The false or misleading representations provisions of the Competition Act (generally known as the “misleading advertising provisions”) prohibit representations to the public to promote a product or any business interest that are false or misleading in a material respect.  In addition to the general misleading advertising provisions, the Act also contains other criminal and civil provisions prohibiting or regulating specific types of marketing practices including deceptive telemarketing, deceptive prize notices, double ticketing, multi-level marketing, pyramid selling schemes, representations that are not based on an adequate and proper test, bait and switch selling and promotional contests.  While a variety of resolutions are possible where the misleading advertising provisions of the Competition Act have been violated, the potential penalties can be severe and include fines of up to $750,000 (for individuals) and $10 million (for corporations).

For more see the Bureau’s News Release: Paint Products Company Agrees to End Alleged Misleading Environmental and Made in Canada Claims and CB in Brief: CB in Brief: The Competition Bureau’s Month in Review, August 2010.  For more on Canadian advertising and marketing law, see: Advertising and Marketing Law.

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.

The federal Competition Act contains criminal and civil provisions that prohibit false or misleading representations and deceptive marketing practices.  These are frequently referred to as the “misleading advertising” provisions of the Act.

The general civil misleading advertising provision of the Act (subparagraph 74.01(1)(a)) prohibits any person from making a representation to the public, to promote a product or any business interest, that is false or misleading in a material respect.

Is misleading advertising a criminal offence or a civil matter?

Misleading advertising may also be pursued by the Competition Bureau as a civil or criminal matter.  In this regard, the Bureau has issued an Information Bulletin (Misleading Representations and Deceptive Marketing Practices – Choice of Criminal or Civil Track under the Competition Act) that sets out when it is likely to proceed on the criminal as opposed to the civil track for misleading representations and deceptive marketing practices.

In general, the Bureau’s Information Bulletin states that in most instances the civil track will be followed unless certain criteria are satisfied as follows: (i) there is clear and compelling evidence suggesting that the accused knowingly or recklessly made a false or misleading representation to the public and (ii) a criminal prosecution would be in the public interest.

In making the public interest determination, the Bureau sets out a number of factors that include: (i) whether there was substantial harm to consumers that could not adequately be dealt with by civil remedies, (ii) whether the deceptive practices targeted vulnerable groups, (iii) whether timely attempts were made to remedy the adverse effects of the conduct and (iv) any evidence of similar conduct in the past.  The Bureau also sets out several mitigating factors: (i) whether a prosecution or conviction would be disproportionately harsh or oppressive and (ii) the existence of an effective compliance program.

What other marketing practices are regulated by the Competition Act?

In addition to the “general” misleading advertising provisions, the Act also contains a number of other criminal and civil provisions prohibiting and regulating specific types of marketing practices.

These include provisions relating to deceptive telemarketing (section 52.1), deceptive prize notices (section 53), double ticketing (section 54), multi-level marketing (section 55), pyramid selling schemes (section 55.1), representations that are not based on adequate and proper tests (subparagraph 74.01(1)(b)), false or misleading ordinary selling price representations (subsections 74.01(2), (3)), misleading or unauthorized use of tests and testimonials (section 74.02), bait and switch selling (section 74.04), the sale of a product above its advertised price (section 74.05) and promotional contests (section 74.06).

What has to be proven for misleading advertising?

For a representation to be false or misleading under subparagraph 74.01(1)(a) (the civil misleading advertising section), it must be established on the civil burden of proof (i.e., balance of probabilities) that: (i) a representation has been made, (ii) to the public, (iii) to promote a product or business interest, (iv) the representation is false or misleading and (v) the representation is false or misleading in a “material” respect.

The criminal misleading advertising provision of the Act (subsection 52(1)) is substantially the same, except that in order to establish criminal misleading advertising, it must also be proven that a representation was made “knowingly or recklessly” (i.e., subjective intent) and the burden of proof is the criminal standard (i.e., beyond a reasonable doubt).

