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What Law Governs Promotional Contests in Canada?
Promotional contests in Canada are primarily governed by the Competition Act, the Criminal Code, privacy legislation (Personal Information Protection and Electronic Documents Act, PIPEDA) and the common law of contract. In addition, Quebec has separate legislation that applies to promotional contests (the Act respecting lotteries, publicity contests and amusement machines). As such, promotional contest law in Canada is combination of federal and provincial regulatory law, criminal law and common law contract law.
What are the Potential Penalties for Non-compliance?
The improper operation of a promotional contest can lead to civil and/or criminal liability under the Competition Act, the Criminal Code, based on a contractual (i.e., common law) challenge or failure to comply with Quebec legislative requirements, it is critical to review proposed promotional contests for legal compliance.
The penalties for contravention of the misleading advertising provisions of the Competition Act can also be severe, including civil fines of up to $750,000 (for individuals) and $10 million (for corporations) and orders to cease the conduct, publish corrective notices or make restitution to consumers.
For example, a Manitoba real estate investment company recently paid a penalty of more than $150,000 for operating a promotional contest allegedly in contravention of the promotional contest provisions of the Act. See: Resort Company Penalized for Running Misleading Contests.
What Provisions of the Competition Act Apply to Contests?
The Competition 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 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.
What are Short Rules? Are they Mandatory?
As a result of the disclosure requirements set out in the Act, 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 on the contest organizer’s website). Point-of-purchase disclosure often includes the number and approximate value of prizes, any regional allocation, 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.
While short, and usually straightforward, it is critical that the required statutory disclosure be drafted precisely and correctly. It is also important that the timing for the launch of a contest and promotional materials ensure that the necessary disclosure be included in all public marketing materials.
Do Other Competition Act Provisions Apply to Contests?
Yes. In addition to specific rules relating to promotional contests, the “general misleading advertising” provisions of the Competition Act also apply to the operation of promotional contests, and should not be underestimated.
What is the Scope of the Competition Act’s Misleading Advertising Provisions?
In this regard, the criminal and civil false or misleading representation provisions of the Competition Act prohibit representations to the public, for the purpose of promoting a product or any business interest, that is false or misleading in a material respect. The penalties for contravention of the misleading advertising provisions of the Competition Act can also be severe, including civil fines of up to $750,000 (for individuals) and $10 million (for corporations) and orders to cease the conduct, publish corrective notices or make restitution to consumers.
What are the Potential Penalties for Contravening the Competition Act?
The penalties under the Competition Act can be significant if you don’t get a contest right. For example, a Manitoba real estate investment company recently paid a penalty of more than $150,000 for operating a promotional contest allegedly in contravention of the promotional contest provisions of the Act. See: Resort Company Penalized for Running Misleading Contests.
As such, it is important that the terms of promotional contests (i.e., short rules, long rules and any other advertising or marketing materials) not be false or misleading in a material respect (i.e., do not raise issues under the general misleading advertising provisions of the Competition Act, which means that in addition to the detailed statutory disclosure, the overall impression of contest claims must practically be considered as part of a review).
Does Canadian Competition Law Apply to the Internet?
Yes. 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: Application of the Competition Act to Representations on the Internet (Enforcement Guidelines)). In this regard, the Bureau states 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.’”
What Criminal Code Provisions Apply to Contests?
In addition to the promotional contest provisions in the Competition Act, the federal Criminal Code also governs promotional contests in Canada (sections 206 and 207 of the Code). In particular, the Criminal Code makes it a criminal offence to operate illegal lotteries.
What is an Illegal Lottery?
While the relevant provisions of the Criminal Code are complex and somewhat archaic, in general 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 or participation in a contest).
Why is a “No Purchase Necessary” Option Typically Included? Why is a Skill-testing Question Requirement also typically Included?
Based on the Criminal Code provisions prohibiting illegal lotteries, promotional contest organizers often remove either the consideration element (e.g., providing that “no purchase is necessary”), the chance element (e.g., adding a skill element, for example making the contest a skill contest or including 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 that what little case law exists is inconsistent and old.
