CANADIAN MISLEADING ADVERTISING
FREQUENTLY ASKED QUESTIONS (FAQS)
“This legislation 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)
******************
What is “Misleading Advertising”?
The federal Competition Act is one of the main statutes governing advertising and marketing in Canada, together with provincial and territorial consumer protection laws. It contains criminal and civil sections that prohibit false or misleading representations and deceptive marketing practices. These are commonly referred to as the Competition Act’s “misleading advertising” provisions.
The general civil misleading advertising provision of the Competition Act (s. 74.01(1)(a)) prohibits representations to the public, to promote a product or any business interest, that is false or misleading in a material respect. Section 52 of the Competition Act, which is the general criminal misleading advertising provision, is substantially similar but also requires that false or misleading claims be made intentionally (i.e., “knowingly or recklessly”).
In addition to general civil and criminal misleading advertising provisions, the Competition Act also either prohibits or regulates many other types of advertising and marketing practices.
These include provisions relating to deceptive telemarketing (section 52.1), deceptive prize notices (section 53), double ticketing (section 54), drip pricing (sections 74.01(1.1) and 52(1.3)), multi-level marketing (MLM) plans (section 55), pyramid selling schemes (section 55.1), representations that are not based on adequate and proper tests – i.e., performance claims (section 74.01(1)(b)), false or misleading ordinary selling price and sale claims (sections 74.01(2),(3)), misleading or unauthorized use of tests and testimonials (section 74.02), bait and switch selling (section 74.04), the sale of products above an advertised price (section 74.05) and promotional contests (section 74.06).
Is misleading advertising a criminal offence
or a civil matter in Canada?
Under the federal Competition Act, general misleading advertising may be pursued by the Competition Bureau either as a civil “reviewable practice” (under section 74.01) or as a criminal offence (under section 52). The Competition Bureau has issued guidelines that set out its position as to when it is likely to proceed on a criminal as opposed to a civil track for misleading advertising.
In general, the Competition Bureau will pursue a civil track unless there is clear and compelling evidence suggesting that an accused knowingly or recklessly made a false or misleading representation to the public and a criminal prosecution would be in the public interest.
In making a public interest determination, the Competition Bureau may consider a number of factors including: (i) whether there was substantial harm to consumers that could not adequately be dealt with by civil remedies; (ii) whether the deceptive practices targeted vulnerable groups; (iii) whether timely attempts were made to remedy the adverse effects of the conduct; and (iv) any evidence of similar conduct in the past. The Competition Bureau may also consider certain mitigating factors, including whether a prosecution or conviction would be disproportionately harsh or oppressive and the existence of a credible and effective compliance program.
Civil actions and class actions can also be commenced for violations of the criminal misleading advertising provisions under section 36 of the Competition Act (see below).
What are the Competition Bureau’s
misleading advertising
enforcement priorities?
The Competition Bureau commences a wide variety of both criminal and civil misleading advertising related cases and devotes a significant portion of its enforcement and advocacy resources to false and misleading claims.
The Competition Bureau’s misleading advertising enforcement priorities have consistently included false or misleading price claims (e.g., drip pricing), false or misleading testimonials and endorsements (e.g., where the material connection between a brand and influencer is not adequately disclosed), product performance claims that are made without adequate and proper testing and ordinary selling price and sale claims that fail to meet the statutory tests under section 74.01 of the Competition Act.
What other kinds of marketing practices
are included in the Competition Act?
In addition to the general misleading advertising provisions, the Competition Act also sets out certain misleading advertising related criminal offences (under Part VI of the Act – Offences in Relation to Competition), which are subject to fines and imprisonment, and reviewable matters (under Part VII.1 of the Act – Deceptive Marketing Practices), which are subject to civil penalties including administrative monetary penalties (AMPs, which are essentially civil fines).
