Archive for the 'Advertising' Category
On August 31st, 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.
CONTACT US
We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients. Contact Us
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.
CONTACT US
We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients. Contact Us
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.
CONTACT US
We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients. Contact Us
What is “Misleading Advertising”?
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)
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)
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.
CONTACT US
We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients. Contact Us
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 ADVERTISING AND MARKETING LAW 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.
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.
CONTACT US
We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients. To contact us see: Contact Us.
In R. v. Independent Order of Foresters, a fraternal benefit society engaged in the sale of life insurance was charged with misleading advertising under section 52 of the former Combines Investigation Act in relation earnings claims made for the recruitment of salespersons. The accused were acquitted at trial on the basis of, among other things, a finding that the claims made were not materially false or misleading as well as on the basis of the regulated conduct doctrine. While the Ontario Court of Appeal upheld the trial judge’s finding, on the basis that there was insufficient evidence that the claims made were false or misleading, the Court held that the regulated conduct doctrine had no application given that the relevant legislation in this case, the Ontario Insurance Act, did not authorize or direct the association to make false or misleading representations.
OUR COMPETITION LAW SERVICES FOR TRADE ASSOCIATIONS
We practice federal competition law, have provided competition law and compliance advice to clients across Canada and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act. We regularly counsel trade associations and their executives and personnel on compliance with the Competition Act. Our Canadian competition law services for trade associations include:
- Trade association competition law compliance programs.
- Competition law compliance seminars and talks for association executives.
- Audits and compliance reviews of trade association activities.
- Advice on the application of the recently amended Competition Act.
- Vetting trade association meetings, conventions and communications.
- Reviewing trade association rules, bylaws, policies and voluntary codes.
- General competition law and competition compliance advice for associations.
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.
CONTACT US
We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients. To contact us see: Contact Us.
The Competition Bureau announced today that Zellers had agreed to take action to correct an allegedly misleading promotion. According to the Bureau, Zellers Inc., owned by the Hudson’s Bay Company, has agreed to take steps to address the Bureau’s view that a Zeller’s misleading savings card promotion violated the Competition Act.
In its news release, the Bureau stated:
“Zellers was promoting the savings cards, valued at $10, with the purchase of the movie Avatar on DVD or Blu-Ray. One of the conditions associated with the savings card was a $50 minimum purchase in order to redeem the savings card. The Bureau’s review revealed that this condition was omitted from the advertising for this promotion and only disclosed after consumers made their initial purchase. Terms and conditions associated with these types of promotions that are not fully disclosed to consumers before the time of purchase raise concerns under the false or misleading representations provisions of the Competition Act.”
The Bureau also stated:
“Misleading pricing representations remain a key concern for the Bureau. When making their purchasing decisions, consumers have the right to expect that information about pricing is truthful and accurate. Otherwise, consumers are hurt and rival businesses are put at an unfair competitive disadvantage.”
In reaching a resolution with the Bureau, Zellers has agreed to take steps to resolve the Bureau’s concerns including: (i) customers who present a $10 savings card, or a sales receipt for the movie Avatar purchased between April 22 and 24, 2010, will receive a $10 credit with no minimum purchase required; and (ii) the redemption period will be extended to August 6, 2010.
This recent case illustrates that false or misleading representations under the Competition Act, as well as other forms of deceptive marketing, remain enforcement priorities for the Bureau. In this regard, unlike a number of other jurisdictions, the “consumer protection” mandate is a significant part of the Bureau’s focus.
On a practical level, this recent case also illustrates two other points. First, that the Bureau continues to be interested in allegedly false or misleading representations engaged in by high profile retailers (some of the Bureau’s recent misleading advertising cases have involved, among others, Reitmans, Forzani and Suzy Shier). Second, that it is important to get the details right (and to disclose them) – i.e., to clearly disclose important conditions and limitations in marketing claims, particularly those relating to price.
OUR ADVERTISING AND MARKETING LAW 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 a full range of Canadian competition/antitrust law and consulting services to domestic and international clients. Contact Us.
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 a full range of Canadian competition/antitrust law and consulting services to domestic and international clients. Contact Us.