Are Contests Contracts? If So, What are the Legal Requirements?
In addition to the regulatory requirements set out in the federal Competition Act and Criminal Code, promotional contests have also been held to be contracts. For this reason, promotional contests are also governed by the common law of contract in Canada.
As such, in addition to ensuring compliance with the statutory requirements of the Competition Act and Criminal Code, as well as Quebec legislation if applicable and privacy legislation, it is also important that the terms and conditions of a promotional contest be carefully structured to reduce potential contractual liability.
This includes a careful review of short rules, long rules and winner release documentation (e.g., winner release forms) to ensure that the terms are precise, enforceable and to reduce the likelihood of a credible contractual challenge. As well, potential technical problems and other contingencies should also be addressed, including in relation to unavailability of prizes as disclosed, technical problems relating to the operation of the contest (e.g., computer, Internet or server issues), as well as typically giving contest organizers broad and unilateral discretion to resolve contingencies that may arise.
Does Canadian Privacy Law Apply to Contests?
Yes. 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. Such requirements may include, for example, 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.
What are Some of the Key Legal Points for Promotional Contests in Canada?
As promotional contests in Canada are, generally speaking, governed by the Competition Act, Criminal Code, contract law, privacy law and Quebec regulation if operated in Quebec, it is critical that promotional contest documentation and marketing materials (e.g., point-of-purchase marketing) be prepared with care, and to ensure that the key legal requirements are met.
Some of the key practical aspects in effectively designing a promotional contest in Canada, and to avoid disasters, include attention and care in the drafting of mandatory short rules (short statutory disclosure required under the Competition Act), long rules (which raise many similar issues as drafting effective contracts), reviewing all print and electronic disclosure to ensure that the statutory disclosure requirements are met (and that no significant misleading advertising issues are raised) and that the basic, but important, requirements of the Criminal Code are met (including removing either the chance element, consideration element, or both).
In sum, while the basic law of promotional contests is Canada is not generally complex, the devil is in the details and it is critical that care be taken to ensure that all of the key legal requirements are met.
Are There any Examples of Recent Promotional Contest Cases?
Yes. On November 23, 2009 the Competition Bureau announced that Elkhorn Ranch & Resort Ltd., a Manitoba-based company that sells vacation property time shares, agreed to pay Cdn. $170,000 for operating promotional contests in alleged contravention of the promotional contest provisions of the federal Competition Act. In its News Release, the Bureau stated:
“After conducting an investigation into Elkhorn’s 2006 and 2007 promotional contests, the Bureau concluded that the company had run contests without fair disclosure of accurate odds of winning and without ensuring that winners were selected on a random basis. Elkhorn’s contests also gave the misleading impression that the grand prize was a brand new SUV, when the prize, if awarded, was a one or two–year lease on an SUV, with stringent conditions. The contests were primarily associated with the marketing of Elkhorn’s time share properties in Western Canada. Consumers were solicited by phone, at trade shows and at time share presentations.”
As part of its settlement with the Bureau, under a consent agreement with the Bureau, Elkhorn is required to: (i) pay an administrative monetary penalty of $150,000, (ii) pay the costs of the Bureau’s investigation in the amount of $20,000, (iii) ensure that all of its future contests are conducted fairly and with full disclosure, (iv) publish corrective notices in select newspapers and on its websites and (v) adopt a corporate compliance program to ensure compliance with the deceptive marketing provisions of the Competition Act.
In addition to general misleading advertising provisions, the Competition Act also contains a number of other provisions that regulate a range of marketing activities including bait and switch selling, selling above advertised price, multi-level marketing plans, pyramid selling schemes, deceptive telemarketing and the “ordinary selling price” provisions (dealing with sales) and promotional contests.