These include provisions relating to deceptive telemarketing (section 52.1), deceptive prize notices (section 53), double ticketing (section 54), drip pricing (sections 74.01(1.1) and 52(1.3)), multi-level marketing (MLM) plans (section 55), pyramid selling schemes (section 55.1), representations that are not based on adequate and proper tests – i.e., performance claims (section 74.01(1)(b)), false or misleading ordinary selling price and sale claims (sections 74.01(2),(3)), misleading or unauthorized use of tests and testimonials (section 74.02), bait and switch selling (section 74.04), the sale of products above an advertised price (section 74.05) and promotional contests (section 74.06).
Many other specific types of false or misleading claims can also violate the general criminal or civil misleading advertising provisions of the Competition Act (sections 52 and 74.01), including false or misleading price claims and false or misleading testimonials and endorsements.
What has to be proven
to establish misleading advertising?
For a representation to be false or misleading under section 74.01(1)(a) of the Competition Act (the civil misleading advertising section), it must be established on the civil burden of proof (i.e., balance of probabilities) that: (i) a representation has been made, (ii) to the public, (iii) to promote a product or any business interest, (iv) the representation is false or misleading and (v) the representation is “material”.
The general criminal misleading advertising offence under the Competition Act (subsection 52(1)) is substantially the same, except that in addition to all of the above elements it must also be proven that a representation was made “knowingly or recklessly” (i.e., subjective intent). The burden of proof for criminal misleading advertising is the general criminal burden (i.e., proof beyond a reasonable doubt).
For civil actions or class actions for misleading advertising commenced under section 36 of the Competition Act, all of the elements of a criminal offence under section 52 must be established and also that the plaintiff (or plaintiffs in a class action) have suffered actual loss or damage.
What is a “representation”?
The first necessary element to prove misleading advertising under the Competition Act is that a “representation” (i.e., some type of print or oral claim, etc.) has been made. This element is typically easily met and is broader than mere advertising. A representation may encompass printed, oral, broadcast and visual representations or claims. The Competition Bureau’s position is also that all representations, regardless of media, are subject to the Competition Act.
Online representations also fall within the scope of “representation” and the Competition Bureau has issued enforcement guidance addressing online misleading advertising.
The Competition Bureau also periodically conducts online “sweeps” of Internet advertising (typically once or twice a year in particular industry sectors) as part of its misleading advertising and deceptive marketing enforcement and advocacy efforts.
What does “to the public” mean?
The second element of misleading advertising is that a representation must be made to the “public”. Canadian courts have, with a few exceptions, had little difficulty in finding that advertising and marketing claims have been made “to the public” and have interpreted this element very broadly.
A representation may be made to a single person and be to the public. In addition, as a result of 2009 Competition Act amendments, a representation does not need to be made in a place where the public has access (e.g., telemarketing or private marketing seminars or presentations) or to the Canadian public (as such, cross-border marketing to non-Canadians that is false or misleading can also be caught).
In addition, the Competition Act also contains provisions deeming certain types of conduct to be a representation to the public.
What does “promote a product
or business interest” mean?
The third element of misleading advertising is that a representation must be made to promote either a product, including professional or other services, or any business interest, which may be merely a subsidiary or indirect intention of a representation.
A “Business interest” must be the business interest of the person making the representation, but has been interpreted broadly and may include any business interest and not necessarily an interest with the persons who might be misled by the representation. Misleading claims by charities and non-profits have also been held in some cases to be for a “business interest”.
Based on the broad wording of sections 52 and 74.01 of the Competition Act, misleading advertising can include not only false or misleading claims in the consumer product context, but also many types of business related claims (e.g., false or misleading claims relating to securities, sale of franchises and other types of business related opportunities).
What does “false or misleading” mean?
The fourth element of misleading advertising is that a representation must be literally false or misleading. In this regard, both the literal meaning and the general impression conveyed by the representation are relevant.
Also, in determining whether a representation is false or misleading, the entire context of the representation, including illustrations, photographs and the association of words, phrases and imagery must all be considered.
Importantly, advertising can be literally true (i.e., each statement read separately or in isolation is true) and still misleading if the overall impression is misleading. Another example of when literally true claims may still be misleading is when not all material elements of a claim (e.g., additional fees or conditions or limitations) are included upfront when a consumer is making the purchasing decision.
What does “material” mean?
