February 22, 2017
The Canadian Competition Bureau (Bureau) continues to enforce the sale related sections (“ordinary selling price” or “OSP” sections) of the Competition Act. Earlier today, it announced that it will commence an application with the federal Competition Tribunal (Tribunal) in relation to the alleged deceptive marketing of sleep sets (mattresses and foundations sold together) by the Hudson’s Bay Company (HBC).
In particular, the Bureau has taken the position in its Notice of Application that HBC has engaged in deceptive marketing by offering sleep sets at grossly inflated regular prices and then advertising deep discounts that suggest significant deals available to consumers.
In general, the Competition Act prohibits false or misleading claims to promote a product, service or any business interest. A broad range of literally false or misleading advertising or marketing claims can be caught by the federal Competition Act.
More specifically, the Competition Act contains “ordinary selling price” (OSP) provisions, which are meant to prevent inflated regular price claims in relation to sales. These sections make it a civil reviewable practice to mislead consumers about the ordinary selling price of a product (i.e., either a retailer’s own ordinary selling price or the ordinary selling price in the overall market).
Under the Competition Act’s OSP provisions, claims relating to the ordinary or regular price of a product cannot be made unless one of the following two tests is met:
Volume test: A substantial volume of the product has been sold at the stated regular price or higher within a reasonable period of time before or after the claim. The Bureau’s position is that a substantial volume means more than 50% of sales at (or above) the reference price and that a reasonable period of time means 12 months before or after the claim, which may be shorter depending on the nature of the product.
Time test: The product has been offered for sale in good faith at the regular price or higher for a substantial period of time before or immediately after the claim. The Bureau’s view is that whether a product has been offered for sale in good faith depends on a number of factors and that a substantial period of time means more than 50% of the six months before or after the claim is made, which may be shorter depending on the nature of the product.
The Bureau has issued specific Ordinary Price Claims Enforcement Guidelines, which, though not law – they set out the Bureau’s enforcement position, are essential reading for companies making sale claims, referring to their own (or market) “regular” or “ordinary prices” or are engaging in “high-low” pricing strategies. Of course, there is nothing generally wrong for marketers to engage in “high-low” pricing strategies, as long as their sale claims comply with Canadian sale-related rules.
This new proceeding announced by the Bureau earlier today against HBC shows that accurate advertising remains a current Bureau enforcement priority, particularly in relation to price claims.
Interestingly, the Bureau has commenced its application under both the general civil misleading representation provisions of the Competition Act as well as the more specific OSP provisions discussed above. Presumably this is a strategy to maximize both the general and more specific sale-related pricing provisions of the Act in its case.
Among the more general advertising claims the Bureau is challenging in this case include claims by HBC that its sleep sets are part of an inventory “clearance” or “end of line” promotions, when the Bureau claims that HBC continues to replenish its stock from suppliers. This point in particular in the Bureau’s Notice of Application should be a flag for advertisers that they should be able to back up their advertising claims in terms of literal truth and the “general impression” of their claims.
OSP claims also remain a particular focus for the Bureau. Several key cases in this area include Michaels of Canada, ULC agreeing to pay a $3.5 million administrative monetary penalty in relation to its OSP advertising in 2015 (see here) and the Bureau’s proceeding against Sears Canada Inc. in relation to its OSP tire claims several years ago.
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