government that are likely to create monopolies, Black Wednesday might have been averted.

Ken Thomson, himself, in an interview after the sale of FP, may have provided the most telling commentary on Canada's newspapers and the law.

He said that at some point there is a limit to how many newspapers one man should own. He hasn't reached it yet, he says, but he'll know when he does.

Whether the courts will know by then is another question. 

 

Gordon Mclntosh is a reporter-editor at The Canadian Press in Toronto, and former managing editor of the Woodstock (Ont.) Sentinel-Review.

 

Published in Sources Winter 1980/81

 



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