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.
For more information about Canadian competition law visit: Merger Notification, Criminal Conspiracy, Abuse of Dominance, Misleading Advertising, Reviewable Matters, Competition Compliance Policies, Trade Associations and Competition Law, Promotional Contests, Competition Law Links, Competition Law Texts and Investment Canada Act.
For more information about Canadian intellectual property law visit: Canadian Intellectual Property Law, Canadian Trademark Law, Trademark Infringement, Trade-marks – FAQs, Canadian Copyright Law, Copyright Infringement, Canadian Internet Law, Internet Law Texts, Canadian Licensing Law, Canadian Domain Name Law, E-commerce, ISP Law, Intellectual Property Law Links and Intellectual Property Law Texts.
The materials and information on IP & COMPETITION LAW CANADA are provided as legal information only. Reading and accessing this information does not create a lawyer-client relationship. The information on IP & COMPETITION LAW CANADA does not constitute legal advice or a legal opinion on any issue. In addition, the information and materials on this website will change based on new legislation and case law and, as such, may not be current as of the date of access. As such, we take no responsibility for the accuracy or currency of the information or materials on this website, which should not be relied upon without receiving legal advice from competent legal counsel. For more information about Canadian competition law or Canadian intellectual property law contact Steve Szentesi at steve@IPVancouverblog.com or steve@nortonstewart.com. Steve Szentesi is a Canadian competition lawyer and Canadian intellectual property lawyer. © 2009, Steve Szentesi. All Rights Reserved.