PROMOTIONAL CONTEST LAW IN CANADA
Promotional contests in Canada are largely governed by the Competition Act, the Criminal Code, privacy legislation and the common law of contract. In addition, Quebec has a separate regulatory regime governing contests and contest authority (the Régie des alcools, des courses et des jeux).
As such, given that the improper operation of a promotional contest can lead to civil or criminal liability, it is important to review proposed promotional contests for compliance with federal and provincial laws.
COMPETITION ACT
Short Rules
The Competition Act largely requires that certain disclosure be made when conducting “any contest, lottery, game of chance or skill, or mixed chance and skill, or otherwise [disposing] of any product or other benefit …”
Some key Competition Act requirements 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. The Act also prohibits contest organizers from “unduly delaying” the award of prizes.
Based on these requirements, most contest organizers provide a short version of a contest’s terms (frequently referred to as “short rules”) in all point-of-purchase materials regardless of media (i.e., in all print, online and other electronic media), with a full version of the contest rules available on request (and often provided on the organizer’s website). Point-of-purchase disclosure (short rules) commonly includes both the required statutory disclosure and other key contest elements.
While short, and usually straightforward, it is important that the required statutory disclosure be drafted precisely and correctly. It is also important that the timing for the launch of a contest and accompanying promotional materials ensure that the necessary disclosure is included in all public marketing materials.
General Misleading Advertising Provisions
In addition to specific rules relating to promotional contests, the “general misleading advertising” provisions of the Competition Act also apply to contests.
These provisions (sections 52 and 74.01) prohibit materially false or misleading representations to the public for the purpose of promoting products (or any business interest). The potential penalties for contravening these provisions can be severe and include civil fines of up to $750,000 (for individuals) and $10 million (for corporations) and court orders to cease the conduct, publish corrective notices or compensate consumers.
As such, it is important that promotional contest rules and marketing materials be reviewed for compliance with the misleading advertising provisions of the Competition Act as well as the standalone contest provision (section 74.06).
Other Competition Act Rules
In addition to the standalone promotional contest provision, the Act also contains several other specific provisions regulating contests operated in the context of (a) telemarketing (section 52.1) and (b) prize notices (section 53).
Section 52.1 of the Act prohibits telemarketers from conducting contests where (a) the delivery of a prize (or other benefit) is or is represented to be conditional on prior payment or (b) adequate and fair disclosure is not made of the number and approximate value of prizes, the area or areas to which they relate and the odds of winning.
Section 53 prohibits prize notices sent by electronic or regular mail that give the general impression that a recipient has won (or will win) a prize and requires a payment (or incurring another cost) unless the recipient actually wins a prize and certain required disclosure is made (including the number and approximate value of prizes, regional allocation of prizes and odds of winning).
INTERNET CONTESTS & PROMOTIONS
The Competition Bureau also takes the position that the promotional contest provisions of the Competition Act, as well as the general misleading advertising provisions, apply to Internet marketing and advertising (see Competition Bureau, Enforcement Guidelines, Application of the Competition Act to Representations on the Internet).
In this regard, the Bureau’s view is that special considerations may apply in the online environment to ensure that the required statutory disclosure for promotional contests is met:
“Pursuant to section 74.06 of the Act, in contests designed to promote a product or business interest, adequate and fair disclosure must be made of certain information, including facts which materially affect the chances of winning. … The Bureau takes the position that all required disclosures must be displayed in such a way that they are likely to be read. In the context of representations made on-line, what is considered adequately displayed will depend on the format and design of the Web site. For example, a notice of a contest should not require readers to take an active step, such as sending an e-mail or placing a phone call, in order to obtain the required information. The Bureau does not consider clicking on a clearly labelled hyperlink as being an ‘active step.’”
CRIMINAL CODE
In addition to the promotional contest provisions in the Competition Act, the federal Criminal Code also governs the operation of contests in Canada (sections 206 and 207). In particular, the Criminal Code makes it a criminal offence to operate illegal lotteries.
While the relevant Criminal Code provisions are complex and somewhat archaic, in general an illegal lottery consists of: (a) a prize, (b) chance and (c) consideration (something of value provided by contestants as a condition for eligibility or participation).
