Canadian COMPETITION LAW

January 23, 2013

Steve Szentesi & Kevin Wright (Davis LLP)

Extract from a chapter to be published in CLEBC’s
Annual Review of Law & Practice – 2013

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2012 was a busy year for Canadian competition and foreign investment law, with significant developments in all major areas including misleading advertising, mergers, abuse of dominance, criminal matters (including cartels, bid-rigging and deceptive marketing) and private actions.  The following is an overview of some of the key misleading advertising developments (with summaries of other significant developments in 2012 to come over the next few days).

Richard v. Time
(“General Impression” Test & Disclaimers)

In Richard v. Time Inc. (2012 SCC 8), a Quebec resident received a prize mail-out relating to magazine subscription marketing leading him to believe he had won more than $800,000 (the mail-out stated he “WON $833,337.00!” when small print disclaimers disclosed that only a chance to win was being offered).  He returned the mail-out, subscribed to the magazine and then requested his prize.  When told he had not won, but was merely eligible to participate in a sweepstakes, he sued under the Quebec Consumer Protection Act (“QCPA”).  While successful at trial, the Court of Appeal reversed and the recipient appealed to the Supreme Court.

On appeal, the Supreme Court considered the standard for the “general impression” test for misleading advertising under the QCPA.  In this regard, advertising can be false or misleading, under some consumer protection legislation as well as the Competition Act (the “Act”), where a claim is literally false or the “general impression” is misleading.  This “general impression” test can apply where, for example, a disclaimer fails to alter the overall misleading impression of a “headline” claim, two true claims are made but, when associated, they create a misleading general impression or material information is omitted (e.g., additional pricing, key limitations/conditions, etc.).

The Supreme Court held that the relevant consumer for the QCPA’s general impression test was a “credulous and inexperienced” consumer.  Accordingly, courts should view the average consumer as “someone … not particularly experienced at detecting the falsehoods or subtleties found in commercial representations” (both a lower standard than held by the Court of Appeal in this case as well as other cases decided under the Act, where courts have generally held the relevant consumer to be an “average consumer”).

The Supreme Court in this case held that the general impression of the prize mail-out was that the grand prize had been won, which was misleading, and awarded compensatory and punitive damages.  The Court also confirmed that in considering whether an advertisement is misleading the entire context, including layout and arrangement of text, must be considered and that fine print disclaimers (in this case “riddled with misleading representations”) failed to cure the otherwise misleading prize claim.  Though decided under Quebec law, this case is important in that it has started a debate as to whether Canadian courts will lower the bar for the general impression test for competition law advertising cases.

Yellow Page Marketing
(Misleading Business Claims & Disclaimers)

In Commissioner of Competition v. Yellow Page Marketing, 2012 ONSC 927 (Sup. Ct.), a group of companies and individuals sent faxes designed to lead recipients to believe they were confirming online directory information for the Yellow Pages Group (“YPG”).  In fact the companies, which used names and logos resembling YPG, were unrelated to YPG and used fine print disclaimers to sign-up recipients to new two-year online directory contracts with significant fees.  The Ontario Superior Court reviewed the relevant law under the general civil misleading advertising provision of the Act (s. 74.01), finding that the faxes were misleading, material and that the fine print disclaimers failed to cure otherwise misleading claims.  The penalties ordered by the Court included a ten-year prohibition order, compensating consumers and more than $9 million in AMPs (including more than $1 million against three individuals).  This was the highest award to date in contested proceedings for a Canadian misleading advertising case.

Rogers and Rogers/Bell/TELUS Advertising Cases
(Performance Claims and Mobile Advertising)

In two of the most important advertising law developments in 2012, the Competition Bureau (the “Bureau”) challenged Rogers, Bell and TELUS in cases involving performance claims (Commissioner of Competition v. Chatr Wireless Inc., CV-10-8993-00CL (Ont. Sup. Ct.)) (“Rogers”) and price claims for “premium texting” wireless services (Commissioner of Competition v. Rogers Communications Inc., 12-55497 (Ont. Sup. Ct.)) (“Rogers/Bell/TELUS”).

In the Rogers case, the Bureau is challenging two performance claims made by Rogers in relation to its cell phone brand Chatr: that its service had “fewer dropped calls than new wireless carriers” and that customers had “no worries about dropped calls”.  The Bureau argues that these claims, made to compete with new wireless entrants, were literally false in some cases (in markets where new entrants’ dropped call rates were superior) and where true, were nevertheless misleading because while giving the general impression of appreciably lower dropped call rates, any differences in performance were in reality “inconsequential and imperceptible”.  The Bureau is also arguing that disclaimers used by Rogers, which included language that in the Bureau’s view would be “meaningless” to an average consumer, failed to cure the otherwise misleading general impression of the performance claims.  Rogers in turn is challenging the appropriate data and methodology for performance claims made and is also making constitutional challenges to the performance claim provision of the Act (based on Charter freedom of expression arguments) and to the $10 million AMPs that may now be imposed under the Act for misleading advertising (arguing they are criminal in nature, constitute penal consequences and should be given the same procedural safeguards as criminal offences).

In the Rogers/Bell/TELUS case, the Bureau commenced additional proceedings in Ontario against Bell Canada, Rogers Communications, TELUS Corporation (the “Telecoms”) and the Canadian Wireless Telecommunications Association (“CWTA”) for alleged misleading advertising in relation to “premium texting services” (see: Competition Bureau, News Release, “Competition Bureau Sues Bell, Rogers and Telus for Misleading Consumers” (September 14, 2012)).  In this second case, the Bureau is alleging that the Telecoms and CWTA facilitated the sale of 3^rd party premium-rate digital content (e.g., news, advice, trivia, horoscopes, ringtones, etc.) without adequately disclosing their fees and suggested that some services were free and is seeking $31 million in AMPS and restitution for consumers.  The essence of the Bureau’s claim is twofold: first, that the wireless companies made false or misleading representations to the public the general impression of which was that consumers could receive premium text messaging and other services for free (when they were in fact charged for content); and second, that claims were made that consumers were safeguarded from receiving and having to pay unauthorized charges, when the Telecoms collected and facilitated such charges keeping a percentage.  The Bureau also argues that the recent lower general impression test from the Supreme Court of Canada’s decision in Richard v. Time (discussed above) should apply, alleging that the Telecoms’ claims were targeted at wireless users including “credulous, inexperienced, and vulnerable” persons, such as children.

Implications of Recent Advertising Cases

While the two telecom cases discussed above were ongoing at the time of writing, several of these cases have established new law, including lowering the bar for the “general impression” test in Quebec (which may be adopted by courts in other provinces), clarifying the meaning of “business interest” in misleading advertising cases, adding to the case law on disclaimers and illustrating some of the factors Canadian courts will consider in imposing the now more significant penalties possible for misleading advertising.

They are also a reminder of some established advertising law principles, including that courts will consider the overall context and impression of challenged advertising, that fine print or overly legalistic disclaimers may not cure otherwise false or misleading headline claims, that the misleading advertising provisions of the Act apply to product and business claims, and that a claim may violate the misleading advertising provisions of the Act where it is either literally false or the general impression is false or misleading.

Finally, these cases illustrate several important enforcement trends, including increased scrutiny of price and performance claims, challenges of fine print disclaimers, a focus on mobile devices and other new technologies, and a willingness by the Bureau to regularly seek the maximum statutory penalties for misleading advertising.

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