CONSPIRACY / CARTELS
Recent Speech by Canada’s Commissioner of Competition Indicates Tougher Enforcement Stance Against Criminal Cartels
In a recent speech by Canada’s new Commissioner of Competition to the Canadian Bar Association’s Spring Competition Law Conference, the Commissioner outlined some of the Competition Bureau’s current enforcement and policy priorities following the recent significant amendments to Canada’s competition law. The Commissioner’s remarks included a number of comments regarding the Competition Bureau’s (the “Bureau”) enforcement policy in relation to the new criminal conspiracy rules, enforcement priorities, the Bureau’s new sentencing and leniency policies and, of particular note, indicating that the Bureau wants to take a tougher stance against criminal cartels (including seeking increased penalties against individuals involved in criminal cartel conduct). For more see: Recent Speech by Canada’s Commissioner of Competition Indicates Tougher Enforcement Stance Against Criminal Cartels.
Supreme Court of Canada Denies Leave to Appeal in DRAMS Price-Fixing Class Action
On June 3, 2010 the Supreme Court denied leave to appeal in the DRAMS price-fixing class action case (Infineon Technologies AG et al. v. Pro‑Sys Consultants Ltd.). In this important case, leave to appeal to the Supreme Court was sought from the British Columbia Court of Appeal that had approved the DRAM memory price-fixing class action. The British Columbia Court of Appeal had reversed the British Columbia Supreme Court’s decision and certified the class action against a group of five technology manufacturers accused of fixing their prices for computer memory chips. The Court of Appeal held that the British Columbia Class Proceedings Act should be “construed generously in order to achieve its objectives” – for example, to improve access to justice and avoid duplication in legal proceedings. The impact of the recent Supreme Court decision to deny leave in this case is that the British Columbia Court of Appeal’s decision is now the latest appellate judgment on the certification of competition law class actions in Canada and the first Canadian appellate decision certifying a contested competition law class action. For more see: Supreme Court of Canada Denies Leave to Appeal in DRAMS Price-Fixing Class Action.
U.S. Supreme Court Tackles Single v. Multiple Enterprise Question in Landmark American Needle (NFL) Case – Some Potential Implications for Canada’s New Conspiracy Rules
On May 24, 2010, the U.S. Supreme Court (“USSC”) delivered its opinion in the landmark American Needle antitrust case. In this important case, the USSC again visited the difficult question as to when an entity will be considered to be a single entity (as opposed to multiple entities) for the purposes of the application of Section 1 of the Sherman Act (Section 1 of the Sherman Act prohibits certain illegal restraints of trade and is the U.S. equivalent to the criminal conspiracy provisions under Section 45 of the Canadian Competition Act). For more see: U.S. Supreme Court Tackles Single v. Multiple Enterprise Question in Landmark American Needle (NFL) Case – Some Potential Implications for Canada’s New Conspiracy Rules.
Solvay Chemicals Fined $2.5 Million in Hydrogen Peroxide Price-Fixing Conspiracy
The Competition Bureau announced today that Solvay Chemicals has been fined Cdn. $2.5 million in relation to a hydrogen peroxide price-fixing conspiracy. According to the Bureau, Solvay Chemicals Inc. conspired with competitors to fix the price of hydrogen peroxide in Canada between July 1998 and December 1999, during which time its sales were approximately $15 million. In making the announcement, the Bureau stated that Solvay was the second party to plead guilty to fixing the price of hydrogen peroxide in Canada (together with Akzo Nobel Chemicals International BV, which pleaded guilty in November 2008 and was fined $3.15 million for its involvement in the conspiracy). The Bureau also stated that its investigation of other companies allegedly involved in this conspiracy was ongoing, while reiterating that detecting and eliminating criminal cartels remained one of its top enforcement priorities. Under the federal Competition Act, agreements between competitors (and potential competitors) to fix prices, allocate or divide markets or restrict output are criminal offences. In addition, as a result of recent amendments to the Competition Act that came into force in March, 2010, the penalties for contravention of the criminal conspiracy provisions of the Competition Act have been significantly increased to include fines of up to $25 million (per count) and/or imprisonment for up to fourteen years. For more see: Solvay Chemicals Fined $2.5 Million in Hydrogen Peroxide Price-Fixing Conspiracy.
Commissioner of Competition and Director of Public Prosecutions Sign Memorandum of Understanding
The Competition Bureau announced that the Commissioner of Competition (Melanie Aitken) and the Director of Public Prosecutions (Brian Saunders) have entered into a Memorandum of Understanding in relation to the investigation and prosecution of offences under the Competition Act. In Canada, under the federal Competition Act, the Competition Bureau is responsible for enforcing the Act including investigating alleged contraventions of the Act, while the Director of Public Prosecutions has exclusive jurisdiction to determine whether to commence prosecutions for alleged violations of the Act’s criminal offences, including the criminal conspiracy, bid rigging and criminal misleading advertising provisions.