Based on the Criminal Code requirements, promotional contest organizers commonly remove either the consideration element (e.g., providing a “no purchase necessary” entry option), the chance element (e.g., adding a skill-testing question) or both in order to remove a promotional contest from the scope of the illegal lottery provisions of the Criminal Code.
It is worth noting, however, that the determination of what constitutes “consideration” and “chance” can be challenging and complex in some cases and few modern cases have considered key issues in relation to the operation of contests. Most contest organizers include a multiple-step mathematical skill testing question in an effort to remove the chance element.
CONTRACT LAW
In addition to the regulatory requirements of the federal Competition Act and Criminal Code, promotional contests have also been held to be contracts. For this reason, in addition to statutory requirements, contests are also governed by the common law of contract.
As such, in addition to ensuring compliance with applicable statutory requirements, it is important that contest terms and conditions are carefully and precisely drafted to reduce potential contractual liability.
This includes a careful review of short rules, long rules and winner release documentation to ensure that the terms are precise, enforceable and to reduce the likelihood of a credible contractual challenge.
Potential technical problems and other contingencies should also be addressed in contest rules, including in relation to the unavailability of prizes as disclosed, technical problems arising from the operation of the contest (e.g., computer, Internet or server issues) and typically giving contest organizers broad and unilateral discretion to make decisions.
PRIVACY LAW
Canadian privacy legislation also applies to promotional contests. In this regard, contest organizers should be cognizant of federal privacy legislative requirements under PIPEDA, which include requiring consent for the collection, use, storage and disclosure of personal information collected in relation to the operation of a contest.
These may include advising contestants of how their personal information will be used, as well as the contest organizer’s practices and policies in relation to the security (and destruction) of contestants’ personal information once a contest has closed.
INTELLECTUAL PROPERTY & OTHER LEGAL CONSIDERATIONS
In addition, intellectual property issues can sometimes arise in the operation of contests. For example, care must be taken that consents are obtained in some cases when the trade-marks or logos of another company are used (e.g., in relation to prizes) and that the contest includes rules for the transfer of rights if, for example, the contest involves the creation of original artistic works.
Another commonly encountered issue that can arise in connection with the operation of contests is the eligibility of minors, based on provincial laws restricting the right of minors to contract.
PRACTICAL CONSIDERATIONS
Promotional contests in Canada are governed by the Competition Act, the Criminal Code, privacy legislation and the common law of contract. In addition, Quebec has a separate regulatory regime governing contests.
As such, given that the improper operation of a contest can lead to civil or criminal liability, it is important to review proposed promotional contests for compliance with federal and (if applicable) provincial laws. The following are some key tips for operating a successful contest:
1. Take care to avoid the Criminal Code provisions governing illegal lotteries (e.g., provide a “no purchase necessary” entry option and skill element, such as a multiple-step mathematical question);
2. “Short rules” should include all Competition Act disclosure requirements for point-of-purchase materials;
3. Ensure that precise “long rules” are prepared, particularly anticipating potential contingencies (e.g., technical problems, etc.);
4. Ensure that none of the advertising or marketing materials are generally false or misleading (i.e., comply with the “general misleading advertising” sections of the Competition Act);
5. If contests are part of your company’s routine marketing, consider developing a check-list to ensure that all legal requirements are met;
6. Ensure that all key contest elements are as clear and precise as possible (e.g., eligibility, how to enter and descriptions of the prize and odds of winning);
7. Ensure that Quebec legal requirements are met (or take care to exclude the contest from Quebec); and
8. Obtain U.S. legal advice if the contest will be open to U.S. residents.
COMPETITION/ANTITRUST LAW & ECONOMIC TERMS
For competition/antitrust definitions and terms see:
PROMOTIONAL CONTEST LINKS & RESOURCES
LEGISLATION
COMPETITION BUREAU
Bulletins
Misleading Representations and Deceptive Marketing Practices: Choice of Criminal or Civil Track
Enforcement Guidelines
Application of the Competition Act to Representations on the Internet
Deceptive Notices of Winning a Prize – Section 53 of the Competition Act
Promotional Contests – Section 74.06 of the Competition Act
Telemarketing – Section 52.1 of the Competition Act
Pamphlets
False or Misleading Representations and Deceptive Marketing Practices
What You Should Know About Telemarketing
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