“[The Competition Act] is the expression of a social purpose, namely the establishment of more ethical trade practices calculated to afford greater protection of the consuming public. It represents the will of the people of Canada that the old maxim caveat emptor, let the purchaser beware, yield somewhat to the more enlightened view caveat venditor – let the seller beware.”
(Matheson J., R. v. Colgate-Palmolive Ltd.)
“The general impression test … must be applied from a perspective similar to that of ‘ordinary hurried purchasers’, that is, consumers who take no more than ordinary care to observe that which is staring them in the face upon their first contact with an advertisement. The courts must not conduct their analysis from the perspective of a careful and diligent consumer. … In sum, it is clear that … the ‘general impression’ test … is the impression of a commercial representation on a credulous and inexperienced consumer. … courts view the average consumer as someone who is not particularly experienced at detecting the falsehoods or subtleties found in commercial representations.”
(Supreme Court of Canada, Richard v. Time)
The federal Competition Act is Canada’s principal, but by no means only, legislation governing misleading advertising. In addition to this federal legislation, a number of other federal and provincial laws can apply to advertising and marketing practices in Canada. These include provincial consumer protection laws, sector-specific legislation, anti-spam legislation (CASL) and federal packaging and labeling statutes.
GENERAL MISLEADING ADVERTISING SECTIONS
The Competition Act contains both civil and criminal misleading representations provisions that apply to false or misleading claims made to promote the supply or use of products (including services) or business interests.
Under the civil misleading advertising section, it must be proven that: (i) a representation has been made; (ii) to the public; (iii) to promote a product or business interest; (iv) that is literally false or misleading (or with a false or misleading general impression); and (v) that the claim is “material” (i.e., likely to influence an average consumer into buying or using a product or otherwise altering their conduct). Criminal misleading advertising is substantially similar, but in addition also requires that a claim be made “knowingly or recklessly” (i.e., with intent).
A few key points about Canadian misleading advertising law include:
1. The misleading advertising sections of the Competition Act are broad enough to apply to claims made relating to services or “any business interest”.
2. A representation to a single person can be sufficient to be “to the public”.
3. Both the literal meaning and “general impression” of a claim are relevant in determining whether a claim is false or misleading (i.e., a representation that is literally true may, nevertheless, be false or misleading if the “general impression” of the claim is false or misleading).
4. It is not necessary to show that any person has actually been deceived or misled as a result of a claim. Similarly, the monetary value of a transaction is not relevant to whether a claim is materially false or misleading.
5. It is also not necessary to show that a claim was made to Canadian consumers (i.e., cross-border misleading advertising can be caught) or was made in a publicly accessible place (i.e., the sections can apply to more “private” marketing events/seminars, telemarketing activities, etc.).
In general, the Bureau will in most cases follow the civil track unless certain criteria are satisfied including clear and compelling evidence that misleading advertising was engaged in intentionally and that a criminal prosecution would be in the public interest.
In addition to the “general” misleading advertising provisions, the Competition Act also contains a number of other criminal and civil provisions that prohibit or regulate specific types of marketing practices, including deceptive telemarketing, deceptive prize notices, double ticketing, multi-level marketing, pyramid selling schemes, performance claims, false or misleading ordinary selling price claims, testimonials, bait and switch selling, selling products above advertised prices and promotional contests.
Some of these provisions are discussed below.
Promotional contests in Canada are primarily governed by the Competition Act and the federal Criminal Code (the “Code”). In addition, Quebec has separate legislation that applies to promotional contests and contract, intellectual property, privacy and new media law issues can be relevant to the trouble-free operation of contests in Canada. Given that the improper operation of a promotional contest can lead to civil and/or criminal liability, it is prudent to have promotional contests reviewed for compliance with the Competition Act and the Code, as well as other laws that may apply.
The Competition Act contains a standalone civil provision that prohibits performance claims that are not based on an “adequate and proper test”.
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 another company’s products or services) and claims relating to preferences or perceptions.