While enforcement of the promotional contest rules under the Competition Act is relatively uncommon, the Bureau does commence investigations for breaches of these rules from time to time and this most recent case is a sober reminder of the potential dangers of being offside the rules. It is also worth noting that, as a result of recent amendments, the penalties for contravention of the civil false or misleading representation provisions of the Competition Act have also been significantly increased to up to $750,000 (for individuals) and $10 million (for corporations) (and higher for subsequent orders).
PROMOTIONAL CONTEST AND MISLEADING ADVERTISING LINKS & RESOURCES
Competition Bureau Guidelines
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
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)
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)
Federal & Provincial Legislation
Act respecting lotteries, publicity contests and amusement machines (Quebec)
OUR SERVICES
We offer a full range of promotional contest law services and have assisted clients design and operate many promotional contests, including assistance with the preparation of short rules, long rules, statutory disclosure, winner release documentation and print and online marketing in compliance with the Competition Act and federal Criminal Code. Our promotional contest services include:
- Application of the Competition Act and Criminal Code to promotional contests.
- Drafting short and long contest rules.
- Drafting required statutory point-of-purchase disclosure.
- Reviewing promotional contest marketing and advertising materials.
- Drafting winner release documentation.
- Compliance with the misleading advertising provisions of the Competition Act.
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.
Promotional contests in Canada are primarily governed by the Competition Act, the Criminal Code, privacy legislation (Personal Information Protection and Electronic Documents Act, PIPEDA) and the common law of contract.
In addition, Quebec has separate legislation that applies to promotional contests (the Act respecting lotteries, publicity contests and amusement machines). As such, promotional contest law in Canada is combination of federal and provincial regulatory law, criminal law and common law contract law.
Moreover, given that the improper operation of a promotional contest can lead to civil and/or criminal liability under the Competition Act, the Criminal Code, based on a contractual (i.e., common law) challenge or failure to comply with Quebec legislative requirements, it is critical to review proposed promotional contests for legal compliance. Failure to properly structure a promotional contest in Canada can have disastrous consequences.
For example, a Manitoba real estate investment company recently paid a penalty of more than $150,000 for operating a promotional contest allegedly in contravention of the promotional contest provisions of the Act. See: Resort Company Penalized for Running Misleading Contests.
Competition Act
Short Rules
The Competition 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 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 (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 on the contest organizer’s website). Point-of-purchase disclosure often includes the number and approximate value of prizes, any regional allocation, 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.
While short, and usually straightforward, it is critical that the required statutory disclosure be drafted precisely and correctly. It is also important that the timing for the launch of a contest and promotional materials ensure that the necessary disclosure be 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 the operation of promotional contests, and should not be underestimated.
In this regard, the criminal and civil false or misleading representation provisions of the Competition Act prohibit representations to the public, for the purpose of promoting a product or any business interest, that is false or misleading in a material respect. The penalties for contravention of the misleading advertising provisions of the Competition Act can also be severe, including civil fines of up to $750,000 (for individuals) and $10 million (for corporations) and orders to cease the conduct, publish corrective notices or make restitution to consumers.
In sum, the penalties under the Competition Act can be significant if you don’t get a contest right. For example, a Manitoba real estate investment company recently paid a penalty of more than $150,000 for operating a promotional contest allegedly in contravention of the promotional contest provisions of the Act. See: Resort Company Penalized for Running Misleading Contests.
As such, it is important that the terms of promotional contests (i.e., short rules, long rules and any other advertising or marketing materials) not be false or misleading in a material respect (i.e., do not raise issues under the general misleading advertising provisions of the Competition Act, which means that in addition to the detailed statutory disclosure, the overall impression of contest claims must practically be considered as part of a review).
Internet Contests & Promotions – Special Considerations
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: Application of the Competition Act to Representations on the Internet (Enforcement Guidelines)). In this regard, the Bureau states 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 promotional contests in Canada (sections 206 and 207 of the Code). In particular, the Criminal Code makes it a criminal offence to operate illegal lotteries.
