Canadian COMPETITION LAW

February 18, 2013

Do you need contest rules/precedents
for a Canadian contest?

We offer many types of Canadian contest/sweepstakes law precedents and forms (i.e., Canadian contest/sweepstakes law precedents to run common types of contests in Canada).  These include precedents for random draw contests (i.e., where winners are chosen by random draw), skill contests (e.g., essay, photo or other types of contests where entrants submit content that is judged to enter the contest or for additional entries), trip contests and more.  Also available are individual Canadian contest/sweepstakes precedents, including short rules (“mini-rules”), long rules, winner releases and a Canadian contest law checklist.  For more information or to order, see: Canadian Contest Law Forms/Precedents.  If you would like to discuss legal advice in relation to your contest or other promotion, contact us: Contact.

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Canadian contest law can, to say the least, be perplexing to some.  It’s a mix, at least usually, of competition law, the Criminal Code and contract law.  As such, key Canadian contest legal requirements include mandatory Competition Act disclosure (“short rules”), avoiding the illegal lottery offences of the Criminal Code and taking common sense steps to make sure contest rules accurately reflect the promotion, are enforceable and give the maximum amount of latitude to promoters to deal with potential contingencies that may arise.

One of the more well-known (or puzzling) aspects of Canadian contests, depending on your perspective, are skill-testing questions.  Canadian promoters use them.  U.S. promoters don’t.  Why?

To answer that question, we have to back up into the murky history of Canadian lottery laws and the somewhat cryptic, to say the least, illegal lottery offences under section 206 of the Canadian federal Criminal Code.

In general, the requirement for a skill testing question requirement arose from the necessity to eliminate some chance from some of the illegal lottery offences under the Code.  Some of those sections (sections 206(1)(a)-(d)) make it a criminal offence to, among other things, sell or dispose property by lots, tickets or any mode of chance; or conduct or manage a scheme or operation to determine winners of property by lots, tickets, numbers or chances.  These offences prohibit certain games of pure chance (and it has been held that mixed skill and chance is not sufficient).  Any element of skill, however, must be real and not a mere sham in order to take a contest out of these sections.

In addition, another illegal lottery offence, section (206(1)(f)), makes it a criminal offence to dispose of goods, wares or merchandise by games of chance (or mixed chance and skill) in which a contestant pays money or other valuable consideration.  In short, the key here is typically to ensure that the contest is one of pure skill or remove the consideration element (thus the ubiquitous “no purchase required” element in Canadian contests).

These offences roughly, but by no means perfectly, codify the three elements of what historically have been considered to constitute an illegal lottery: namely, consideration, chance and a prize.  I say “roughly” because, for example, while one offence (section 206(1)(f)) refers to consideration, other do not.  Similarly, some section 206 offences refer to “chance”, while section 206(1)(f) only applies to games of chance or mixed chance and skill.

As such, in an effort to avoid these offences, promoters running contests in Canada commonly remove at least some chance (frequently through a skill-testing question to convert a contest into one of mixed skill and chance) and consideration.

Some key skill points worth noting for Canadian contests and promotions include:

1.  Some skill testing requirements have been upheld, while others have not.  While the cases don’t arise often, the level of skill required to avoid the chance element of the Code is not settled.  For example, in one often-cited case, R. v. Johnson, a contest was found to be one of pure chance despite a requirement to shoot a turkey at 50 yards in 5 shots.  Curiously, this was found to easily be complied with, albeit in this 1902 case when turkey shooting was apparently a more widely held skill.

2.  The case most often cited and relied upon for the skill-testing question requirement is an older Alberta lower court decision from the 1980s: R. v. The Canada Trust Company.  In that case, the Provincial Court judge upheld the following as being adequate: multiply 228 by 21; add 10,824; divide by 12; and subtract 1,121.  So it stands to reason that, at least in Alberta, this question should still pass muster.  In other provinces and territories?  Still largely unknown.  This question has in practice commonly been somewhat diluted into various four-step mathematical questions, consisting of 2-3 digits each, which some commentators have opined would likely cut the mustard.

3. Issues have arisen relating to the level of skill and the manner in which questions are administered.  For example, in R. v. Simpson, an older Saskatchewan Court of Appeal case, though a slightly frightening (if archaic) cautionary tale, a retail store was convicted for a contest that involved a question found to present no exercise of skill whatsoever based on the nature of the question and way it was administered.  In this case, a simple factual test was given based on the retailer’s flyer that had been presented to the contestant in advance.  According to the Court, the question was a mere device to cover up a scheme for disposing of property by pure chance and would, one judge colorfully noted, in reality only exclude “all blind, dumb, deaf or paralyzed people”.

While the precise degree of skill that will remove the chance element from a promotion remains unsettled, some commonsense tips to including (and administering) a skill-testing question for a Canadian promotion include:

1. Use a four-step 2-3 digit mathematical question;

2. Limit the time to answer (e.g., requiring it to be answered on presentation and not, for example, publishing it in advance or sending it in advance to a contestant);

3. Administer it in person (or phone) to reduce the likelihood of being gamed; and

4. Include the requirement as a condition to winning a prize in contest terms and release documents (i.e., the requirement to correctly answer unaided a time-limited mathematical skill-testing question chosen by the sponsor by phone as a condition to winning a prize).

