Self-Regulated Professions Under Competition Bureau Spotlight­ 

publication 

Spring 2007 - (Lang Michener Competition & Antitrust Brief)

Lang Michener Competition & Antitrust Brief
Overview
 
The Canadian Commissioner of Com­petition (the "Com­missioner") recently announced that the Bureau's new advocacy and enforcement efforts in relation to the self-regulated professions were a "high priority." That is not to say that this is new ground for the Competition Bureau (the "Bureau"), which has expressed its views on the regulation of professions on many prior occasions. A wide spectrum of professionals and professional bodies have also been involved in competition law investigations and proceedings, including pharmacists, lawyers and no­taries, among others. 

What is new is the increased scale and scope of the Bureau's current initiative, which involves an extensive review of the regulation of lawyers, real estate agents, accountants, opto­metrists, opticians and dental hygienists. 

According to the Commissioner, the principal rationales for the Bureau's re-examination of the self-regulated professions are the "increasing significance of the self-regulating professions to the economy, [the Bureau's] revised approach concerning the [regulated conduct defence], and the example of other jurisdictions." 

Increased Significance of the Professions 

While Canada's competition law originally did not apply to the professions or services in general, professionals and their regulating bodies have not been immune from the Competition Act (the "Act") since amendments in 1976. More­over, professional conduct is not excluded from the Act simply by virtue of the profession being regulated. At the same time, professional services are becoming increasingly important to the Canadian and international economies. For example, the Com­missioner acknowledged this in a recent speech, stating that professional services "epitomize the heart of the knowledge-based economy." 

The regulation of professional activities may achieve a variety of policy objectives. From an economic perspective, however, regulatory restraints on competition, including in relation to professional services, may also, in the words of the Bureau, "erect barriers to entry and expansion, distort the allocation of resources, limit access to professional services and discourage innovation and change." This may in turn result in higher prices, poorer services and less consumer choice. 

Bureau's Revised Approach to the RCD

The Bureau's renewed focus on self-regulated professions is based in part on its revised, and arguably narrower, view of the regulated conduct defence ("RCD"). In this regard, the Bureau recently issued a new Technical Bulletin on "Regulated" Conduct ("RCD Bulletin") outlining its general approach to the enforcement of the Act where conduct is regulated by other valid provincial or federal legislation. The Bureau's RCD Bulletin replaces its 2002 Information Bulletin on the Regu­lated Conduct Defence ("2002 Bulletin"), which was criticized as insufficiently reflecting RCD case law. 

The RCD is a common law doctrine developed as an exception to the doctrine of paramountcy (i.e., the notion that federal law trumps provincial law when there is a conflict). To state the doctrine at its simplest, where conduct is mandated or authorized by valid provincial or federal legislation, the conduct may be immune from the application of the criminal and possibly civil "reviewable matters" provisions of the Act. 

Canadian courts have established several factors that must be met to invoke the RCD: (i) the relevant legislation is validly enacted, (ii) the conduct has been authorized or required by the legislation, (iii) the regulator has exercised its authority and (iv) the conduct has not frustrated the exercise of regulatory authority. 

The Supreme Court of Canada also recently held in the Garland case that the RCD will only apply where the relevant federal law expressly or by "necessary implication" contemplates that there may be exceptions to its application (i.e., contains "leeway" language, such as "undue," indicating that the other legislative scheme prevails). In Garland, which involved the application of the criminal rate of interest provision of the Criminal Code (the "Code"), the Court held that because the competition provisions at issue in the previous RCD cases contained language such as "the public interest" and "unduly" limiting competition, the absence of similar language in the Code precluded the application of the RCD. The impact of Garland for competition law is that otherwise valid provincial regulation may not be immune from sections of the Act that do not contain "leeway language" (e.g., certain "per se" criminal offences). 

A key issue regarding the RCD in the context of the self-regulated professions is whether the RCD applies to immunize conduct from the civil provisions of the Act (e.g., abuse of dominance). Early RCD cases all involved the application of the RCD to conduct under the criminal provisions of the Act. As such, the application of the RCD to the civil provisions of the Act has been something of an open question. 

While the Bureau states in the RCD Bulletin that where a validly enacted provincial law authorizes or requires the impugned conduct, it will not pursue a case under the conspiracy provisions of the Act, it notes that as "RCD case law is extremely limited in respect of the reviewable matters provisions of the Act," absent further judicial guidance it "cannot responsibly limit its statutory mandate by the general application of the RCD to the reviewable matters provisions of the Act." This reflects a significant internal policy change by the Bureau. It also demonstrates the Bu­reau's willingness to commence civil cases involving regulated entities. 

With respect to other criminal provisions of the Act, the Bureau states that it will attempt to determine whether Parliament intended that the particular provision would apply to the impugned conduct, in which case it may refrain from pursuing the case based on the RCD. This may mean the Bureau will be more likely to pursue alleged anti-competitive conduct engaged in by professionals or professional bodies under the civil provisions of the Act or under the per se provisions of the Act, both of which may allow for more scope to argue that the RCD does not apply. 

