Canadian COMPETITION LAW

August 20, 2013

Earlier today the Competition Bureau announced the fairly long-awaited decision of the Ontario Superior Court of Justice (per Marrocco J.) in the Rogers Chatr misleading advertising and performance claims case (Canada (Competition Bureau) v. Chatr Wireless Inc., 2013 ONSC 5315 (Ont. Sup. Ct.)).

In announcing the decision, Canada’s new Commissioner of Competition John Pecman said:

“We are disappointed that the Court did not agree that Rogers’ claims were misleading to consumers, and we are currently considering our next steps in this matter.  Nevertheless, we are pleased that the Court has dismissed the constitutional challenges brought forth by Rogers, and has agreed with our position that Rogers did not conduct adequate and proper testing beforehand to support its claims about dropped calls in some Canadian cities.”

While the judgment in this important Canadian advertising case, issued yesterday, is some 77 pages in length, and will doubtless generate considerable commentary and interpretation for some time to come, a number of key points struck me on my first reading.

The case, which was launched by the Bureau in November 2010 in response to reliability and dropped call claims made by Rogers in response to new cell phone entrants Wind Mobile and Public Mobile (see: here), involved challenges to two claims made by Rogers in connection with its new cell phone brand Chatr: first, that Rogers’ brand had “fewer dropped calls than new wireless carriers”; and second, that Chatr subscribers would have “no worries about dropped calls” (a later revised claim to allay Competition Bureau concerns).

These claims by Rogers, and the ensuing challenge by the Bureau, raised a variety of civil misleading advertising, performance claim, technical (i.e., relating to the appropriate data and methodology for performance claims in Canada) and constitutional issues relating to Rogers’ marketing claims and the constitutional validity of the civil performance claim and civil “administrative monetary penalty” (“AMP”) provisions of the Competition Act.

More specifically, the Bureau raised three issues in its application: first, whether Rogers’ claims were false; second, whether its claims were misleading; and third, whether its claims were adequately and properly tested before being made.

The core of the Bureau’s misleading advertising challenge was that Rogers’ claims were false because, in certain markets, Chatr in fact had higher dropped call rates than at least one wireless carrier; and that Rogers’ claims were misleading because they conveyed the general impression that there was an appreciable dropped call rate difference between carriers, when in fact the difference was not appreciable or significant.

In countering the Bureau’s misleading advertising and performance claims arguments (under sections 74.01(1)(a) and 74.01(1)(b) of the Competition Act), Rogers also made two constitutional arguments: first, that the performance claims provision of the Competition Act violated section 2(b) of the Charter (freedom of expression); and second, that the AMPs that may be imposed in Canada for civil misleading advertising engaged section 11 of the Charter.

Some of the key holdings of the Court included:

First, the Court largely, but not completely, adopted the Supreme Court of Canada’s recent articulation of the appropriate consumer for misleading advertising claims (albeit in that case, Richard v. Time (2012 SCC 8, [2012] 1 S.C.R. 265), under the Quebec Consumer Protection Act not the Competition Act).  In this regard, the Court in Chatr held that the appropriate consumer for the purposes of mobile performance claims was not a “credulous, inexperienced consumer” (as held in Time, and which had recently raised the question as to whether the former “average consumer” test under the Competition Act would now be lowered) but rather a “credulous and technically inexperienced consumer”.  While not entirely clear on the face of the decision, the Court in Chatr appears to have distinguished the Supreme Court’s consumer standard to some extent based on a distinction between the Quebec Consumer Protection Act and the Competition Act as well as adopting a slightly higher standard than that of the Supreme Court in Time based on the fact that mobile users are not inexperienced per se, but may be technically inexperienced.  Also what this seems to do is create yet more uncertainty as to what precisely the standard is for consumers under the Competition Act (i.e., an “average consumer”, “credulous, inexperienced consumer” or other lower or higher standards depending on the factual circumstances).

Second, the Court held that the Bureau had failed to prove that Rogers’ claims were false based on the Court’s reluctance to give any significant weight to the Bureau’s reliance on “switch generated data” (and the Bureau’s burden to prove that Rogers’ claims were false based on that data).

Third, the Court rejected the Bureau’s argument that a fewer dropped calls claim is misleading unless there is a discernible difference in dropped call rates.  In this regard, the Court found that where price is not a factor, as here on the facts, consumers would be unlikely to choose a competing network that offered only a few more dropped calls (given that even one or a few dropped calls “could be extremely important”).

Fourth, the Court held that Rogers’ drive testing results (which involved drive testing using competing cell phones), did constitute adequate and proper testing both in law and as well in fact in markets where such testing was in fact used by Rogers.  Some other key points from the decision in relation to adequate and proper testing include: confirming that what constitutes “adequate and proper testing” for section 74.01(1)(b) of the Competition Act is “flexible and contextual” and depends on the “nature of the representation made and the meaning or impression conveyed by that representation”; that adequate and proper testing need not be perfect (i.e., “need not be exacting as would be required to publish the test in a scholarly journal”); and that the burden to prove that testing is “adequate and proper” lies on the advertiser (and that “knowledge or belief” in a technological fact is no substitute for actual testing).

Fifth, the Court held that Rogers had failed to conduct adequate and proper testing in some local Canadian markets.

Finally, the Court upheld the performance claims (section 74.01(1)(b)) and administrative monetary penalty (section 74.1(1)(c)) provisions of the Competition Act under sections 2(b) (freedom of expression) and 11 of the Charter.  With respect to freedom of expression, while the Bureau conceded that the performance claims provision of the Competition Act infringed section 2(b) of the Charter, the Court upheld section 2(b) under section 1.  In this regard, the Court concluded, among other things, that the protection of consumers and competition was indeed a pressing and substantial objective; that the performance claims section was rationally connected to this legitimate purpose; and that the requirement for adequate and proper testing only minimally impaired the section 2(b) freedom of speech right under the Charter.  Perhaps more interesting (and debated since recent amendments to the Competition Act), the Court also upheld the significant AMPs for misleading advertising in Canada (up to $10 million for corporations; and $15 million for subsequent orders).  With respect to the constitutionality of AMPs, the Court held that they do not engage section 11 of the Charter.  In particular, the Court reasoned, among other things, that the civil misleading advertising provisions did not include the risk of imprisonment, that the Competition Act was a regulatory statute, that the civil misleading advertising provisions had been intentionally segregated in 1999 from the criminal sections of the Act and that the Act itself clearly states that AMPs are intended to promote compliance “not punish”.  In sum, the Court concluded that AMPs under the civil misleading advertising provisions are not “true penal consequences” such that they would engage protections under section 11 of the Charter.

In sum, it seems to me on my initial read of the Chatr decision that Rogers has largely won on the misleading advertising, false or misleading general impression and performance claims issues, while the Bureau has been successful on countering Rogers’ constitutional challenges to the performance claim and civil misleading advertising penalty provisions (i.e., AMPs) of the Competition Act (which I would think bodes well for any future efforts by the Bureau to seek to have AMPs added to other civil provisions of the Act, such as the civil agreements provision under section 90.1).

The Court will determine remedies in this case at a later date and the Bureau, like other recent losses in the Visa/Mastercard and Toronto Real Estate Board price maintenance and abuse of dominance cases, has stated that it is “considering its next steps” in this case.

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