While performance claims themselves are not prohibited, any testing or verification must be conducted before the claim is made. Also, the onus, if challenged, is on the person making the claim to show that it is based on an adequate and proper test.
The Competition Tribunal has 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 Competition Bureau has challenged performance claims in a wide variety of industries over the years, including in relation to weight loss products (diet patches, skin care cream, sauna belts, weight loss devices and natural products, etc.), clothing (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 therapeutic benefits of tanning, among others. As such, it is incumbent on companies and their external advisors and agencies to ensure that relevant testing is conducted before performance claims are made.
The Competition Act makes it criminal offences to engage in deceptive telemarking or telemarket unless certain required disclosure under the Act is made.
Telemarketing is defined in section 52.1 as the practice of communicating orally by any means of telecommunication for the purpose of promoting, directly or indirectly, any business interest or the supply or use of a product. In its Telemarketing Enforcement Guidelines, the Competition Bureau has taken the position that telemarketing does not include fax, Internet or automated pre-recorded messages but are limited to live voice communications between two persons.
Under the Competition Act’s deceptive telemarketing provisions, it is a criminal offence to: (i) make materially false or misleading representations; (ii) operate a contest where the delivery of a prize is conditional on prior payment or certain disclosure is not made; (iii) offer free or below market price products, as consideration for supplying another product, unless certain disclosure is made; or (iv) offer products for sale grossly in excess of their fair market value where delivery is conditional on prior payment.
The Competition Act also requires that certain disclosure be made by telemarketers both at the beginning of a call and sometime during a call.
Like the general misleading advertising provisions of the Competition Act, the general impression is relevant to determining whether a claim made by a telemarketer is materially false or misleading. Unlike misleading advertising generally, however, if misleading claims are made in the context of telemarketing, the Competition Bureau does not have the discretion to proceed civilly, given that the only deceptive marketing provisions are criminal offences under section 52.1.
Deceptive telemarketing is punishable, on indictment, by fines without limit (i.e., in the discretion of the court), imprisonment for up to 14 years, or both and, on summary conviction, to fines of up to $200,000, imprisonment for up to one year, or both.
The enforcement of the telemarketing provisions of the Competition Act has been an enforcement priority for the Competition Bureau in recent years, although for the most part aimed at companies and individuals engaged in true “scams” not legitimate marketers that may have committed technical violations of the Act. Having said that, a number of individuals have been charged, convicted and imprisoned in connection with the marketing of a broad range of products, including business directories, office supplies and credit cards.
ORDINARY SELLING PRICE CLAIMS
The Competition Act contains “ordinary selling price” (“OSP”) provisions, which are intended to prevent inflated “regular” prices in relation to sales.
In general, these provisions make it a reviewable practice to mislead consumers about the “ordinary” selling price of a product. Claims relating to the ordinary or regular price of a product cannot be made unless one of two alternative tests is met: (i) 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 (“volume test”) or (ii) the product has been offered for sale in good faith at that price (or higher) for a “substantial period of time” before or after the claim (“time test”).
With respect to the volume test, the Bureau has taken the position that a substantial volume means more than 50% of sales at (or above) the reference price and that a reasonable period of time means twelve months before (or after) the claim (though this period may be shorter depending on the nature of the product). With respect to the time test, the Bureau has taken the position that whether a product has been offered for sale in good faith will depend 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 again be shorter depending on the nature of the product).
The potential penalties for violating the civil misleading representations provisions of the Competition Act include Competition Tribunal or court orders to cease the conduct, publish a corrective notice, pay restitution and/or pay “administrative monetary penalties” (essentially civil fines) of up to $750,000 for individuals ($1 million for subsequent violations) and $10 million for corporations ($15 million for subsequent violations).
Potential penalties for contravening the criminal misleading representations provisions of the Competition Act (and deceptive marketing provisions) include up to 14 years imprisonment and/or an unlimited fine (i.e., in the discretion of the court).
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