Another key aspect of the RCD in the self-regulated professions context is whether the RCD applies to "regulatees" (i.e., those subject to regulation) and the level of authorization needed to shield regulatees from the Act. While the Bureau states that the RCD may be invoked by regulators and regulatees, its position is that conduct by the latter may be subject to greater scrutiny given their potential for self-interest. The question as to whether there is a more stringent test for the application of the RCD to regulatees is also reminiscent of the U.S. state action doctrine, which can operate to immunize actions taken at the direction or approval of a state. However, unlike in Canada, U.S. case law has established that private parties are subject to a different (i.e., higher) test to invoke the state action doctrine.

Bureau's Review of Self-Regulated Professions 

The Bureau's renewed interest in the self-regulated professions is based in part on the efforts of antitrust enforcers in other jurisdictions, including the European Union, Ireland and United States. For example, the European Commission's 2004 Report on Com­pe­tition in Pro­fes­sional Services reviewed restrictions on competition in six professions: lawyers, no­taries, accountants, architects, engineers, and pharmacists, concluding that these professions were characterized by a high level of state or self-regulation. The relationship be­tween antitrust enforcement and the regulated sectors has also recently been the subject of reports by the International Com­pe­tition Network, Organization for Eco­no­mic Co-operation and Deve­lop­ment and a U.S. Federal Trade Com­mission Task Force. 

The Commissioner has recently described the Bureau's overall review of regulatory restrictions as a "competition lens." While the Bureau has acknowledged that there may be other legitimate public interests in relation to professional services other than competition, in its view restrictions on competition should be regarded as an "extreme regulatory response, justified only by the most compelling circumstances." 

This balancing approach, with a greater emphasis on the free operation of markets rather than competing policy considerations, reflects that taken by antitrust agencies in the U.K., EU and Australia. The over-arching principle in these approaches is to interfere with competition and the operation of markets as little as possible to achieve competing policy goals. Specific steps the Bureau is taking in its review of self-regulated professions include: 

″ Comparative Study. The Bureau has issued questionnaires to professional regulatory bodies and plans to prepare a comparative study of self-regulated organizations to determine the extent to which they use anti-competitive restrictions to limit access to their profession or control the competitive conduct of members (e.g., through restrictions on fees or entry, advertising or business structures). The Bureau then plans to publish a final report of its findings, similar to studies recently produced in the EU and Ireland. 

″ Advocacy. The Bureau's recent efforts also include lobbying provincial governments to avoid implementing anti-competitive restrictions on professional services. For example, the Bureau recently encouraged the Real Estate Council of Alberta to eliminate rules prohibiting brokers from offering cash incentives to buyers and to remove restrictions on the payment of referral fees in certain circumstances. The Bureau also recently sent letters to the provincial governments of Alberta, Nova Scotia and New Brunswick supporting provincial initiatives to create independent colleges of dental hygiene to "promote the efficient, low cost and innovative provision of services."
 
The principal rationale for the increased level of advocacy by antitrust agencies is that professional services are increasingly subject to regulation and, therefore, potentially immune from direct antitrust enforcement. In the words of the Director of Advocacy of the Irish Com­petition Authority, the role of competition advocacy is "to persuade the relevant legislators and public bodies either that the presence of markets and the competitive pressures that go with them can improve outcomes, or that regulations which confer market power on producers should be removed or replaced by measures less restrictive of competition." 

″ Enforcement and Litigation. While the Bureau has ex­pressed its willingness to commence proceedings in the regulated sector, there has as yet been relatively little direct enforcement in the professional sphere. The Bureau has, however, been highly active in investigating and enforcing restrictions on professional services in the past. As such, the Bureau's present preliminary review of the professions may result in enhanced enforcement and litigation.

Targeted Restrictions 

The Bureau is examining several types of restrictions relating to the self-regulated professions, including mandatory or "suggested" fee schedules, advertising restrictions, restrictions on entry and restrictions on type of practice. These types of potentially anti-competitive restrictions parallel those examined by the Bureau in the past and those being reviewed by other antitrust agencies. 

Fees
 
A principal area of concern for antitrust enforcers in the past in relation to professional regulation has been the regulation of professional fees. In Canada, fee regulation may contravene the criminal conspiracy or price maintenance provisions of the Act. The perceived harm of price regulation is that it reduces price competition among professionals. A number of professions have been subject to competition enforcement in the past in relation to fee-setting activities. 

The regulation of professional fees may take a variety of forms, including an express agreement among professionals to charge fixed or minimum fees, fee tariffs established by a regulating body or professional association or professional codes of ethics that mandate or set minimum fees. Some professional bodies have argued that the regulation of fees is necessary to maintain quality services, provide consumers with information regarding fees (or average fees) for services or to prevent overcharging. 

Whether such efforts to set or regu­late fees contravene the Act will depend, among other things, on the scope of any such "agreement" (e.g., whether fees are merely suggested or mandatory) and the extent of regulatory authority for regulating fees (e.g., whether legislation exists authorizing the regulation of fees). Antitrust enforcement agencies in other countries have similarly raised fee-setting and suggested fees among professionals as a principal area of antitrust concern. For example, the European Commission recently stated that the "most common cases" in the professional association context have been price fixing cases and that professions in ten EU member states had fixed or minimum fees in some professions. 

Fee schedules that are something less than an agreement between competing professionals, however, may be permissible. For example, the Bureau recently issued an advisory opinion on the application of the conspiracy and price maintenance provisions of the Act to a proposed residential real estate services fees schedule for Ontario lawyers. The Commissioner concluded that the publication and dissemination of the proposed fee schedule, without more, would not provide sufficient grounds for an inquiry (e.g., the fee schedule was merely "recommended," did not suggest minimum fees and would not result in sanctions or discipline). 

Advertising
 
Similar to various other jurisdictions, the Bureau is also targeting regulation of advertising in its review. The Euro­pean Commission recently found that a large number of EU professions are subject to sector-specific advertising regulation and that some professions in eleven EU member states were subject to significant advertising restrictions.
 
In theory, advertising is pro-competitive because it informs consumers about different products, allowing them to make better-informed purchasing decisions. Arguments for restricting advertising in the professional context have included "information asymmetries" between professionals and consumers (i.e., advertising restrictions are necessary because consumers cannot fully assess information about professional services and so need protection from misleading claims), preventing "unfair" competition and preserving professional integrity and independence. Restrictions on advertising may, however, reduce competition by increasing the costs of gaining information about different products, making it more difficult for consumers to search for the quality and price that meets their needs. 

One of the most significant Canadian competition cases involving the professions concerned a prohibition on lawyers' advertising of their services imposed by the Law Society of British Columbia. In the Jabour case, Benchers of the Law Society were authorized under provincial legislation to prohibit lawyers from engaging in conduct "unbecoming" the legal profession and prohibited lawyers from advertising their services. The Supreme Court of Canada found that the Combines Investigation Act did not apply to the Benchers' activities, who were acting under validly enacted provincial legislation presumed to be in the public interest. There­fore, any effect on competition could not be "undue" to constitute a criminal conspiracy.

Entry
 
A final area identified by the Bureau as part of its review of self-regulated professions are entry restrictions (i.e., restricting entry into a profession or limiting who may perform services). While the subject of recent scrutiny by a number of antitrust authorities, entry restrictions into professions or trades are not a new phenomenon. Some of the earliest reported common law restraint of trade cases involved entry restrictions into local guilds.
 
Entry restrictions may operate to protect consumers by ensuring suitable professional qualifications. Entry restrictions may also, however, limit competition by reducing the number of service providers and reducing consumer choice and supply. In the trade association context (e.g., where a professional regulatory body does not have legislative authority), restricting entry into an association or refusing to provide association services may raise criminal conspiracy issues. While there is relatively little case law in Canada, some U.S. cases have considered the antitrust aspects of association membership restrictions, characterizing the exclusion or expulsion of members from associations as an illegal boycott. 

An example of the Bureau's recent advocacy efforts in this area is in relation to the regulation of dental hygienists. According to the Bureau, introducing self-regulation for dental hygienists would allow dental hygienists to self-initiate, making the market for such services more efficient, in turn enabling a broader base of consumers to receive dental hy­giene care and improving consumer welfare. 

The underlying objective of such efforts is to unbundle professional services, based on the theory that this will increase choice of professional services and reduce cost. This is similar to recent efforts by antitrust agencies in Canada and the United States to discourage barriers to the provision of unbundled real estate services (i.e., allow consumers to select discrete real estate services as opposed to full service) and in Ireland to separate conveyancing from other legal services. 

Implications for Self-Regulated Professions

The Bureau's recent focus on the self-regulated professions highlights the tension between competition law and competing policy objectives. As a practical matter, the Bureau's renewed interest in the professions may have a number of impacts on professionals and their regulating bodies. These may include increased pressure on professional bodies to critically examine the regulation of their members, which may in turn result in less regulation, lower barriers to entry and increased competition in professional services. Regulators and their members may also be more likely to be exposed to direct antitrust enforcement in relation to conduct not legislatively sanctioned. What remains to be seen, however, is the extent to which competing policy objectives will ultimately trump the Bureau's "competition lens."


This article appeared in InBrief Summer 2007 and Competition & Antitrust Brief Spring 2007

The article originally appeared in the May 11, 2007 issue of The Lawyers Weekly, published by LexisNexis Canada Inc.