MISLEADING ADVERTISING
OUR ADVERTISING AND MARKETING LAW SERVICES
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 advertising and marketing law services include advice in relation to the general misleading advertising provisions of the Competition Act, the “ordinary selling price” provisions (sales), promotional contests, multi-level marketing plans, pyramid selling, telemarketing, deceptive prize notices, double ticketing and bait and switch advertising, performance claims and comparative advertising, application of the recent Competition Act amendments and Canadian consumer packaging and labelling legislation (federal Consumer Packaging and Labelling Act, Precious Metals Marking Act and Textile Labelling Act).
OVERVIEW OF MISLEADING ADVERTISING IN CANADA
The federal Competition Act (the “Act”) contains both civil and criminal provisions dealing with false or misleading representations (commonly referred to generally as “misleading advertising”). In addition, the Act also governs a number of specific forms of marketing conduct including “ordinary selling price” claims (claims made in relation to sales), performance claims, selling above an advertised price, deceptive telemarketing and promotional contests.
False or Misleading Representations
As the Act contains both criminal and civil misleading representations provisions, the Competition Bureau (the “Bureau”) may pursue misleading representations on either a civil or criminal track. While in most instances the Bureau will proceed civilly, it may commence an investigation or inquiry on the criminal track in some cases – for example, where there is evidence that an accused has engaged in intentional or fraudulent conduct.
The civil misleading representations provisions prohibit representations to the public, for the purpose of promoting a product or business interest, that are false or misleading in a material respect. The criminal provisions, which are substantially similar, prohibit false or misleading representations that are made intentionally (i.e., knowingly or recklessly).
It is worth noting that a representation to a single person may be caught, both the literal meaning as well as the “general impression” of a claim are relevant in determining whether a representation is false or misleading (i.e., a representation that is literally true may, nevertheless, be false or misleading if the “general impression” of the representation is false or misleading) and that it is not necessary to show that any person has actually been deceived or misled as a result of the claim.
The relevant test to determine whether a representation is false or misleading is an objective test, which considers whether consumers are likely to be misled by the representation (or otherwise alter their conduct).
In addition, it is not necessary to show that a representation was made to persons in Canada or was made in a publicly accessible place (i.e., companies in Canada targeting foreign consumers with misleading advertising can, as a result of recent amendments, now be potentially exposed to liability as well as companies making claims in places not accessible to the public – for example, through catalogue or direct sales).
Promotional Contests
Promotional contests in Canada are primarily governed by the Act and the federal Criminal Code (the “Code”). In addition, Quebec has separate legislation that applies to promotional contests (the Act respecting lotteries, publicity contests and amusement machines).
Given that the improper operation of a promotional contest can lead to civil and/or criminal liability under Canadian federal legislation (e.g., a Manitoba company recently paid more than $150,000 for making claims in relation to real estate investments that allegedly violated the promotional contest provisions of the Act), it is prudent to have promotional contests reviewed for compliance with the Act and the Code.
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 for promotional contests 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, regional allocation (if any), 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.
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.
Criminal Code
In addition to the promotional contest provisions in 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.
Common Law
It is also worth noting that in addition to the regulatory requirements set out in the Act and Code, promotional contests have been held to be contracts (and, as such, are also governed by the common law of contract in Canada). As such, in addition to ensuring compliance with the Act (including the general misleading advertising provisions), the Code and Quebec legislation, if applicable, it is also important that the terms and conditions of a promotional contest be reviewed with care to avoid potential contractual liability.
Performance Claims
The Act also prohibits performance claims that are not based on an adequate and proper test. In particular, the Act prohibits representations made to the public, in the form of a statement, warranty or guarantee, of the performance, efficacy or length of life of a product that is not based on an adequate and proper test.
Some of the types of performance claims that may be caught by this provision include claims relating to the performance of a product, comparative advertising and claims relating to preferences or perceptions. Importantly, any test that is carried out must be performed before the claim is made and be appropriate for the claim (i.e., support the claims being made and be based on appropriate test methodology).
Sale Above Advertised Price
The Act also prohibits selling (or renting) products at a higher price than advertised. As such, it is the responsibility of sellers to ensure that the prices that are charged correspond to the advertised prices. There are, however, a number of exceptions to this prohibition, including where an advertisement is immediately followed by a correction, sales of products by persons that are not in the business of selling such products (i.e., private sellers) and catalogue advertisements where it is clearly stated that the advertised prices are subject to error, providing the person advertising the product establishes that there has in fact been an error.
Deceptive Telemarketing
The Act makes it a criminal offence to engage in telemarketing for the purpose of making false or misleading representations in promoting the supply of a product. Telemarketing is defined under the Act as “interactive telephone communications.” In addition to prohibiting telemarketers from making false or misleading representations, the Act also prohibits telemarketers from engaging in a number of other activities including: (i) requiring advance payments in order to receive a prize, (ii) offering gifts as inducements to purchase other products (without fairly disclosing the value of gifts), (iii) not providing adequate and fair disclosure of the number and value of prizes and (iv) requiring advance payments for products offered at inflated prices. In addition, telemarketers are required to make up-front disclosure of the identity of the person for whom the communication is being made, the purpose of the call, nature of the product and disclosure of the price and other material terms. In this regard, the Act sets out specific disclosure to be included at the beginning of a call (and other mandatory disclosure to be made at some point during a call).