Competition Bureau Announces Coming Into Force of New Conspiracy Regime
On March 12, 2010, the Competition Bureau announced the coming into force of Canada’s new two-track conspiracy regime.
Canada’s New Conspiracy Rules Come Into Force - March 12, 2010
On March 12, 2010, Canada’s new two-track criminal conspiracy regime came into force. The changes, which are the final recent Competition Act amendments to come into force, will significantly change the enforcement of criminal cartels in Canada and is expected to also have significant impacts on competition law private actions and class actions.
Effective March 12, 2010, Canada now has three new criminal conspiracy offences for “hard core” cartel conduct, making bare price fixing, market allocation/division and supply restriction agreements per se illegal – i.e., without the necessity of establishing any anti-competitive effects on a relevant market or markets. The penalties for contravening the newly enacted conspiracy provisions will also more than double with fines of up to CDN $25 million and/or imprisonment for up to fourteen years. At the same time, a second civil provision has come into force under which other commercial agreements (i.e., agreements that do not fall within the scope of the new criminal offences) may be reviewed, where they may prevent or lessen competition substantially. Some of the expected impacts of the new rules include: (i) increasing the risk of engaging in hard-core anti-competitive conduct (e.g., price-fixing agreements), (ii) lowering the bar for the Competition Bureau and private plaintiffs to establish a criminal conspiracy under section 45 (the criminal conspiracy provision of the Act), (iii) increasing the importance of reviewing commercial agreements (and other commercial arrangements, such as information sharing arrangements or joint ventures) for competition law compliance and (iv) potentially leading to an increase in private action activity in Canada.
CANADIAN MERGER CONTROL
Competition Bureau Issues New Policy on Hostile Transactions
On June 2, 2010 the Competition Bureau (the “Bureau”) published its new Policy on Hostile Transactions (the “Hostile Bid Policy”). According to the Bureau, the Hostile Bid Policy “describes the Bureau’s general approach to communicating information to a bidder and target during the course [of a merger review by the Bureau].” The Bureau’s new Hostile Hostile Bid Policy is the most recent in a series of new or updated merger-related guidelines and reports that the Bureau has recently issued following the recent adoption in Canada of a new two-track, U.S.-style merger control regime. Other recently issued merger-related guidelines and reports that the Bureau has issued in the past week include its new Merger Review Performance Report (analyzing notified transactions since its last Merger Review Performance Report in 2007) and its Draft Fee and Service Standards Handbook for Merger-Related Matters, which has been issued for public comment. For more see: Competition Bureau Publishes New Policy on Hostile Transactions.
Competition Bureau Issues New Merger Review Performance Report – May 2010
On May 31, 2010, the Competition Bureau issued its new Merger Review Performance Report (the “Merger Report”). The Bureau’s new Merger Report provides an update on the performance of the Bureau’s Mergers Branch since its last report was issued in 2007. For more see: Competition Bureau Issues New Merger Review Performance Report – May 2010.
Competition Bureau Issues New Draft Fee and Service Standards Handbook for Mergers for Comment
The Competition Bureau (the “Bureau”) announced today that it was seeking public comments on its new draft Fee and Service Standards Handbook for Merger-Related Matters. For more see: Competition Bureau Issues New Draft Fee and Service Standards Handbook for Mergers for Comment.
Competition Bureau Announces that GST No Longer Charged for Advance Ruling Certificates
Competition Bureau Announces GST Change
Merger Remedy Secured in Danaher Acquisition of MDS
2010 Merger Notification Threshold (Size of Transaction) Unchanged
2010 Size of Transaction Merger Threshold
Canada’s New Notifiable Transactions Regulations in Force
Canada’s New Notifiable Transactions Regulations
MISLEADING ADVERTISING
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
ABUSE OF DOMINANCE
The Commissioner of Competition v. The Canadian Real Estate Association – Tribunal Date Set for Motions for Leave to Intervene
The federal Competition Tribunal has announced that a date has been set for the Tribunal to hear motions for leave to intervene in the Competition Bureau’s abuse of dominance application against The Canadian Real Estate Association. Motions for leave to intervene will be heard in Ottawa on Wednesday, June 30, 2010. For more see: Competition Bureau – Notice of Application, Canadian Real Estate Association – Response,Competition Bureau – Reply. For the intervenors’ requests for leave to intervene see: Lawrence Mark Dale – Request for Leave to Intervene and National FSBO Network Inc. – Motion for Leave to Intervene.
Competition Bureau Continues Challenge of CREA MLS Rules
CREA MLS Abuse of Dominance Case
Competition Bureau Refuses to Vary Interac Consent Order
Interac Association Request to Vary Consent Order
PROMOTIONAL CONTESTS
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. For more information see: Resort Company Penalized for Running Misleading Contests.
