Canadian COMPETITION LAW

November 19, 2010

The Competition Bureau announced earlier today that it has commenced legal proceedings against Rogers to stop what, according to the Bureau, constitutes misleading advertising in connection with Rogers’ Chatr discount cell phone service.

In making the announcement, the Bureau said:

“Rogers’ Canada-wide advertising campaign claims that consumers subscribing to Rogers’ Chatr brand would experience “fewer dropped calls than new wireless carriers” and have “no worries about dropped calls”.

The Bureau’s investigation, which involved an extensive review of technical data, obtained from a number of sources, led the Bureau to conclude that there is no discernible difference in dropped call rates between Rogers/Chatr and new entrants.

“We take misleading advertising very seriously,” said Melanie Aitken, Commissioner of Competition. “Consumers deserve accurate information when making purchasing decisions and need to have confidence they are not being misled by false advertising campaigns.”

The Government of Canada opened up the domestic cell phone market in 2008 with a spectrum auction that made additional frequencies available to new wireless service providers.”

The legal proceedings begun by the Bureau are being brought in the Ontario Superior Court of Justice.  In its claim, the Bureau is seeking an order that Rogers: (i) stop its advertising campaign, (ii) pay an administrative monetary penalty of $10 million, (iii) pay restitution to affected customers and (iv) issue a corrective notice.

The Bureau’s announcement follows a series of competition law related disputes in the telecom sector that have included an abuse of dominance complaint by Mobilicity against Rogers apparently alleging that Rogers is abusing its dominant position in the use of “fighting” or “flanking” brands (see: Mobilicity Files Competition Bureau Complaint Against Rogers) and recent novel proceedings in which the Supreme Court of British Columbia struck out Novus Entertainment’s claims against Shaw Cablesystems based on the abuse of dominance provisions of the Competition Act (and in particular predatory pricing related claims) (see: British Columbia Supreme Court Rejects Novus’ Section 79 Predatory Pricing Claim Against Shaw).

The proceedings commenced against Rogers appear to be based on complaints made by Wind Mobile about Rogers advertising claims for its Chatr brand.  For example, the Globe and Mail reported that Wind Mobile had filed a complaint with the Bureau and quoted Wind Mobile’s Chairman Anthony Lacavera as saying that “there is absolutely no solid or objective technical basis for Chatr’s claim to have more network reliability and fewer dropped calls than Wind.”  See: Wind Mobile Files Competition Bureau Complaint Against Rogers.

In this regard, the Commissioner of Competition, Melanie Aitken, stated:

“The spectrum auction was intended to enhance competition in the wireless sector,” Ms. Aitken said. “New entrants attempting to gain a foothold in the market should not be discredited by misleading claims made by their competitors.”

The Bureau’s recent announcement, with allegations against Rogers that have not been proven, is a sober reminder of the new penalties for misleading advertising under the Competition Act, which were enacted as part of sweeping amendments to the Act in 2009.  As a result of the amendments, significantly increased penalties for civil false or misleading representations were introduced including “administrative monetary penalties” (essentially civil fines) of up to $750,000 for individuals ($1 million for subsequent orders) and $10 million for corporations ($15 million for subsequent orders), which are more than ten times the previous penalties.

Misleading Advertising Law in Canada

The federal Competition Act contains both criminal and civil provisions that prohibit false or misleading representations.  The general civil misleading advertising provision of the Act prohibits representations to the public, to promote a product or any business interest, that are false or misleading in a material respect.  For a representation to be false or misleading under the civil misleading advertising provision, it must be established on the civil burden of proof (i.e., on a balance of probabilities) that: (i) a representation has been made, (ii) to the public, (iii) to promote a product (including services) or any business interest, (iv) the representation is false or misleading and (v) that it is false or misleading in a “material” respect.  The criminal misleading advertising provision of the Act is substantially similar, except that in order to establish criminal misleading advertising, it must also be established on the criminal burden of proof (i.e., beyond a reasonable doubt) that a representation was intentionally made (i.e., was made “knowingly or recklessly”).

Performance Claims under the Competition Act

In addition to the “general misleading advertising” provisions, the Competition Act also prohibits false performance claims, and in particular prohibits representations to the public about the “performance, efficacy or length of life of a product” that is not based on an “adequate and proper test.”  While performance claims themselves are not prohibited, any testing or verification of a performance claim must be performed before the claim is made and the onus is on the person making the representation to prove that the claim is based on an adequate and proper test.  As such, while performance claims can be a legitimate and effective way 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 performance claims are made.  (the federal Competition Tribunal has also recently held that there a non-exhaustive list of factors are relevant in considering whether testing is “adequate and proper”).

For more regulatory law updates follow me on Twitter: @CanadaAttorney

Comments are closed.