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We practice federal competition law, have provided Canadian competition law advice to clients across Canada and internationally and provide a full range of competition law and foreign investment law services including in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act. Our competition law services in relation to promotional contests include:
- Application of the Competition Act and Criminal Code to promotional contests.
- Drafting and reviewing contest rules and disclosure.
- Drafting and review of promotional contest marketing materials.
- Application of the misleading advertising provisions of the Competition Act.
RECENT PROMOTIONAL CONTEST NEWS
Manitoba-based Resort Company Penalized for Running Misleading Contests
On November 23, 2009 the Competition Bureau announced that Elkhorn Ranch & Resort Ltd., a Manitoba-based company that sells vacation property time shares, has agreed to pay CDN $170,000 for operating promotional contests in contravention of the promotional contest provisions of the Competition Act. For more information see: Resort Company Penalized for Running Misleading Contests.
OVERVIEW OF CANADIAN PROMOTIONAL CONTEST LAW
Promotional contests in Canada are primarily governed by the Competition Act (the “Act”), the Criminal Code (the “Code”) and the common law of contract. In addition, Quebec has separate legislation that applies to promotional contests (the Act respecting lotteries, publicity contests and amusement machines). As such, promotional contest law in Canada is an amalgam of regulatory law, criminal law and common law contract law.
Moreover, given that the improper operation of a promotional contest can lead to civil and/or criminal liability under the Act, the Code and/or as a result of a contractual (i.e., common law) challenge, it is critical to review proposed promotional contests for legal compliance, as failure to properly structure a promotional contest can have disastrous consequences.
In this regard, a Manitoba company recently paid a penalty of more than $150,000 for operating a promotional contest allegedly in contravention of the promotional contest provisions of the Act (see below).
Competition Act
The Act for the most part requires that certain disclosure be made when conducting “any contest, lottery, game of chance or skill, or mixed chance and skill, or otherwise disposes of any product or other benefit …” Some of the key requirements under the Act include: (i) disclosing the number and approximate value of prizes, (ii) disclosing the area (or areas) to which they relate and (iii) any fact that may materially affect the odds of winning. In addition, the Act provides that the distribution of prizes cannot be unduly delayed.
As a result of the disclosure requirements set out in the Act, most contest organizers provide a short version of a contest’s terms at the point of sale, with a full version of rules available on request, on the organizer’s website, etc. Point of sale disclosure often includes the number and approximate value of prizes, any regional allocation, the skill testing question requirement, information relating to the odds of winning, the closing date for the contest and information relating to the odds of winning.
In addition to specific rules relating to promotional contests, the “general” misleading advertising provisions of the Act also apply to the operation of promotional contests. As such, it is important that the terms of promotional contests not be false or misleading in a material respect (i.e., do not raise issues under the general misleading advertising provisions of the Act, which means that in addition to the detailed statutory disclosure, the overall impression of contest claims must practically be considered as part of a review).
The potential penalties for contravening the promotional contest or general misleading advertising provisions include a court order to cease the conduct, civil or criminal fines, an order to publish a “corrective notice” and/or imprisonment. In sum, the penalties can be significant if you don’t get a contest right.
Criminal Code
In addition to the promotional contest provisions the Act, the Code also governs promotional contests in Canada (sections 206 and 207 of the Code). In particular, the Code makes it a criminal offence to operate an illegal lottery. While the relevant provisions of the Code are complex and somewhat archaic, in short an illegal lottery consists of: (i) a prize, (ii) chance and (iii) consideration (i.e., something of value provided by contestants as a condition for eligibility to participate in the contest).
For this reason, promotional contest organizers often remove either the consideration and/or chance elements (i.e., including a sufficiently skill testing question) in order to remove a contest from the scope of the illegal lottery provisions of the Code.
It is worth noting, however, that the determination of what constitutes “consideration” and “chance” can be challenging and complex in some cases.
Common Law
It is also worth noting that in addition to the regulatory requirements set out in the Act and the Code, promotional contests have been held to be contracts. As such, promotional contests are also governed by the common law of contract in Canada.
