Overview
Effective advertising is important for most companies and will prove its effectiveness in many ways including building goodwill, instilling consumer trust and, ultimately, resulting in increased sales.
However, when a company markets its products or services in a misleading manner, consumers may be deprived of accurate information which can adversely affect a company’s goodwill and reputation. Misleading advertising can also attract legal liability and sanctions under both federal and provincial laws.
On the federal level, the Competition Act (the “Act”) sets guidelines on advertising and marketing practices including in relation to misleading advertising generally and specific forms of marketing conduct including sales (under the Act’s “ordinary selling price” provisions), deceptive telemarketing and promotional contests.
Misleading Advertising
The Act contains both criminal and civil misleading advertising provisions. As such, the Competition Bureau (the “Bureau”) may pursue misleading advertising either as a civil matter or, alternatively, as a criminal matter.
While in most instances the Bureau will follow the civil track, it may proceed on the criminal track in some cases – for example, where there is clear and compelling evidence that an accused intentionally made false or misleading representations.
The civil misleading advertising provision, under the “deceptive marketing practices” part of the Act, prohibits representations to the public to promote products or business interests that are materially false or misleading. The criminal provision, which is substantially similar, provides that a misleading representation may be criminal if it is made with intent (i.e., made knowingly or recklessly).
It is worth noting that representations made to as few as a single person may be caught, the Act catches both literally false representations as well as claims that may be literally true where the “general impression” of the representation is misleading and that no person needs to be actually deceived or misled.
In addition, it is not necessary to prove that a representation was made to persons in Canada or that a representation was made in a publicly accessible place (i.e., companies in Canada targeting foreign consumers with misleading advertising can be potentially exposed to liability as can companies making claims in places not accessible to the public – e.g., through catalogue or direct sales).
The Act also governs a broad range of specific forms of marketing conduct including “ordinary selling price” claims (e.g., in relation to sales), deceptive telemarketing, contests, performance claims for products and bait-and-switch selling.
The potential penalties for contravening the civil misleading advertising provisions include a Competition Tribunal or court order to cease the conduct, an order to publish a corrective notice, a restitution order, a “freezing order” preventing the disposition of property and/or an order to pay an “administrative monetary penalty” (essentially a civil fine, referred to as an “AMP”) of up to CDN $750,000 for individuals (CDN $1 million for subsequent violations) and CDN $10 million for corporations (CDN $15 million for subsequent violations).
Potential penalties for contravening the criminal misleading advertising provisions (and the deceptive telemarketing and deceptive prize notice provisions) include up to 14 years imprisonment and/or an unlimited fine (i.e., a fine in the discretion of the court).
Ordinary Selling Price Claims
The “ordinary selling price” (“OSP”) provisions of the Act are intended to prevent inflated “regular” prices in relation to sales.
Claims relating to the ordinary or regular price of a product cannot be made unless either a “substantial volume” of the product has been sold at the stated “regular” price (or higher) within a reasonable period before or after the claim (referred to as the “volume test”) or the product has been offered for sale in good faith at that price (or higher) for a “substantial period of time” (referred to as the “time test”).
Since the OSP provisions were enacted in 1999, several well-known retailers have paid penalties ranging from $100,000 to $1.7 million.
Deceptive Telemarketing
The deceptive telemarketing provisions of the Act require, among other things, that telemarketers make certain disclosure at the beginning of calls (e.g., caller identity, purpose of the call, etc.) and that other disclosure be made in a “fair, reasonable and timely manner” (e.g., the product’s price and any material delivery restrictions).
The enforcement of the telemarketing provisions of the Act has been aimed for the most part at companies engaged in true “scams” rather than legitimate marketers who may have committed technical violations.
Individuals have been charged or imprisoned in a number of cases in connection with marketing a broad variety of products including business directories, office supplies and credit cards where the marketing was not in compliance with the Act.
Promotional Contests
Promotional contests are a common and popular way to promote products and may take a variety of forms (e.g., scratch-and-win contests, promotional draws, etc.). Promotional contests are, however, governed by both the Act and the Criminal Code and can raise a number of potential issues (and attract civil and criminal sanctions) if they are not property structured.
OUR MISLEADING ADVERTISING & MARKETING LAW SERVICES
We practice federal competition law, have provided competition law and compliance advice to clients across Canada and internationally and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act. Our misleading advertising and marketing law services include advice in relation to:
- The general misleading advertising provisions of the Competition Act.
- “Ordinary selling price” provisions (sales).
- Promotional contests.
- Multi-level marketing plans.
- Pyramid selling.
- Telemarketing.
- Deceptive prize notices.
- Double ticketing & bait and switch advertising.
- Performance claims & comparative advertising.
- Scope of the recent Competition Act amendments.
- Consumer packaging and labeling legislation.
CANADIAN COMPETITION LAW LINKS
For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy, Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal, Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.
CONTACT US
We provide Canadian competition law services to Canadian and international clients. For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558.
OUR BOOKS
The Competition Law Guide for Trade Associations in Canada is a practical and concise summary of Canadian competition law as it applies to trade, professional and other associations.
OUR COURSES
Competition Law and REALTORS®: What You Say and Do Matters was designed by ACRE with the assistance of CREA to help Canadian REALTORS® understand and comply with Canadian competition law.
This course is available
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For more information see ACRE