What is a representation?

The first element of misleading advertising is that a “representation” (i.e., advertising claim) must be made.  This element is typically easily met and is broader than mere advertising.  A representation may encompass printed, oral, broadcast and visual representations or claims.  The Bureau’s position is also that all representations, regardless of form, are subject to the Act.

It is also worth noting that online representations fall well within the scope of “representation” and the Bureau has issued enforcement guidelines addressing misleading advertising in the online environment (Application of the Competition Act to Representations on the Internet).  As a practical matter, the Bureau also periodically conducts online “sweeps” of Internet advertising as part of its misleading advertising and deceptive marketing enforcement efforts.

What does “to the public” mean?

The second element of misleading advertising is that a representation must be made to the “public”.  Canadian courts have, with a few exceptions, had little difficulty in finding that advertising and marketing claims have been made “to the public” and have interpreted the phrase broadly.

A claim may be made to a single person and be considered to have been made to the public.  In addition, as a result of recent amendments, a representation does not need to be made in a place where the public has access (e.g., telemarketing) or to the Canadian public (and so cross-border marketing to non-Canadians can be caught).  The Act also contains provisions that deem certain types of conduct to be a representation to the public.

What does “promote a product or business interest” mean?

The third element of misleading advertising is that a representation must be made to promote either a product, including professional or other services, or any business interest, which may be merely a subsidiary or indirect intention of a representation.

A “Business interest” must be the business interest of the person making the representation, but has been interpreted broadly and may include any business interest and not necessarily an interest with the persons who might be misled by the representation.

What does “false or misleading” mean?

The fourth element for misleading advertising is that a representation must be literally false or misleading.  In this regard, both the literal meaning and the general impression conveyed by the representation are relevant.

Also, in determining whether a representation is false or misleading, the entire context of the representation, including illustrations, photographs and the association of different words and phrases, must be considered.

What does “material” mean?

Finally, to contravene both the civil and criminal misleading advertising provisions, a representation must be false or misleading in a “material respect.”  For the materiality requirement, is not necessary to show that anyone has actually been deceived or misled and the monetary amount involved is irrelevant.

The relevant question, though Canadian courts have been inconsistent in articulating the standard, has in many cases been held to be whether an “average consumer” (or equivalent) interested in using the relevant product would be influenced in deciding whether or not to purchase the product being offered (or to otherwise alter their conduct).

As to what may be considered “material”, many Canadian courts have found that false or misleading representations in relation to price and essential or fundamental terms are material.  In addition, the omission of important information, conditions or limitations can also be considered to be material.

Does a misleading claim need to be made intentionally?

To establish criminal misleading advertising, it must also be shown, in addition to all of the other necessary elements for misleading advertising, that a representation was made intentionally (i.e., “knowingly or recklessly”).        

Are performance claims prohibited?

No.  However, in addition to the “general misleading advertising” provisions of the Act, paragraph 74.01(1)(b) prohibits any person from making any representation to the public about the performance, efficacy or length of life of a product that is not based on an “adequate and proper test”.

The testing or verification of any performance claims must be made before a claim is made and the onus is on the person making the representation to prove that the performance claim is based on an adequate and proper test.

While performance claims can be a legitimate means to distinguish goods or services from competitors, it is important that adequate and proper testing is performed (or appropriate statistics or support are obtained) before a claim is made.

The federal Competition Tribunal has recently held that there is a non-exhaustive list of factors to consider whether a test is “adequate and proper” and that the testing does not need to be 100% reliable or the best scientific testing that could have been performed (i.e., the testing does not need to meet a test of certainty).

Is comparative advertising prohibited?

No.  Comparative advertising can lead to price and other competition by allowing prospective clients to compare prices and service offerings.

While comparative advertising is not itself prohibited under the Act, and while accurate and truthful comparisons can be highly pro-competitive, comparative advertising can in some instances raise issues (e.g., where unfounded performance claims are made).