While the relevant provisions of the Criminal Code are complex and somewhat archaic, in general 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 or participation in a contest).
Based on the Criminal Code requirements, promotional contest organizers often remove either the consideration element (e.g., providing that “no purchase is necessary”), the chance element (e.g., adding a skill element, for example making the contest a skill contest or including 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 that what little case law exists is inconsistent and old.
Common Law of Contract
In addition to the regulatory requirements set out in the federal Competition Act and Criminal Code, promotional contests have also been held to be contracts. For this reason, promotional contests are also governed by the common law of contract in Canada.
As such, in addition to ensuring compliance with the statutory requirements of the Competition Act and Criminal Code, as well as Quebec legislation if applicable and privacy legislation, it is also important that the terms and conditions of a promotional contest be carefully structured to reduce potential contractual liability.
This includes a careful review of short rules, long rules and winner release documentation (e.g., winner release forms) to ensure that the terms are precise, enforceable and to reduce the likelihood of a credible contractual challenge. As well, potential technical problems and other contingencies should also be addressed, including in relation to unavailability of prizes as disclosed, technical problems relating to the operation of the contest (e.g., computer, Internet or server issues), as well as typically giving contest organizers broad and unilateral discretion to resolve contingencies that may arise.
Privacy Legislation
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. Such requirements may include, for example, 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.
Conclusion & Practical Considerations
As promotional contests in Canada are, generally speaking, governed by the Competition Act, Criminal Code, contract law, privacy law and Quebec regulation if operated in Quebec, it is critical that promotional contest documentation and marketing materials (e.g., point-of-purchase marketing) be prepared with care, and to ensure that the key legal requirements are met.
Some of the key practical aspects in effectively designing a promotional contest in Canada, and to avoid disasters, include attention and care in the drafting of mandatory short rules (short statutory disclosure required under the Competition Act), long rules (which raise many similar issues as drafting effective contracts), reviewing all print and electronic disclosure to ensure that the statutory disclosure requirements are met (and that no significant misleading advertising issues are raised) and that the basic, but important, requirements of the Criminal Code are met (including removing either the chance element, consideration element, or both).
In sum, while the basic law of promotional contests is Canada is not generally complex, the devil is in the details and it is critical that care be taken to ensure that all of the key legal requirements are met.
RECENT CANADIAN PROMOTIONAL CONTEST CASES
On November 23, 2009 the Competition Bureau announced that Elkhorn Ranch & Resort Ltd., a Manitoba-based company that sells vacation property time shares, agreed to pay Cdn. $170,000 for operating promotional contests in alleged contravention of the promotional contest provisions of the federal Competition Act. In its News Release, the Bureau stated:
“After conducting an investigation into Elkhorn’s 2006 and 2007 promotional contests, the Bureau concluded that the company had run contests without fair disclosure of accurate odds of winning and without ensuring that winners were selected on a random basis. Elkhorn’s contests also gave the misleading impression that the grand prize was a brand new SUV, when the prize, if awarded, was a one or two–year lease on an SUV, with stringent conditions. The contests were primarily associated with the marketing of Elkhorn’s time share properties in Western Canada. Consumers were solicited by phone, at trade shows and at time share presentations.”
As part of its settlement with the Bureau, under a consent agreement with the Bureau, Elkhorn is required to: (i) pay an administrative monetary penalty of $150,000, (ii) pay the costs of the Bureau’s investigation in the amount of $20,000, (iii) ensure that all of its future contests are conducted fairly and with full disclosure, (iv) publish corrective notices in select newspapers and on its websites and (v) adopt a corporate compliance program to ensure compliance with the deceptive marketing provisions of the Competition Act.
In addition to general misleading advertising provisions, the Competition Act also contains a number of other provisions that regulate a range of marketing activities including bait and switch selling, selling above advertised price, multi-level marketing plans, pyramid selling schemes, deceptive telemarketing and the “ordinary selling price” provisions (dealing with sales) and promotional contests.
