Canadian COMPETITION LAW

January 18, 2011

The Competition Bureau has announced that it has reached a settlement with two spa retailers in relation to allegedly false energy savings claims (see: Spa Retailers Required to Stop Making False ENERGY Star Claims).  According to the Bureau, the retailers had made misleading representations incorrectly conveying the impression that their hot tubs or insulation met the criteria of the ENERGY STAR Program.

This case is the most recent example of the Bureau taking action against allegedly false performance claims in the spa retailing sector (see for example: Competition Bureau Takes Action Against Spa Retailers For False Energy Efficiency Claims, Competition Bureau Reaches Further Agreements with Hot Tub Retailers on Unsupported Claims and Competition Bureau Cracks Down on Unsupported Energy Savings Claims).  Somewhat curiously, the Bureau has moved from investigating fuel energy savings devices a few years ago to enforcement against the (not immediately clear) evils of spa performance claims.

The Competition Bureau and Canadian Standards Association (CSA) have also jointly published enforcement guidelines addressed specifically to environmental marketing (see: Environmental Claims: A Guide for Industry and Advertisers) which, according to the Bureau, are intended to “provide the business community with the necessary tools to ensure that environmental marketing is not misleading, while providing consumers with greater assurance about the accuracy of environmental claims.”

In making the announcement, the Bureau said:

“Under the terms of a consent agreement filed today with the Competition Tribunal, which has the force of a Tribunal order, “EcoSmart Spas” and “Dynasty Spas”, as well as a director of both retailers, Brent Marsall, have agreed to cease making misleading representations and to pay an administrative monetary penalty of $130,000. Corrective notices will also be published in all stores, and on their Web site, to inform customers of the misleading representations. In addition, a corporate compliance program will be developed and implemented for both retailers. …

On June 29, 2010, the Bureau announced that it had filed an application with the Competition Tribunal seeking to prohibit Mr. Marsall and his companies from making claims that the products were eligible for ENERGY STAR certification. The ENERGY STAR Program is an international standard for energy efficient and environmentally friendly consumer products. No hot tubs, spas, or insulation products for sale in Canada are eligible for certification by, or in association with, the ENERGY STAR Program.

Since announcing a crackdown on unsupported energy savings claims in June 2009, the Bureau has reached agreements with all Canadian hot tub and spa retailers identified as having made similar false or misleading claims, except EcoSmart Spas and Dynasty Spas. The Bureau was forced to start enforcement action against Mr. Marsall, EcoSmart Spas and Dynasty Spas. The consent agreement resolves the matter with respect to these final violations.

Canadian and American government agencies cooperated in the Bureau’s investigation. This includes the United States Environmental Protection Agency, which owns and manages the ENERGY STAR Program, and the Office of Energy Efficiency of Natural Resources Canada, which administers the program in Canada.”

While misleading advertising and deceptive marketing practices are (and generally have been) an enforcement priority for the Competition Bureau, it has frequently focused on false performance claims made by distributors and retailers to ground its claims.  In this regard, false product performance claims can violate the “general” criminal (section 52) or civil (section 74.01) misleading advertising provisions of the Competition Act (i.e., where a claim is either literally false merely the “general impression” of a performance claim is misleading).

The Competition Act also prohibits false performance claims (prohibiting representations to the public about the “performance, efficacy or length of life of a product that is not based on an adequate and proper test”), which can be particularly relevant to the advertising and marketing of products where the speed, efficiency or other performance is a key marketing component.

While performance claims themselves are not prohibited, any testing or verification must be conducted before a claim is made and the onus, if challenged, is on the person making the claim to show that it is based on an “adequate and proper test”.  As such, while performance claims are a common and often legitimate means to distinguish products from competitors, it is important that proper testing be performed (or appropriate statistics or support are obtained) before performance claims are made.

In this regard, the Competition Tribunal recently held that a non-exhaustive list of factors are relevant to determine whether testing is “adequate and proper”.  In Canada (Commissioner of Competition) v. Imperial Brush Co. (2008), 2008 Comp. Trib. 2 (Comp. Trib.), the Tribunal held:

“[i]n summary, and in respect of this case, I conclude that a ‘proper and adequate’ test depends on the claim made as understood by the common person; must be reflective of the risk or harm which the product is designed to prevent or assist in preventing; must be done under controlled circumstances or in conditions which exclude external variables or take account in a measurable way for such variables; are conducted on more than one independent sample wherever possible; results need not be measured against a test of certainty but must be reasonable given the nature of the harm at issue and establish that it is the product itself which causes the desired effect in a material manner; and must be performed regardless of the size of the seller’s organization or the anticipated volume of sales.”

In order to be “adequate and proper”, however, testing does not need to be 100% reliable or the best scientific testing that could have been performed (i.e., testing does not need to meet a test of certainty).

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