PROMOTIONAL CONTEST LAW IN CANADA
“Section 74.06 of the Competition Act is a civil provision. It prohibits any promotional contest that does not disclose the number and approximate value of prizes, the area or areas to which they relate and any important information relating to the chances of winning such as the odds of winning. It also stipulates that the distribution of prizes cannot be unduly delayed and that participants be selected or prizes distributed on the basis of skill or on a random basis.
If a court determines that a person has engaged in conduct contrary to section 74.06, it may order the person not to engage in such conduct, to publish a corrective notice and/or to pay an administrative monetary penalty of up to $750,000 in the case of a first time occurrence by an individual and $10,000,000 in the case of a first time occurrence by a corporation. For subsequent orders, the penalties increase to a maximum of $1,000,000 in the case of an individual and $15,000,000 in the case of a corporation.”
(Competition Bureau, Promotional Contests Enforcement Guidelines)
“… Parliament does not happily abide gaming activities of any sort in Canada. The little it tolerates, it does so grudgingly. Section 206 [of the Criminal Code] is prohibitive in nature, not regulatory. The purpose of Parliament in enacting it was generally to outlaw gaming and lotteries, not just to ensure they would be run honestly. Subsection 206(1) creates a number of indictable offences proscribing a comprehensive range of gaming and gaming-related activities. Subsection 206(4) makes it a summary conviction offence to buy, take or receive a lot, ticket, other device mentioned in 206(1). Although s. 207 allows some tightly circumscribed exceptions to s. 206, it too contains a broad prohibition. Subsection 207(3) makes it an offence to do anything for the purpose of the conduct, management, operation of, or participation in a lottery scheme unless the doing of it is authorized by or pursuant to some provision of 207. Thus, even permitted lotteries must strictly adhere to the limits imposed by the terms and conditions of s. 207.”
(Re: Earth Future Lottery)
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.
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 of the Act 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 the prize or benefit and certain disclosure and other requirements are satisfied by the sender.
These include adequate and fair disclosure of the number and approximate value of prizes, regional allocation of prizes and any fact within the sender’s knowledge that materially affects the chances of winning (i.e., odds of winning). In addition, the distribution of prizes cannot be unreasonably delayed and there are requirements for the selection of participants and distribution of prizes.
Persons that violate section 53 are liable to fines, on summary conviction, of up to $200,000 and/or imprisonment for up to one year and, on indictment, to fines in the discretion of the court and/or imprisonment for up to 14 years. Several due diligence defences are, however, available under this offence.
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.’”
In addition to the promotional contest provisions in the Competition Act, the federal Criminal Code also governs the operation of contests in Canada. Section 206 contains certain lottery related offences, while section 207 provides certain exceptions. Generally speaking, the Criminal Code makes it a criminal offence to operate illegal lotteries, as defined and set out by the offences under section 206.
At common law, illegal lotteries had been defined as consisting of: (i) a prize, (ii) chance and (iii) consideration (i.e., something of value provided by contestants as a condition for eligibility or participation). These core elements of illegal lotteries are now codified (although inconsistently) in section 206 of the Code.
Based on these illegal lottery offences, it is necessary for contest organizers to structure their contests in Canada to avoid violating the Criminal Code. As such, contest organizers commonly remove either the consideration element (e.g., providing a “no purchase necessary” entry option), the chance element (e.g., including a multiple-step mathematical question as a condition of winning) 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 determining what may constitute “consideration” and “chance” can be complex in some cases.
“The private rights and remedies growing out of prize winning contests are discussed in an annotation in (1963), 87 A.L.R. (2d) 649 et seq. Several cases are cited in which the principle is accepted that a contract comes into existence by the promoter’s offer and the contestant’s performance of the act required in the offer. At p. 661, the following statement is made: ‘The general rule of the law of contracts that where an offer or promise for an act is made, the only acceptance of the offer that is necessary is the performance of the act, applies to prize-winning contests. The promoter of such a contest, by making public the conditions and rules of the contest, makes an offer, and if before the offer is withdrawn another person acts upon it, the promoter is bound to perform his promise.’”