While enforcement of the promotional contest rules under the Competition Act is relatively uncommon, the Bureau does commence investigations for breaches of these rules from time to time and this most recent case is a sober reminder of the potential dangers of being offside the rules. It is also worth noting that, as a result of recent amendments, the penalties for contravention of the civil false or misleading representation provisions of the Competition Act have also been significantly increased to up to $750,000 (for individuals) and $10 million (for corporations) (and higher for subsequent orders).
PROMOTIONAL CONTEST AND MISLEADING ADVERTISING LINKS & RESOURCES
Competition Bureau Guidelines
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
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)
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)
Federal & Provincial Legislation
Act respecting lotteries, publicity contests and amusement machines (Quebec)
OUR SERVICES
We offer a full range of promotional contest law services and have assisted clients design and operate many promotional contests, including assistance with the preparation of short rules, long rules, statutory disclosure, winner release documentation and print and online marketing in compliance with the Competition Act and federal Criminal Code. Our promotional contest services include:
- Application of the Competition Act and Criminal Code to promotional contests.
- Drafting short and long contest rules.
- Drafting required statutory point-of-purchase disclosure.
- Reviewing promotional contest marketing and advertising materials.
- Drafting winner release documentation.
- Compliance with the misleading advertising provisions of the Competition Act.
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.
OVERVIEW OF CANADIAN PROMOTIONAL CONTEST LAW
Promotional contests in Canada are primarily governed by the Competition Act (the “Act”), the Criminal Code (the “Code”) and the common law of contract. In addition, Quebec has separate legislation that applies to promotional contests (the Act respecting lotteries, publicity contests and amusement machines). As such, promotional contest law in Canada is an amalgam of regulatory law, criminal law and common law contract law.
Moreover, given that the improper operation of a promotional contest can lead to civil and/or criminal liability under the Act, the Code and/or as a result of a contractual (i.e., common law) challenge, it is critical to review proposed promotional contests for legal compliance, as failure to properly structure a promotional contest can have disastrous consequences.
In this regard, a Manitoba company recently paid a penalty of more than $150,000 for operating a promotional contest allegedly in contravention of the promotional contest provisions of the Act (see below).
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 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, any regional allocation, 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 (i.e., do not raise issues under the general misleading advertising provisions of the Act, which means that in addition to the detailed statutory disclosure, the overall impression of contest claims must practically be considered as part of a review).
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. In sum, the penalties can be significant if you don’t get a contest right.
Criminal Code
In addition to the promotional contest provisions 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 in some cases.
Common Law
It is also worth noting that in addition to the regulatory requirements set out in the Act and the Code, promotional contests have been held to be contracts. As such, promotional contests are also governed by the common law of contract in Canada.
As such, in addition to ensuring compliance with the Act and Code, as well as Quebec legislation if applicable, it is also important that the terms and conditions of a promotional contest be carefully structured to reduce potential contractual liability. This includes careful review of long rules and winner release forms.
Summary and Practical Considerations
As promotional contests in Canada are, generally speaking, governed by the Act, the Code, the common law of contract and, in some instances, separate Quebec regulation, it is critical that contests be crafted with care and attention to detail to ensure compliance.
Key practical aspects in effectively designing a promotional contest in Canada, and to avoid disaster, include attention and care in the drafting of mandatory short rules (short statutory disclosure required under the Act), drafting long contest rules (which raise many similar issues as drafting effective contracts) and reviewing all print and online disclosure to ensure compliance with the Act (including the general misleading advertising provisions) and the Code.
In sum, while the basic law of promotional contests is not complex, the devil is in the details. As such, it is crucial that care be taken to ensure that all required statutory elements are included, and that appropriate care is also taken to reduce the likelihood of any legitimate contractual challenges.