TRADE AND PROFESSIONAL ASSOCIATIONS
Competition Bureau Announces Coming Into Force of Canada’s New Conspiracy Laws
New Canadian Laws for Agreements Between Competitors
Competition Bureau Continues Challenge of CREA MLS Rules
CREA MLS Abuse of Dominance Case
Competition Bureau Refuses to Vary Interac Consent Order
Interac Association Request to Vary Consent Order
Competition Bureau Issues Final Competitor Collaboration Guidelines
Competitor Collaboration Guidelines
OUR CANADIAN COMPETITION LAW SERVICES
We practice federal competition law, have provided competition law and compliance advice to clients across Canada and internationally and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act.
CONTACT US
We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients. Contact Us.
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).
OUR MISLEADING ADVERTISING & MARKETING LAW SERVICES
We practice federal competition law, have provided competition law and compliance advice to clients across Canada and internationally and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act. Our misleading 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.
- Scope of the recent Competition Act amendments.
- Consumer packaging and labeling legislation.
CONTACT US
We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients. Contact Us.
The Globe and Mail reported earlier today that Telus Communications has commenced an action against Rogers Communications in British Columbia for alleged misleading advertising in relation to its network.
In our comments to the Globe and Mail we noted that this case was interesting for several reasons including the potential challenge for Telus to show actual damage as a result of Rogers’ alleged misleading claims (a necessary element of establishing a private misleading advertising action), as well as a misleading advertising private action involving major Canadian telcoms and direct competitors (as compared to the more common actions between suppliers and customers, suppliers and distributors, etc.). With respect to Telus’ burden to show damages, the challenging aspect (assuming Telus intends to pursue the case) would be to show actual damages in the relatively short period between the launch of its new (allegedly faster) network and the present, a relatively short period of some three weeks.
Telus claims that claims made by Rogers in its advertising claiming that it provides “Canada’s Fastest Network: 2x Faster than Any Other” (and similar variations) are false and misleading under the Competition Act, as Telus’ recently introduced new network is now faster than Rogers. Whereas Rogers introduced its High Speed Packet Access in 2007, Telus launched its new HSPA/HSPA+ wireless network earlier this month.
Telus is also alleging that Rogers advertising claims that it provides “Canada’s Most Reliable Network” (and similar variations) are also false and misleading.
Perhaps the most interesting aspect of this recently filed case are Telus’ arguments regarding alleged damages suffered as a result of Rogers’ advertising claims:
“The pre-Christmas months are the busiest time of the year for consumer sales in the wireless service communications market. Due to the economic slowdown in Canada, this year the competition for wireless service communications customers will be even more competitive than normal. … Further, given the economic downturn in Canada, consumers are becoming more price conscious and, as such, the false and misleading Fastest Network Representation and the false and misleading Most Reliable Network Representation are particularly damaging to TELUS. … As a result of Rogers’ wrongful acts and omissions as set forth herein, the Plaintiff has suffered, and will continue to suffer, loss, damage and expense, including depreciation of its’ goodwill and competitive advantage …”
While private actions under the Competition Act are now not uncommon (most are commenced under the criminal conspiracy or criminal misleading advertising provisions of the Act), it is relatively uncommon for a direct competitor to commence a private action against a competitor, given that actual damage as a result of the alleged illegal conduct must be shown. As such, many private actions commenced under the Act are in the context of vertical arrangements (e.g., supplier/customer, supplier/distributor, etc.) – for example, consumers commencing actions (or class actions) for criminal price fixing agreements or misleading advertising engaged in by upstream suppliers, where it is, generally speaking, easier to quantify damages.
This most recent case also follows a relative upswing in the number of private actions commenced under the Competition Act, a trend which is expected to continue as a result of recent amendments to the conspiracy provisions of the Act (lowering the bar for price-fixing private actions) and several recent plaintiff favourable class action certification cases in British Columbia and Ontario.
OUR MISLEADING ADVERTISING & MARKETING LAW SERVICES
We practice federal competition law, have provided competition law and compliance advice to clients across Canada and internationally and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act. Our misleading 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.
- Scope of the recent Competition Act amendments.
- Consumer packaging and labeling legislation.
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.
Overview
Effective advertising is important for most companies and will prove its effectiveness in many ways including building goodwill, instilling consumer trust and, ultimately, resulting in increased sales.
However, when a company markets its products or services in a misleading manner, consumers may be deprived of accurate information which can adversely affect a company’s goodwill and reputation. Misleading advertising can also attract legal liability and sanctions under both federal and provincial laws.
On the federal level, the Competition Act (the “Act”) sets guidelines on advertising and marketing practices including in relation to misleading advertising generally and specific forms of marketing conduct including sales (under the Act’s “ordinary selling price” provisions), deceptive telemarketing and promotional contests.
Misleading Advertising
The Act contains both criminal and civil misleading advertising provisions. As such, the Competition Bureau (the “Bureau”) may pursue misleading advertising either as a civil matter or, alternatively, as a criminal matter.
While in most instances the Bureau will follow the civil track, it may proceed on the criminal track in some cases – for example, where there is clear and compelling evidence that an accused intentionally made false or misleading representations.
The civil misleading advertising provision, under the “deceptive marketing practices” part of the Act, prohibits representations to the public to promote products or business interests that are materially false or misleading. The criminal provision, which is substantially similar, provides that a misleading representation may be criminal if it is made with intent (i.e., made knowingly or recklessly).
It is worth noting that representations made to as few as a single person may be caught, the Act catches both literally false representations as well as claims that may be literally true where the “general impression” of the representation is misleading and that no person needs to be actually deceived or misled.
In addition, it is not necessary to prove that a representation was made to persons in Canada or that a representation was made in a publicly accessible place (i.e., companies in Canada targeting foreign consumers with misleading advertising can be potentially exposed to liability as can companies making claims in places not accessible to the public – e.g., through catalogue or direct sales).
The Act also governs a broad range of specific forms of marketing conduct including “ordinary selling price” claims (e.g., in relation to sales), deceptive telemarketing, contests, performance claims for products and bait-and-switch selling.
The potential penalties for contravening the civil misleading advertising provisions include a Competition Tribunal or court order to cease the conduct, an order to publish a corrective notice, a restitution order, a “freezing order” preventing the disposition of property and/or an order to pay an “administrative monetary penalty” (essentially a civil fine, referred to as an “AMP”) of up to CDN $750,000 for individuals (CDN $1 million for subsequent violations) and CDN $10 million for corporations (CDN $15 million for subsequent violations).
Potential penalties for contravening the criminal misleading advertising provisions (and the deceptive telemarketing and deceptive prize notice provisions) include up to 14 years imprisonment and/or an unlimited fine (i.e., a fine in the discretion of the court).
Ordinary Selling Price Claims
The “ordinary selling price” (“OSP”) provisions of the Act are intended to prevent inflated “regular” prices in relation to sales.
Claims relating to the ordinary or regular price of a product cannot be made unless either a “substantial volume” of the product has been sold at the stated “regular” price (or higher) within a reasonable period before or after the claim (referred to as the “volume test”) or the product has been offered for sale in good faith at that price (or higher) for a “substantial period of time” (referred to as the “time test”).
Since the OSP provisions were enacted in 1999, several well-known retailers have paid penalties ranging from $100,000 to $1.7 million.
Deceptive Telemarketing
The deceptive telemarketing provisions of the Act require, among other things, that telemarketers make certain disclosure at the beginning of calls (e.g., caller identity, purpose of the call, etc.) and that other disclosure be made in a “fair, reasonable and timely manner” (e.g., the product’s price and any material delivery restrictions).
The enforcement of the telemarketing provisions of the Act has been aimed for the most part at companies engaged in true “scams” rather than legitimate marketers who may have committed technical violations.
Individuals have been charged or imprisoned in a number of cases in connection with marketing a broad variety of products including business directories, office supplies and credit cards where the marketing was not in compliance with the Act.
Promotional Contests
Promotional contests are a common and popular way to promote products and may take a variety of forms (e.g., scratch-and-win contests, promotional draws, etc.). Promotional contests are, however, governed by both the Act and the Criminal Code and can raise a number of potential issues (and attract civil and criminal sanctions) if they are not property structured.
OUR MISLEADING ADVERTISING & MARKETING LAW SERVICES
We practice federal competition law, have provided competition law and compliance advice to clients across Canada and internationally and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act. Our misleading 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.
- Scope of the recent Competition Act amendments.
- Consumer packaging and labeling legislation.
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.
OUR BOOKS
The Competition Law Guide for Trade Associations in Canada is a practical and concise summary of Canadian competition law as it applies to trade, professional and other associations.
OUR COURSES
Competition Law and REALTORS®: What You Say and Do Matters was designed by ACRE with the assistance of CREA to help Canadian REALTORS® understand and comply with Canadian competition law.
This course is available
to members of Canadian
real estate boards.
For more information see ACRE