Canada's Competition Bureau, the independent law-enforcement agency that promotes fair play in the marketplace, is to provide the corporate community with guidelines in the next few weeks on what constitutes predatory pricing.

Predatory pricing law is a tricky area of competition law that defies effective drafting and enforcement. For example, exactly where should the criminal courts draw the line between an honest response to a competitor's low prices and a criminal attempt by a big, powerful corporation to drive a smaller competitor out of business?

The Competition Bureau addresses questions such as this in its Predatory Pricing Enforcement Guidelines, now undergoing final revision prior to publication. One solution the bureau is adopting is to place greater emphasis on recourse to the civil courts and to regulatory action, where the standard of proof is much less onerous.

"Once it's published, it's out there for business and the public to consult," says bureau spokeswoman Marilyne Nahum of Gatineau, Que., who adds that there will be only minor changes to a version that the bureau published in fall 2007 for comment from the business, legal, law-enforcement and academic communities.

Constituents interested in how the law deals with marketplace predators have greeted the proposed guidelines with cautious enthusiasm.

"It is appropriate to focus predation investigations under the civil abuse-of-dominance provisions," the national competition law section of the Canadian Bar Association said in a brief to the bureau.

"Overall the CBA Section is generally supportive of the guidelines and their overriding theme that it's important not to chill vigorous price competition."

Decades ago, when I was a young journalist, I believed it would be financial suicide to attempt to launch a local newspaper in any small- or medium-sized city in provinces like B.C., where the market is monopolized by a large newspaper chain.

Any such effrontery, I thought, would be met with offers to advertisers by the established rag for below-cost advertising for as long as the offending upstart remained in business. In return for this largesse, the advertiser would have to refrain from advertising in the new paper.

Now that I am older and hopefully wiser, I accept that the notion of such corporate behaviour in my former line of work is likely the vagrant offspring of a cynical mind. After all, the Competition Act, which the bureau administers and enforces, labels what I have just described "predatory pricing."

Predatory pricing is a serious criminal offence punishable by up to two years in prison. The catch for prosecutors is that they must prove their case beyond a reasonable doubt - and there has been considerable debate over what constitutes predatory pricing. Under the act, it is illegal to employ a policy of selling products at artificially low prices if the policy has the effect of lessening competition or eliminating a competitor - or is intended to have such an outcome.

As difficult as such prosecutions are, it is not impossible to obtain a conviction.

For instance:

* The bureau obtained a criminal conviction in 1996 against Sherbrooke, Que., driving-school owner Jacques Perreault, for deliberately charging $31 to $51 less than the prices of competitors over a two-year period in order to force them out of the market. He was sentenced to one year in jail.

* Sixteen years earlier, pharmaceutical giant Hoffman-La Roche Ltd.

became the first business in Canada to be convicted criminally of predatory pricing. The Ontario court found that Hoffman-La Roche tried to drive generic-label upstart Frank Horner Ltd. out of the Valium business by selling the drug for $1, or giving it away to hospitals and government purchasing authorities. (The company received a $50,000 fine.)

For every successful predatory pricing prosecution, the bureau has experienced several failures. For example, the courts have concluded that selling at prices that are above the seller's costs cannot include predatory pricing.

Similarly, some sales at below-cost levels, such as selling off perishable inventory, are exempt from this law.

The bureau has tried repeatedly in the past couple of decades to resolve these issues. In 2002, policymakers returned to the drawing board after proposed guidelines were greeted with broad criticism by such groups as industry associations and law firms.

The draft guidelines published in fall 2007 reveal that bureau staff will be directed to favour the civil abuse-of-dominance provisions of the act, which offer a greater range of options, including regulatory penalties. Criminal prosecution would be considered only in the most outrageous cases.

"It's very difficult to get a case where it's straightforward that predation has taken place," says Michelle Lally, a partner with Osler, Hoskin & Harcourt LLP law office in Toronto.

"It's very difficult to distinguish the effects of predatory behaviour from the effects of aggressive price competition," the antitrust lawyer adds. "No one wants to discourage legitimate price competition."

The guidelines, which note that the short-term benefit of predatory pricing for consumers is inevitably followed by higher prices, spell out several elements that must be established before investigators will act on a complaint.

One, for example, is "recoupment" - the ability of the predator to increase prices above competitive levels for a significant amount of time after driving the targeted competitor or competitors out of business.

Recoupment is a basic concept among competition law enforcement agencies in other jurisdictions, such as the United States. In its 2002 draft guidelines, the bureau appeared to be backing off on reliance on recoupment. But now, the concept is back.

"The bureau will only pursue allegations of predatory conduct where it finds the alleged predator would likely have power to the extent that it could likely recoup its losses after a period of predatory pricing," guidelines say.

Another element is market power - for example, high market share.

Businesses with market share of less than 35 per cent generally are not considered to have such power.

"We commend the bureau for clarifying ... that a firm's ability to recoup losses is a precondition for demonstrating that low-pricing activity is anti-competitive," Osler, Hoskin & Harcourt said in its consultation submission.

(Brock Ketcham is an Edmonton-based writer who specializes in consumer and public policy issues. He can be reached at brock@businessedge.ca)