(Group Against Smokers’ Pollution Inc. v. Manitoba (Lotteries Licensing Board),  6 W.W.R. 367, citing a U.S. annotation: (1963), 87 A.L.R. (2d) 649)
In addition to the requirements of the Competition Act and Criminal Code, contests have also been held to be contracts. In particular, offers made by promoters have been held, when fulfilled by contestants, to be legally binding contracts (i.e., unilateral contracts consisting of an offer met with performance).
This means that contests are governed by the common law of contract and that contests can establish contractual relations between promoters and contestants, which, if breached, can lead to liability for breach of contract (or can allow promoters to avoid liability).
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 relevant to the promotion, precise and enforceable.
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 other unforeseen events.
Some common errors we see in promotions include contest terms that are not relevant to a particular promotion, U.S. or international rules applied to Canadian promotions, contests that purport to apply across Canada and the U.S. (where it is unclear that rules have been vetted for U.S. or Quebec specific requirements) and contests operated with no (or few) rules at all.
Contests operated with no rules at all can lead to a variety of problems, including an inability for contestants to “enforce” their right to claim a prize or an organizer’s ability to alter contest terms or take steps in the event of unforeseen circumstances (contest rules are commonly drafted to give organizers the “sole discretion” to change key terms or make decisions in the event issues arise).
SOCIAL MEDIA & CONTESTS
For example, Facebook’s Pages Terms include Promotions Rules. These include the following requirements for promotions that are “communicated” or “administered” using Facebook: (i) operating the promotion lawfully, including official rules and eligibility requirements; (ii) complying with all applicable legal and regulatory requirements; and (iii) including the following: a release of Facebook by entrants and acknowledgment that the promotion is not “sponsored, endorsed or administered by, or associated with, Facebook”.
Facebook promotions must also be administered on Pages or within apps. Using Personal Timelines is not permitted – e.g., “share on your Timeline to enter” or “share on your friend’s Timeline to get additional entries”.
Facebook’s Promotions rules also change from time-to-time, so it is prudent to check Facebook’s current contest requirements before launching a Facebook-based promotion.
Other Facebook rules that can apply to contests and promotions include Facebook’s general Advertising Guidelines and its rules for the use of its name, trademarks, logos and linking to Facebook, set out in Facebook’s Brand Permissions Center.
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.
TIPS FOR RUNNING A SUCCESSFUL CONTEST IN CANADA
The following is a list of some of the key tips (though not an exhaustive check-list) for operating a successful contest in Canada:
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.). Standard precedents, or copies of rules retrieved from the web, rarely address many of the details of a particular promotion. Like all law, your counsel should not only understand what each provision means, but it should be relevant to your particular promotion.
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). In this regard, contests in Canada must comply with not only stand-alone contest provisions of the Competition Act (under section 74.06) but also with the general misleading advertising sections of the Act.
5. If contests are part of your company’s routine marketing, consider developing an internal check-list to ensure that all key legal requirements are met. (Plus this is not a bad way to check your external counsel’s or agency’s work!).
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 make sure that eligibility is limited to Canadian residents, not including Quebec).
8. Consider whether consents are needed (and if necessary obtained) to reproduce 3rd party intellectual property (e.g., trade-marks, logos, etc.) or transfer ownership in contest materials (e.g., where contestants create original material as part of the contest or promotion).
9. Obtain U.S. legal advice if the contest will be open to U.S. residents.
11. Consider whether other competition or advertising law rules may apply (e.g., the deceptive prize notice or telemarketing provisions of the Competition Act, both of which can also apply to contests, depending on the circumstances).
LINKS AND RESOURCES
Competition Bureau: The Little Black Book of Scams: Advertisement Material.
Bureau 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.
Bureau Bulletins: Competition Bureau Fee and Service Standards Handbook for Written Opinions, Corporate Compliance Programs, Misleading Representations and Deceptive Marketing Practices: Choice of Criminal or Civil Track.
Industry Codes: Canadian Broadcast Standards Council (CBSA), CAB Code of Ethics (2002), Advertising Standards Canada (ASC), Broadcast Code for Advertising to Children, Better Business Bureau (BBB), Code of Advertising, Canadian Marketing Association (CMA), CMA Guide to Telemarketing Regulation in Canada.
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