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Legal Tips For Running
Contests/Sweepstakes in Canada

The following are key tips for operating legal contests/sweepstakes in Canada:

Criminal Code. Avoid the illegal lottery offences of the Criminal Code (e.g., include a bona fide “no purchase necessary” entry option and skill element, such as a time-limited, multiple-step mathematical question for potential winners as a condition of awarding a prize).

Short Rules. Include short rules / mini-rules with all of the required Competition Act disclosure requirements for point-of-purchase materials (e.g., print and in-store marketing, social media and Internet sites, packaging and labeling, television and radio spots, etc.). For more information, see: Canadian Contest Forms & Precedents.

Long Rules. Ensure that precise long rules (i.e., the official contest rules) are included that reflect the details of the contest, anticipate potential contingencies (e.g., technical problems) and set out the details of the contest as clearly as possible – for example, eligibility requirements, how to enter, prize descriptions, number and values, draws and award of prizes, odds of winning and indemnifying and releasing the contest sponsor and any co-sponsors or prize sponsors.  Standard precedents, or rules downloaded from the web rarely accurately reflect a particular promotion. In this regard, contests are contracts, and so they should be as accurate, clear and precise as possible in the event issues arise. For more information, see: Canadian Contest Forms & Precedents.

Winner Release Forms. Consider using winner release forms for contest winners. While not required by law in Canada, winner releases are almost always used by contest sponsors to have winners confirm that they have complied with all contest rules and release the sponsor from legal liability. Signing and returning winner releases is also commonly included in contest rules as a condition of prize award. Winner releases are particularly important for contests in which there may be higher risk (e.g., where the contest involves high value prizes or a trip prize). For trip contests, sponsors are generally advised to use releases for both winners and any travel companions (and guardian releases for minors). For more information, see: Canadian Contest Forms & Precedents.

General Misleading Advertising Provisions. Ensure that advertising and marketing materials are not false or misleading (i.e., comply with the general misleading advertising sections of the Competition Act).  In this regard, contests in Canada must comply not only with stand-alone contest provisions of the Competition Act (under section 74.06), but also with the general misleading advertising sections of the Competition Act. It is particularly important to ensure that the marketing collateral matches the contest rules and that key aspects of the contest (e.g., number and type of prizes, prize values, how to enter and win and any conditions/limitations) are accurately described.

Quebec Considerations. Ensure that Quebec legal requirements are met for contests run in Quebec (or take care to make sure that eligibility is limited to Canadian residents, excluding Quebec). In general, opening contests to Quebec residents requires regulatory filings with the Regie in Quebec, the payment of a duty or tax (which depends on the value of prizes), translation of contest rules and advertising and in some cases posting a bond/security.

Intellectual Property Consents. Consider whether consents are needed (and if necessary obtained) to reproduce third-party intellectual property – for example, trade-marks, logos, etc. – or to transfer ownership in contest materials – for example, where contestants create original material as part of the contest or promotion. Contest rules in Canada commonly include rights (e.g., a licence) for the sponsor to use information and content contributed by entrants and if entrants will be contributing original content (e.g., photographs, essays, etc.) it is also a good practice for sponsors to include guidelines relating to their rights to use (or reject) any entrant contributed content. See: Guidelines For Consumer Generated Content Contests.

CASL (Canadian Anti-Spam Law). If consents will be gathered for non-contest or later marketing to entrants, ensure that a CASL-compliant consent request is included when entrants enter the contest. Also, care should be taken for some types of contests where participation may require actions that could be considered spam under CASL (e.g., share with friends or family type promotions for additional contest entries). For more information, see: Contests & CASL. See also: Canadian CASL (Anti-Spam Law) Checklists and Precedents.

U.S. Advice. Seek U.S. legal advice if the contest will be open to U.S. residents or limit the contest to only Canadian residents.

Social Media Site Rules. Comply with social media sites’ terms of use if using social media to promote or host a contest (e.g., Facebook’s Promotions Rules). Also ensure that appropriate disclosures are made in all social media marketing (i.e., include short rules). For more information, see: Contests and Social Media.

Other Competition & Advertising Rules. Consider whether other competition or advertising law rules may apply. For example, in addition to a stand-alone contest provision, the Competition Act also contains provisions governing deceptive prize notices, general misleading advertising and telemarketing that involves prizes.

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SERVICES AND CONTACT

I am a Toronto competition and advertising lawyer offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law.  I also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.

My experience includes advising clients in Toronto, Canada and the US on the application of Canadian competition and regulatory laws and I 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, pricing and distribution, Investment Canada Act and merger matters. For more information about my competition and advertising law services see: competition law services.

To contact me about a potential legal matter, see: contact

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