As such, in addition to ensuring compliance with the Act and Code, as well as Quebec legislation if applicable, it is also important that the terms and conditions of a promotional contest be carefully structured to reduce potential contractual liability. This includes careful review of long rules and winner release forms.
Summary and Practical Considerations
As promotional contests in Canada are, generally speaking, governed by the Act, the Code, the common law of contract and, in some instances, separate Quebec regulation, it is critical that contests be crafted with care and attention to detail to ensure compliance.
Key practical aspects in effectively designing a promotional contest in Canada, and to avoid disaster, include attention and care in the drafting of mandatory short rules (short statutory disclosure required under the Act), drafting long contest rules (which raise many similar issues as drafting effective contracts) and reviewing all print and online disclosure to ensure compliance with the Act (including the general misleading advertising provisions) and the Code.
In sum, while the basic law of promotional contests is not complex, the devil is in the details. As such, it is crucial that care be taken to ensure that all required statutory elements are included, and that appropriate care is also taken to reduce the likelihood of any legitimate contractual challenges.
PROMOTIONAL CONTEST LINKS & RESOURCES
Competition Bureau
Promotional Contests (Enforcement Guidelines)
Texts
Goldman & Bodrug, eds., Competition Law of Canada, looseleaf (Juris Publishing).
Pritchard & Vogt, Advertising and Marketing Law in Canada, 3rd ed. (Markham: LexisNexis, 2009).
Young, David M.W. and Brian R. Fraser, Canadian Advertising and Marketing Law, looseleaf (Toronto: Carswell, 1990 – ).
Legislation
Competition Act
Criminal Code
Act respecting lotteries, publicity contests and amusement machines (Quebec)
RECENT CASES
On November 23, 2009 the Competition Bureau announced that Elkhorn Ranch & Resort Ltd., a Manitoba-based company that sells vacation property time shares, has agreed to pay CDN $170,000 for operating promotional contests in contravention of the promotional contest provisions of the Competition Act.
In its News Release, the Bureau stated:
“After conducting an investigation into Elkhorn’s 2006 and 2007 promotional contests, the Bureau concluded that the company had run contests without fair disclosure of accurate odds of winning and without ensuring that winners were selected on a random basis. Elkhorn’s contests also gave the misleading impression that the grand prize was a brand new SUV, when the prize, if awarded, was a one or two–year lease on an SUV, with stringent conditions. The contests were primarily associated with the marketing of Elkhorn’s time share properties in Western Canada. Consumers were solicited by phone, at trade shows and at time share presentations.”
As part of its settlement with the Bureau (under a consent agreement), Elkhorn is required to: (i) pay an administrative monetary penalty of $150,000, (ii) pay costs of the Bureau’s investigation in the amount of $20,000, (iii) ensure that all of its future contests are conducted fairly and with full disclosure, (iv) publish corrective notices in select newspapers and on its websites and (v) adopt a corporate compliance program to ensure compliance with the deceptive marketing sections of the Competition Act.
In addition to general misleading advertising provisions, the Competition Act also contains a number of other provisions that regulate a range of marketing activities including bait and switch selling, selling above advertised price, multi-level marketing plans, pyramid selling schemes, deceptive telemarketing and the “ordinary selling price” provisions (dealing with sales) and promotional contests.
The promotional contest provisions of the Act, among other things, require that persons conducting promotional contests disclose the number and approximate value of prizes, the areas to which they relate and chances of winning. In addition, the Criminal Code also contains provisions regulating promotional contests. As such, review of promotional contests should include ensuring that rules comply with the Competition Act and Criminal Code.
While enforcement of the promotional contest rules under the Act is relatively uncommon, the Bureau does commence investigations for breaches of these rules from time to time and this most recent case is a sober reminder of the potential penalties for being offside the rules. It is also worth noting that, as a result of recent amendments, the penalties for contravention of the civil false or misleading representation provisions of the Act have now been increased to $750,000 (for individuals) and $10 million (for corporations).
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.