COMPETITION & ANTITRUST LAW » Advertising

U.S. Paint Products Company Agrees to End Alleged Misleading “Made in Canada” and Environmental Claims

admin — Tue, 31 Aug 2010 19:14:28 +0000

On August 31^st, the Bureau announced that a U.S. paint products company had agreed to stop engaging in allegedly misleading made in Canada and environmental claims. According to the Bureau, the claims on its painting kits raised issues under the false or misleading representations and deceptive marketing practices provisions of the Competition Act, as well as potential issues under the Consumer Packaging and Labelling Act. In particular, the company claimed that its product was composed of biodegradable material. The company also displayed maple leaves on product labels that, according to the Bureau, created a false impression that the product was manufactured in Canada. Under the terms of the settlement with the Bureau, the company has agreed to instruct its Canadian retailer to remove the product from Canadian store shelves, replace it with new kits that do not make the allegedly false environmental or “made in Canada” claims and remove the allegedly false claims from products sold in Canada. The company was also able, evidently, to negotiate confidentiality with the Bureau, which did not disclose the company’s name in its news release.

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.

Canadian Promotional Contest Law – Frequently Asked Questions

admin — Tue, 31 Aug 2010 16:08:05 +0000

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)

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)

Federal & Provincial Legislation

Competition Act

Criminal Code

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

CONTACT US

Promotional Contest Law in Canada

admin — Sat, 28 Aug 2010 15:23:08 +0000

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.

Competition Act

Short Rules

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 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.

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:

Criminal Code

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.

Common Law of Contract

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

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: