What laws govern promotional contests in Canada?
Promotional contests in Canada are governed by the Competition Act, the Criminal Code, privacy legislation and the common law of contract. In addition, Quebec has a separate regulatory regime governing contests.
As such, given that the improper operation of a promotional contest can lead to civil or criminal liability, it is important to review contests for compliance with federal and, if applicable, provincial laws.
What are the potential penalties for non-compliance?
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’s regulatory requirements, it is critical to review 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 court orders to cease the conduct, publish corrective notices or compensate (i.e., make restitution to) consumers.
For example, a Manitoba real estate investment company 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 [disposing] of any product or other benefit …”
Some of the key requirements include: (i) disclosing the number and approximate value of prizes, (ii) disclosing the area (or areas) to which they relate (i.e., any so-called “regional allocation” of prizes) and (iii) any fact that may materially affect the odds of winning.
The Act also prohibits contest organizers from unduly delaying the award of prizes.
What are “short rules”? Are they mandatory?
Based on 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”) for 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 typically includes the number and approximate value of prizes, any regional allocation, skill testing question requirement, information regarding the odds of winning and closing date for the contest.
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 (e.g., print advertising, websites, social media pages, etc.).
Do other Competition Act provisions apply to contests?
Yes. In addition to specific rules relating to promotional contests under section 74.06, the “general misleading advertising” provisions of the Competition Act also apply to the operation of contests in Canada.
The Competition Act also contains several other specific provisions regulating contests operated in the context of: (a) telemarketing (section 52.1) and (b) prize notices (section 53).
In this regard, section 52.1 of the Act prohibits telemarketers from conducting contests where: (a) the delivery of a prize (or other benefit) is or is represented to be conditional on prior payment or (b) adequate and fair disclosure is not made of the number and approximate value of prizes, the area or areas to which they relate and the odds of winning.
Section 53 prohibits prize notices sent by electronic or regular mail that give the general impression a recipient has won (or will win) a prize and is required to pay money or incur another cost, unless the recipient actually wins a prize and certain disclosure is made (including the number and approximate value of prizes, regional allocation and odds of winning).
What is the scope of the Competition Act’s misleading advertising provisions?
The criminal and civil misleading advertising provisions of the Competition Act (sections 52 and 74.01) prohibit representations to the public, for the purpose of promoting a product or any business interest, that are false or misleading in a material respect.
The potential penalties for misleading advertising can also be severe, and include civil fines of up to $750,000 (for individuals) and $10 million (for corporations) and court orders to cease the conduct, publish corrective notices or compensate consumers.
Does Canadian competition law apply to the Internet?
Yes. The Competition Bureau takes the position that the promotional contest provisions of the Competition Act, as well as the general misleading advertising provisions, apply to Internet marketing and advertising (see: Competition Bureau, Enforcement Guidelines, Application of the Competition Act to Representations on the Internet).
In this regard, the Bureau 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 Criminal Code also governs contests in Canada (sections 206 and 207). 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: (a) a prize, (b) chance and (c) 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 in Canadian contests? Why is a skill-testing question requirement also typically included?
Based on the Criminal Code prohibitions of illegal lotteries, contest organizers often remove either the consideration element (e.g., offering a “no purchase necessary” entry option), chance element (e.g., adding a skill element, for example making the contest a skill contest or including a skill-testing question requirement).
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? What are the legal requirements?
In addition to the regulatory requirements of the Competition Act and Criminal Code, promotional contests have also been held to be contracts. As such, contests are also governed by the common law of contract in Canada.
For this reason, in addition to ensuring compliance with the statutory requirements of the Competition Act, Criminal Code, privacy law and Quebec legislation (if applicable), it is also important that the terms and conditions of a promotional contest be carefully drafted to reduce potential contractual liability.
This includes a careful review of short rules, long rules and winner release documentation to ensure that the terms are precise, enforceable and reduce the likelihood of a credible contractual challenge. Potential technical problems and other contingencies should also be addressed, including in relation to unavailability of prizes and technical problems arising from the operation of the contest (e.g., computer, Internet or server issues).
Does Canadian privacy law apply to contests?
Yes. Contest organizers should be cognizant of federal privacy law requirements, which include requiring consent for the collection, use, storage and disclosure of personal information collected in relation to the operation of a contest. This typically includes, for example, advising contestants as to how their personal information will be used and 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 practical considerations to operating a contest in Canada?
Promotional contests in Canada are governed by the Competition Act, the Criminal Code, privacy legislation and the common law of contract. In addition, Quebec has a separate regulatory regime governing contests.
As such, given that the improper operation of a contest can lead to civil or criminal liability, it is important to review proposed promotional contests for compliance with federal and (if applicable) provincial laws. The following are some key tips for operating a successful contest:
1. Include all Competition Act disclosure requirements in “short rules” for point-of-purchase materials;
2. Ensure that advertising materials are not false or misleading.
3. Ensure that precise “long rules” are prepared, particularly anticipating potential contingencies (e.g., technical problems, etc.);
4. Take care to avoid the Criminal Code provisions governing illegal lotteries (e.g., provide a “no purchase necessary” entry option and skill element);
5. Consider developing a check-list to ensure that all legal requirements are met;
6. Ensure that key contest elements are as clear and precise as possible (e.g., eligibility, how to enter and prize and odds of winning descriptions);
7. Ensure that Quebec legal requirements are met (or take care to exclude the contest from Quebec); and
8. Obtain U.S. legal advice if the contest will be open to U.S. residents.
PROMOTIONAL CONTEST LINKS & RESOURCES
LEGISLATION
COMPETITION BUREAU
Bulletins
Misleading Representations and Deceptive Marketing Practices: Choice of Criminal or Civil Track
Enforcement Guidelines
Application of the Competition Act to Representations on the Internet
Deceptive Notices of Winning a Prize – Section 53 of the Competition Act
Promotional Contests – Section 74.06 of the Competition Act
Telemarketing – Section 52.1 of the Competition Act
Pamphlets
False or Misleading Representations and Deceptive Marketing Practices
What You Should Know About Telemarketing
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