PROMOTIONAL CONTEST LINKS & RESOURCES
Competition Bureau
Promotional Contests (Enforcement Guidelines)
RECENT CANADIAN PROMOTIONAL CONTEST CASES
Manitoba-based Resort Company Penalized for Running Misleading Contests
On November 23, 2009 the Competition Bureau announced that Elkhorn Ranch & Resort Ltd., a Manitoba-based company that sells vacation property time shares, has agreed to pay CDN $170,000 for operating promotional contests in contravention of the promotional contest provisions of the Competition Act.
In its News Release, the Bureau stated:
“After conducting an investigation into Elkhorn’s 2006 and 2007 promotional contests, the Bureau concluded that the company had run contests without fair disclosure of accurate odds of winning and without ensuring that winners were selected on a random basis. Elkhorn’s contests also gave the misleading impression that the grand prize was a brand new SUV, when the prize, if awarded, was a one or two–year lease on an SUV, with stringent conditions. The contests were primarily associated with the marketing of Elkhorn’s time share properties in Western Canada. Consumers were solicited by phone, at trade shows and at time share presentations.”
As part of its settlement with the Bureau (under a consent agreement), Elkhorn is required to: (i) pay an administrative monetary penalty of $150,000, (ii) pay costs of the Bureau’s investigation in the amount of $20,000, (iii) ensure that all of its future contests are conducted fairly and with full disclosure, (iv) publish corrective notices in select newspapers and on its websites and (v) adopt a corporate compliance program to ensure compliance with the deceptive marketing sections of the Competition Act.
In addition to general misleading advertising provisions, the Competition Act also contains a number of other provisions that regulate a range of marketing activities including bait and switch selling, selling above advertised price, multi-level marketing plans, pyramid selling schemes, deceptive telemarketing and the “ordinary selling price” provisions (dealing with sales) and promotional contests.
The promotional contest provisions of the Act, among other things, require that persons conducting promotional contests disclose the number and approximate value of prizes, the areas to which they relate and chances of winning. In addition, the Criminal Code also contains provisions regulating promotional contests. As such, review of promotional contests should include ensuring that rules comply with the Competition Act and Criminal Code.
While enforcement of the promotional contest rules under the Act is relatively uncommon, the Bureau does commence investigations for breaches of these rules from time to time and this most recent case is a sober reminder of the potential penalties for being offside the rules. It is also worth noting that, as a result of recent amendments, the penalties for contravention of the civil false or misleading representation provisions of the Act have now been increased to $750,000 (for individuals) and $10 million (for corporations).
OUR PROMOTIONAL CONTEST 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 competition law services in relation to promotional contests include:
- Advice on the application of the Competition Act and Criminal Code.
- Drafting short contest rules.
- Drafting long contest rules.
- Drafting winner release documentation.
- Reviewing draft promotional contest marketing materials.
CANADIAN COMPETITION LAW LINKS
For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy, Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal, Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.
CONTACT US
We provide Canadian competition law services to Canadian and international clients. For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558.
RECENT MISLEADING ADVERTISING NEWS
Competition Bureau Confirms Enforcement Approach to New Guidelines on “Made in Canada” and “Product of Canada” Claims
Enforcement Guidelines for “Product of Canada” and “Made in Canada” Claims
Competition Bureau Warns Against Deceptive Business Directories
Deceptive Business Directories Warning
Reitmans Agrees to Correct Misleading Smart Set Promotion
The Competition Bureau announced that Reitmans, one of Canada’s largest clothing retailers, has agreed to correct a misleading promotion by its division Smart Set. According to the Bureau, Smart Set had offered its customers a $25 “Savings Pass” for each $50 spent, with conditions that included an additional minimum purchase requirement of $50 and a limited redemption period. The Bureau stated that neither of these conditions had been disclosed in Smart Set’s in-store signage or on its website, contrary to the general misleading advertising provisions of the Competition Act. Reitmans has agreed to waive its additional purchase requirement to redeem a Savings Pass and extend the expiry date for its promotion. This recent case emphasizes that the general misleading provisions of the Competition Act prohibit not only literally false advertising claims, but can also potentially catch claims where the “general impression” of a representation is misleading (e.g., where material conditions, limitations or exclusions are not clearly disclosed). For more see: Reitmans Agrees to Correct Misleading Smart Set Promotion.
