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“Businesses should not make any performance claims unless they can back them up. The Competition Act prohibits any representation in the form of a statement, warranty or guarantee of the performance, efficacy or length of life of any given product, not based on adequate and proper testing. The onus is on advertisers to prove that the representation is based on an adequate and proper test.  The test must have been concluded before the representation is made and the data must be readily available upon request by the Bureau.”

Competition Bureau,
Ensuring Truth in Advertising, Misleading Advertising and Labelling

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“[i]n summary, and in respect of this case, I conclude that a ‘proper and adequate’ test depends on the claim made as understood by the common person; must be reflective of the risk or harm which the product is designed to prevent or assist in preventing; must be done under controlled circumstances or in conditions which exclude external variables or take account in a measurable way for such variables; are conducted on more than one independent sample wherever possible; results need not be measured against a test of certainty but must be reasonable given the nature of the harm at issue and establish that it is the product itself which causes the desired effect in a material manner; and must be performed regardless of the size of the seller’s organization or the anticipated volume of sales.”

Canada (Commissioner of Competition) v. Imperial Brush Co.

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OVERVIEW

In addition to the general misleading advertising provisions of the Competition Act (sections 52 and 74.01), the Act also sets out certain misleading advertising related criminal offences (under Part VI of the Act – Offences in Relation to Competition), which are subject to fines and imprisonment, and reviewable matters (under Part VII.1 of the Act – Deceptive Marketing Practices), which are subject to civil penalties including administrative monetary penalties (essentially civil fines).

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); 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).

They also include a standalone civil provision that prohibits performance claims that are not based on an “adequate and proper test”.  In this regard, the Competition 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, the proof of which lies on the person making the claim.

Some of the types of performance claims that may fall under this provision include claims relating to the performance of a product (e.g., speed, reliability, sales performance, etc.), comparative advertising (e.g., where one firm’s product’s performance is being compared to a competitor) and claims relating to preferences or perceptions.  In the context of online and social media marketing, the performance claims section can also apply to, among other things, performance claims made by influencers (for more information, see testimonials/endorsements).

While performance claims themselves are not prohibited, any testing or verification must be conducted before a claim is made (i.e., it is not sufficient to be able to substantiate a performance claim after it has been made).  Also, the onus, if challenged, is on the person making the claim to show that the performance claim is based on an adequate and proper test.

False performance claims can be challenged by the Competition Bureau in courts (a provincial court or Federal Court) or before the federal Competition Tribunal, which is an administrative tribunal.  False performance claims may also be challenged by private plaintiffs in misleading advertising claims commenced under section 52 of the Competition Act (i.e., based on the theory that inaccurate performance claims are either literally false or misleading).

The federal Competition Tribunal in the Imperial Brush case set out a non-exhaustive list of factors relevant to determining whether testing is “adequate and proper”.  Testing also does not need to be 100% reliable or the best scientific testing that could have been performed (i.e., it has been held that testing does not need to meet a test of certainty).

The key requirements of the performance claim provision of the Competition Act were also summarized by the Ontario Superior Court of Justice in Canada (Competition Bureau) v. Chatr Wireless Inc., 2013 ONSC 5315 (CanLII), which adopted a number of the reasons from the Competition Tribunal in the Imperial Brush case:

“The burden of proving adequate and proper testing lies upon the respondents by virtue of the express wording of s. 74.01(1)(b) of the Competition Act.  The adequate and proper test must be made prior to the representation to the public. … The phrase ‘adequate and proper test’ is not defined in the Competition Act.  Whether a particular test is ‘adequate and proper’ will depend on the nature of the representation made and the meaning or impression conveyed by that representation.  Subjectivity in the testing should be eliminated as much as possible.  The test must establish the effect claimed.  The testing need not be as exacting as would be required to publish the test in a scholarly journal.  The test should demonstrate that the result claimed is not a chance result …”

In practice, the Competition Bureau has challenged performance claims in a wide variety of industries over the years, including in relation to weight loss products (e.g., diet patches, skin care cream, sauna belts, weight loss devices and natural products, etc.), clothing (e.g., alleged therapeutic benefits of some types of clothing), fuel saving devices, chimney cleaning products, UV ray protection, anticorrosion devices, disease cures (e.g., cancer, AIDS, etc.) and claimed therapeutic benefits of tanning, among others.

Penalties and Enforcement

Some of the potential penalties for violating the civil deceptive marketing practices provisions under Part VII.1 of of the Competition Act include Competition Tribunal or court orders to stop the conduct, publish a corrective notice, pay restitution to consumers and administrative monetary penalties (AMPs).

Following 2022 amendments to the Competition Act, the maximum AMPs for civil deceptive marketing increased: (i) for individuals, up to the greater of $750,000 ($1 million for each subsequent order) and three times the value of the benefit derived from the deceptive conduct if that amount can be reasonably determined; and (ii) for corporations, up to the greater of $10 million ($15 million for each subsequent order), three times the value of the benefit derived from the deceptive conduct or, if the latter amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenues.

The potential penalties for violating the general criminal misleading advertising section of the Competition Act (section 52) include, on indictment, a fine in the discretion of the court and/or imprisonment for up to 14 years and, on summary conviction, a fine of up to $200,000 and/or imprisonment for up to one year.

The Competition Bureau has challenged performance claims in a wide variety of industries over the years, including in relation to weight loss products (e.g., diet patches, skin care cream, sauna belts, weight loss devices and natural products, etc.), clothing (e.g., alleged therapeutic benefits of some types of clothing), fuel saving devices, chimney cleaning products, UV ray protection, anticorrosion devices, disease cures (e.g., cancer, AIDS, etc.) and claimed therapeutic benefits of tanning, among others.

Based on the potential penalties and consistent Competition Bureau enforcement, it is incumbent on companies and their external advisors and agencies to ensure that adequate and proper testing is conducted before performance claims are made.

Written advisory opinions are also available from the Competition Bureau in relation to proposed performance claims, as well as other types of proposed advertising and marketing claims. For more information, see Competition Bureau Advisory Opinions.

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Our experience includes advising clients in Toronto, across Canada and the United States on the application of Canadian competition and regulatory laws and we have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal and pricing and distribution matters. For more information about our competition and advertising law services see: competition law services.

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