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MISLEADING ADVERTISING FAQS

“This legislation is the expression of a social purpose, namely the establishment of more ethical trade practices calculated to afford greater protection of the consuming public.  It represents the will of the people of Canada that the old maxim caveat emptor, let the purchaser beware, yield somewhat to the more enlightened view caveat venditor – let the seller beware.”

(Matheson J., R. v. Colgate-Palmolive Ltd. (1970))

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“The general impression test … must be applied from a perspective similar to that of ‘ordinary hurried purchasers’, that is, consumers who take no more than ordinary care to observe that which is staring them in the face upon their first contact with an advertisement.  The courts must not conduct their analysis from the perspective of a careful and diligent consumer. … In sum, it is clear that … the ‘general impression’ test … is the impression of a commercial representation on a credulous and inexperienced consumer. … courts view the average consumer as someone who is not particularly experienced at detecting the falsehoods or subtleties found in commercial representations.”

(Supreme Court of Canada, Richard v. Time, 2012)

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What is “Misleading Advertising”?

While by no means the only Canadian legislation regulating advertising, the federal Competition Act is one of the main statutes.  It contains criminal and civil sections that prohibit false or misleading representations and deceptive marketing practices.  These are frequently referred to as the Competition Act’s “misleading advertising” provisions.

The “general” civil misleading advertising provision of the Act (s. 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.

As is discussed below in more detail, in addition to “general misleading advertising” provisions, the Competition Act also either prohibits or regulates a significant variety of other types of advertising and marketing practices.

Is misleading advertising a criminal offence or a civil matter in Canada?

Federally, misleading advertising may also be pursued by the Competition Bureau as a civil “reviewable practice” or as a criminal offence.  In this regard, the Bureau has issued guidelines that set out its position as to when it is likely to proceed on a criminal as opposed to a civil track for misleading advertising.

In general, the Bureau will generally pursue a civil track unless certain criteria are satisfied as follows: (i) there is clear and compelling evidence suggesting that an 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 considers a number of factors including: (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 considers certain mitigating factors, including whether a prosecution or conviction would be disproportionately harsh or oppressive and the existence of an effective compliance program.

What other marketing practices are included in the Competition Act?

In addition to the “general” misleading advertising provisions, the Competition Act also contains a number of other criminal and civil provisions prohibiting (i.e., criminal offences) or regulating (i.e., civil reviewable practices) specific types of advertising and 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 – i.e., “performance claims” (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 products above an advertised price (section 74.05); and promotional contests (section 74.06).

What has to be proven to establish 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 “material”.

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

What is a “representation”?

The first element of misleading advertising is that a “representation” (i.e., some type of print or oral claim, etc.) 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 Competition 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.

As a practical matter, the Bureau also periodically conducts online “sweeps” of Internet advertising (typically once or twice a year in chosen industry sectors) 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 to the public.  In addition, as a result of recent Competition Act 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 (so cross-border marketing to non-Canadians can be caught also).

In addition, the Competition Act also contains provisions deeming 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 words, phrases and imagery must all be considered.

To put it another way, advertising can be all literally true (i.e., each statement read separately / in isolation) and still misleading, such that it violates the Competition Act.

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 (though these can be relevant for determining the appropriate penalty).

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” interested in using the relevant product would be influenced in deciding whether or not to purchase the product being offered or otherwise alter their conduct.

While many courts have adopted this “average consumer” as the relevant test, some courts recently (for example in the Time and Chatr cases) have adopted lower tests according to the factual circumstances.  As such, advertisers cannot assume that their advertising will be tested against a standard as high as an “average consumer”, when in fact some courts may adopt substantially lower tests.

As to what types of specific information may be considered to be “material”, many Canadian courts have found that false or misleading representations in relation to price and essential or fundamental terms are material.  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 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 Competition Tribunal and Canadian courts have held that a non-exhaustive list of factors can be relevant in considering whether a test is “adequate and proper”, that whether a test is “adequate and proper” is a factual question and that 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).

Several of the leading cases in this area include the recent Chatr case (involving performance claims made by Rogers in relation to its Chatr cell phone brand) and the Imperial Brush case.

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 Competition 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?

Potential penalties for violating the Competition Act’s 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; and, on summary conviction, the potential 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) compensate consumers that have purchased a product.

In reality, the many misleading advertising matters are resolved by way of negotiated settlement.  In some cases, a misleading advertising matter may also be resolved voluntarily without formal proceedings being initiated.

In other cases, however, particularly where there is evidence of intent or fraud, the Competition Bureau seeks significant criminal penalties and imprisonment.

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 in Canada for misleading advertising matters.

LINKS AND RESOURCES

Legislation: Competition Act.

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, Consumer Rebate Promotions, Deceptive Notices of Winning a Prize – Section 53 of the Competition Act, Enforcement Guidelines for “Product of Canada” and “Made in Canada” Claims, Environmental Claims: A Guide for Industry and Advertisers, Guide to the Textile Labelling and Advertising Regulations, Multi-level Marketing Plans and Schemes of Pyramid Selling – Sections 55 and 55.1 of the Competition Act, Ordinary Price Claims: Subsections 74.01(2) and 74.01(3) of the Competition Act, “Product of Canada” and “Made in Canada” Claims, Telemarketing: Section 52.1 of the Competition Act.

Pamphlets: Bait and Switch Selling, Deceptive Prize Notices, False or Misleading Representations and Deceptive Marketing Practices, Multi-level Marketing and Pyramid Selling, Promotional Contests, What You Should Know About Telemarketing.

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