Infotel Directors Charged With Deceptive Telemarketing – April 12, 2010
Infotel Alleged Deceptive Telemarketing Case
DataCom Marketing Receives Record $15 Million Fine
Record $15 Million Fine for Business Directory Scam
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).
OUR 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.
- “Ordinary selling price” provisions (sales).
- Promotional contests.
- Multi-level marketing plans.
- Pyramid selling.
- Telemarketing.
- Deceptive prize notices.
- Double ticketing & bait and switch advertising.
- Performance claims & comparative advertising.
- Application of the recent Competition Act amendments.
- Consumer packaging and labelling legislation.
CONTACT US
We provide Canadian competition law services to Canadian and international clients. For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558.
CANADIAN COMPETITION LAW LINKS
For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy, Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal, Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.
On November 23, 2009 the Competition Bureau announced that Elkhorn Ranch & Resort Ltd., a Manitoba-based company that sells vacation property time shares, has agreed to pay CDN $170,000 for operating promotional contests in contravention of the promotional contest provisions of the Competition Act.
In its News Release, the Bureau stated:
“After conducting an investigation into Elkhorn’s 2006 and 2007 promotional contests, the Bureau concluded that the company had run contests without fair disclosure of accurate odds of winning and without ensuring that winners were selected on a random basis. Elkhorn’s contests also gave the misleading impression that the grand prize was a brand new SUV, when the prize, if awarded, was a one or two–year lease on an SUV, with stringent conditions. The contests were primarily associated with the marketing of Elkhorn’s time share properties in Western Canada. Consumers were solicited by phone, at trade shows and at time share presentations.”
As part of its settlement with the Bureau (under a consent agreement), Elkhorn is required to: (i) pay an administrative monetary penalty of $150,000, (ii) pay costs of the Bureau’s investigation in the amount of $20,000, (iii) ensure that all of its future contests are conducted fairly and with full disclosure, (iv) publish corrective notices in select newspapers and on its websites and (v) adopt a corporate compliance program to ensure compliance with the deceptive marketing sections of the Competition Act.
In addition to general misleading advertising provisions, the Competition Act also contains a number of other provisions that regulate a range of marketing activities including bait and switch selling, selling above advertised price, multi-level marketing plans, pyramid selling schemes, deceptive telemarketing and the “ordinary selling price” provisions (dealing with sales) and promotional contests.
The promotional contest provisions of the Act, among other things, require that persons conducting promotional contests disclose the number and approximate value of prizes, the areas to which they relate and chances of winning. In addition, the Criminal Code also contains provisions regulating promotional contests. As such, review of promotional contests should include ensuring that rules comply with the Competition Act and Criminal Code.
While enforcement of the promotional contest rules under the Act is relatively uncommon, the Bureau does commence investigations for breaches of these rules from time to time and this most recent case is a sober reminder of the potential penalties for being offside the rules. It is also worth noting that, as a result of recent amendments, the penalties for contravention of the civil false or misleading representation provisions of the Act have now been increased to $750,000 (for individuals) and $10 million (for corporations).
CANADIAN COMPETITION LAW LINKS
For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy, Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal, Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging, Canadian Competition Law Resources, Competition Law Links or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.
CONTACT US
We provide Canadian competition law services to clients across Canada and internationally. For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us at +1 604 687 0555 or +1 778 867 5558.
DISCLAIMER
The materials and information on CANADIAN COMPETITION LAW are provided as legal information about Canadian competition law. Reading and accessing this information does not create a lawyer-client relationship. The information on our blog does not constitute legal advice or a legal opinion on any issue. In addition, the information and materials on this website will change based on new competition law developments and, as such, may not be current as of the date of access. As such, we take no responsibility for the accuracy or currency of the competition law information or materials on our blog, which should not be relied upon without receiving legal advice from competent legal counsel