As such, when making comparative advertising claims, it is prudent to ensure that, as is the case with general advertising, claims be accurate, that any important information or conditions are clearly disclosed and, if performance claims form part of the comparative advertising, that the claims are substantiated before the claims are made.

What are the penalties for misleading advertising?

The potential penalties for contravening the criminal or civil misleading advertising provisions can be severe.  Under the criminal misleading advertising provision (section 52) the potential penalties are, on indictment, a fine in the discretion of the court, imprisonment for up to fourteen years, or both.  On summary conviction, the penalties are a fine of up to $200,000, imprisonment for up to one year, or both.

Under the general civil misleading advertising provision, penalties include judicial orders to: (i) cease the conduct, (ii) publish a corrective notice, and/or (iii) pay an “administrative monetary penalty” (essentially a civil fine) on the first occurrence of up to $750,000 for individuals ($1 million for each subsequent order) or $10 million for corporations ($15 million for each subsequent order) or (iv) make restitution to compensate consumers that have purchased a product.

In reality, the vast majority of misleading advertising matters are resolved by way of negotiated settlement, either by way of a consent agreement, in the case of civil reviewable matters, or a prohibition order, in the case of criminal matters.  In some cases, a misleading advertising matter may also be resolved voluntarily without formal proceedings being initiated.

Are private actions possible?

Yes.  Private parties may commence civil damages actions for contravention of the criminal provisions of the Act (including section 52 – the criminal misleading advertising provision).  The necessary elements to be proved are all of the elements of misleading advertising (under 52 of the Act) and that the conduct has caused actual loss or damage (under section 36 of the Act).  Private actions are increasingly common, particularly in the context of performance and comparative advertising claims made by competitors (for example the perennial “telecom wars”).

MISLEADING ADVERTISING LINKS AND RESOURCES

Application of the Competition Act to Representations on the Internet (Enforcement Guidelines)

Bait and Switch Selling (Pamphlet)

Consumer Packaging and Labelling Act

Consumer Rebate Promotions (Enforcement Guidelines)

Deceptive Notices of Winning a Prize (Enforcement Guidelines)

Deceptive Prize Notices (Pamphlet)

Enforcement Guidelines for “Product of Canada” and “Made in Canada” Claims

False or Misleading Representations and Deceptive Marketing Practices (Pamphlet)

Guidance on Labelling Textile Articles Derived From Bamboo (Enforcement Guidelines)

Guide for the Labelling and Advertising of Pet Foods

Guide to the Consumer Packaging and Labelling Act

Guide to the Textile Labelling and Advertising Regulations

Misleading Representations (Pamphlet)

Misleading Representations and Deceptive Marketing Practices: Choice of Criminal or Civil Track (Bulletin)

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)

Textile Labelling Act

Understanding How the Ordinary Selling Provisions of the Competition Act Apply to Your Business

What You Should Know About Telemarketing (Pamphlet)

CANADIAN COMPETITION LAW LINKS

For more information about Canadian competition law or our competition law services visit our: Abuse of Dominance, Advertising and Marketing Law, Bid Rigging, Canadian Competition Law, Canadian Competition Law Compliance, Canadian Competition Law Home, Competition Act Amendments, Competition Bureau Investigations, Competition Law Courses and Conferences, Competition Law Litigation, Competition Law Publications, Competition Law Resources, Competition Law Services, Conferences, Conspiracy and Competitor Collaborations, Conspiracy – FAQs, Global Competition / Antitrust Law Resources, Global Competition Law Updates, Investment Canada Act, Merger Control, Merger Control FAQs, Private Actions, Promotional Contests, Publications, Refusal to Deal, Team, Trade Associations or Trade Association Cases pages or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law and consulting services to Canadian and international clients.  For more information about our services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558.  Visit us on the web in Toronto at www.torontocompetitionlawyer.com or www.torontocompetitionlaw.com.

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.