The enforcement of the telemarketing provisions of the Act has been aimed for the most part at companies engaged in true “scams” not legitimate marketers who may have committed technical violations. Having said that, a number of individuals have been either charged or imprisoned in connection with the marketing of a broad range of products including business directories, office supplies and credit cards.
Ordinary Selling Price Claims
The ordinary selling price (“OSP”) provisions of the Act are intended to prevent inflated “regular” prices in relation to sales. In short, these provisions make it a reviewable practice to mislead consumers about the “ordinary” selling price of a product. Claims relating to the ordinary or regular price of a product cannot be made unless one of two alternative tests is met: (i) a “substantial volume” of the product has been sold at the stated “regular” price (or higher) within a “reasonable period” of time before or after the claim (the “volume test”) or (ii) the product has been offered for sale in good faith at that price (or higher) for a “substantial period of time” before or after the claim (the “time test”).
With respect to the volume test, the Bureau has taken the position that a substantial volume means more than 50% of sales at (or above) the reference price and that a reasonable period of time means twelve months before (or after) the claim (though this period may be shorter depending on the nature of the product). With respect to the time test, the Bureau has taken the position that whether a product has been offered for sale in good faith will depend on a number of factors and that a substantial period of time means more than 50% of the six months before (or after) the claim is made (which may again be shorter depending on the nature of the product). Since the OSP provisions were enacted in 1999, several prominent retailers have paid civil penalties ranging from $100,000 to $1.7 million for contravention of the OSP provisions of the Act.
Misleading Advertising Penalties
The potential penalties for contravening the civil misleading representations provisions include Competition Tribunal or court orders to cease the conduct, publish a corrective notice, pay restitution and/or pay “administrative monetary penalties” (essentially civil fines) of up to $750,000 for individuals ($1 million for subsequent violations) and $10 million for corporations ($15 million for subsequent violations). The potential penalties for contravening the criminal misleading representations provisions (and deceptive marketing provisions) include up to 14 years imprisonment and/or an unlimited fine (i.e., in the discretion of the court).
MISLEADING ADVERTISING LINKS & RESOURCES
Application of the Competition Act to Representations on the Internet (Enforcement Guidelines)
Bait and Switch Selling (Pamphlet)
Consumer Packaging and Labelling Act
Consumer Rebate Promotions (Enforcement Guidelines)
Deceptive Notices of Winning a Prize (Enforcement Guidelines)
Deceptive Prize Notices (Pamphlet)
Enforcement Guidelines for “Product of Canada” and “Made in Canada” Claims
False or Misleading Representations and Deceptive Marketing Practices (Pamphlet)
Guidance on Labelling Textile Articles Derived From Bamboo (Enforcement Guidelines)
Guide for the Labelling and Advertising of Pet Foods
Guidelines on the Deceptive Notice of Winning a Prize Provisions Section 53 of the Competition Act
Guide to the Consumer Packaging and Labelling Act
Guide to the Textile Labelling and Advertising Regulations
Misleading Representations (Pamphlet)
Multi-level Marketing Plans and Schemes of Pyramid Selling (Enforcement Guidelines)
Multi-level Marketing and Pyramid Selling (Pamphlet)
Multi-level Marketing and the Competition Act (Multi-media)
Ordinary Price Claims: Subsections 74.01(2) and 74.01(3) (Enforcement Guidelines)
The Ordinary Selling Provisions of the Competition Act (Bulletin)
Promotional Contests (Pamphlet)
Promotional Contests – Section 74.06 (Enforcement Guidelines)
Section 55 and 55.1 of the Competition Act – Multi-level Marketing and Pyramid Selling
Telemarketing: Section 52.1 of the Competition Act (Enforcement Guidelines)
Understanding How the Ordinary Selling Provisions of the Competition Act Apply to Your Business
What You Should Know About Telemarketing (Pamphlet)
CANADIAN COMPETITION LAW LINKS
For more information about Canadian competition law or our competition law services visit our: Abuse of Dominance, Advertising and Marketing Law, Bid Rigging, Canadian Competition Law, Canadian Competition Law Compliance, Canadian Competition Law Home, Competition Act Amendments, Competition Bureau Investigations, Competition Law Courses and Conferences, Competition Law Litigation, Competition Law Publications, Competition Law Resources, Competition Law Services, Conferences, Conspiracy and Competitor Collaborations, Conspiracy – FAQs, Global Competition / Antitrust Law Resources, Global Competition Law Updates, Investment Canada Act, Merger Control, Merger Control FAQs, Private Actions, Promotional Contests, Publications, Refusal to Deal, Team, Trade Associations or Trade Association Cases pages or visit our website at www.NortonStewart.com.
CONTACT US
We provide Canadian competition law and consulting services to Canadian and international clients. For more information about our services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558. Visit us on the web in Toronto at www.torontocompetitionlawyer.com or www.torontocompetitionlaw.com.