Canadian COMPETITION LAW

February 25, 2014

In an interesting and important decision issued by the Ontario Superior Court of Justice on February 21^st, the Court has now imposed a $500,000 civil administrative monetary penalty (“AMP”) against Rogers for failing to have performed adequate and proper testing in some Canadian markets for performance claims made in relation to its Chatr Wireless brand (see: Canada (Commissioner of Competition) v. Chatr Wireless Inc., 2014 ONSC 1146).

While the liability decision in this case had been issued last summer (for a summary of some of the key points of the case see my earlier post: Rogers Largely Wins Landmark Chatr Misleading Advertising and Performance Claims Case and Canadian Lawyer comment earlier today: Rogers Escapes Steep Fine), the remedies were to be decided at a later date and have now been determined.

In deciding to impose a $500,000 AMP in this case, the Court held that Rogers had not met the due diligence defence under subsection 74.1(3) of the Act (which can bar the order of, among other things, the imposition of AMPs), that an AMP of $500,000 was appropriate in this case and that a prohibition order against Rogers was unnecessary to promote compliance with the Act.

While there is rather a lot in this important misleading advertising penalty decision, it seems to me there are several key points that come out of the decision and case generally (among others).

First, it is a reminder that the Competition Act requires that adequate and proper testing be conducted before performance claims are made (i.e., it is not sufficient to be able to substantiate performance claims after they are made).  While the exposure for unfounded claims may be relatively manageable where claims can be proven after they are made (as in this case), the Court indicated that the size of penalty may indeed be significantly larger where performance claims cannot be substantiated at all or are generally misleading – neither of which was the case here.

Second, the case is also a reminder that the potential civil or criminal penalties for misleading advertising under the Act can be severe.  For violation of the civil misleading advertising provisions of the Act, AMPs of up to $10 million may be imposed by courts or Competition Tribunal.

Third, the Court, rightly in my view, undertook a measured and considered approach to imposing the AMP in this case on the facts of the case and largely considering consumer harm.  The Competition Act is, after all, consumer protection legislation and the Court I think rightly considered the extent of actual harm suffered by consumers for Rogers’ untested performance claims.  In this respect, while the Court surveyed the policy rationales for the Act’s performance claim requirement, which it found include maintaining consumer confidence and reducing the likelihood of misleading claims, it balanced these perfectly sensible objectives against what harm had actually been suffered by consumers.  More specifically, the Court reasoned that a lower AMP was appropriate (not the $5-7 million sought by the Competition Bureau) based, among other things, on the fact that Rogers’ claims had not been found by the Court in its earlier decision to be misleading and that later testing had actually substantiated Rogers’ performance claims.

Fourth, the Court pointed out that, unlike the criminal penalties under the Act (misleading advertising is enforceable in Canada as a civil matter or criminal offence), civil AMPs are not intended to be imposed to punish, but instead are meant to promote compliance with the Act (and therefore need to be proportional to achieve that objective).

Finally, in evaluating the specific aggravating or mitigating factors set out in the Act under section 74.1(5) for determining the size of an AMP to be imposed, the Court once again focused on the consumer effects of Rogers’ untested claims.  In this respect, the Court found, among other things, that a number of the factors were not aggravating factors again given that the claims were substantiated after they were made.  The Court also considered Rogers’ previously positive compliance history and penalties imposed in earlier performance claim cases (and also rejected the argument that Rogers had determined that the benefit of unsubstantiated claims outweighed the costs of violating the Act, given the potentially severe reputational risk associated with competition law enforcement).

Overall, it seems to me that the Court took the right approach to evaluating the size of AMP to be imposed in this case based, among other things, on consumer harm.  In this regard, while the potential penalties for violating the civil or criminal misleading advertising provisions of the Competition Act can be severe, this case illustrates that the potential penalties set out in the Act are not merely a rubber stamp for Courts to impose maximum fines (particularly given the requirement to consider the Act’s various aggravating or mitigating factors).

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