Finally, to contravene both the civil and criminal misleading advertising provisions of the Competition Act, a representation must also be false or misleading in a “material respect.” For the materiality requirement, is not necessary to show that anyone has actually been deceived or misled and the monetary amount involved is irrelevant (though these can be relevant for determining the appropriate penalty).
The relevant question, though Canadian courts have been inconsistent in articulating the standard, has in many cases been held to be whether an “average consumer” interested in using the relevant product would be influenced in deciding whether or not to purchase the product being offered or otherwise alter their conduct.
While many courts have adopted this “average consumer” as the relevant test, some courts (including the Supreme Court of Canada in a Quebec consumer protection legislation case) have adopted lower tests according to the factual circumstances. As such, advertisers cannot assume that their advertising will be tested against a standard as high as an “average consumer”, given that some Canadian courts have adopted a lower standard, which creates more potential risk for advertisers.
As to what types of specific information may be considered to be “material”, many Canadian courts have found that false or misleading representations in relation to price and other key aspects of a product or service, such as performance, are material.
The omission of important information (e.g., additional fees), conditions or limitations can also support an argument that a claim is false or misleading in a material respect.
Does a false or misleading claim
need to be made intentionally?
To establish criminal misleading advertising under section 52 of the Competition Act, it must also be shown, in addition to all of the other necessary elements for misleading advertising, that a representation was made intentionally (i.e., “knowingly or recklessly”).
Subjective intent is not required, however, for civil misleading advertising related provisions under Part VII.1 of the Competition Act.
Are lotteries legal in Canada?
It is generally illegal (i.e., a criminal offence) for private parties to run lotteries in Canada other than charities, which can obtain provincial/territorial licences to run lotteries.
What is required to run
a promotional contest in Canada?
Private parties can, however, and frequently do run promotional contests in Canada. Promotional contests (i.e., sweepstakes) in Canada are primarily governed by the Competition Act( that sets out mandatory disclosures for marketing) and the federal Criminal Code (the “Code”) (sponsors must avoid the illegal lottery offences under section 206).
Other laws that frequently apply to the operation of promotional contests in Canada include CASL (Canadian federal anti-spam law) (if entrant information will be used for electronic marketing, CASL must be complied with), intellectual property law (e.g., if entrants will submit original material as part of participating in the contest or a sponsor uses third party IP) and privacy law (relating to the collection and use of entrants’ personal information).
Given that the improper operation of a promotional contest in Canada 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 and other relevant laws.
The main components of a promotional contest in Canadian are generally to include both short (i.e., mini) and long contest rules setting out the rules of the contest, a winner release form (particularly important in higher risk promotions, such as trip contests or where there are high value prizes), review of draft creative materials before the contest is launched to ensure that they are not false or misleading and, if the sponsor wants to use entrant information for e-mail or other electronic marketing, complying with the consent, identification and other requirements of CASL (Canadian federal anti-spam law).
For more information, see: Contests, Contests and CASL, Contest Law FAQs, Contest Law Tips and Contests and Social Media.
********************
Do you need contest rules/precedents
for a Canadian contest?
We offer many types of Canadian contest/sweepstakes law precedents and forms to run common types of contests in Canada. For more information, see: Canadian Contest Precedents and Forms.
********************
Are product performance claims prohibited
by the Competition Act?
No.
However, in addition to the general civil and criminal misleading advertising provisions of the Competition Act, section 74.01(1)(b) prohibits any person from making any representation to the public about the performance, efficacy or length of life of a product that is not based on an “adequate and proper test”.
The testing or verification of any product performance claim must be made 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 required by section 74.01(1)(b).
While performance claims can be a legitimate means to distinguish goods or services from competitors, it is important that adequate and proper testing is performed before the claim is made.
The Competition Tribunal and Canadian courts have held that a non-exhaustive list of factors can be relevant in considering whether a test is “adequate and proper” for the purposes of section 74.01(1)(b), that whether a test is “adequate and proper” is a factual question and that the testing does not need to be 100% reliable or the best scientific testing that could have been performed (i.e., the testing does not need to meet a test of certainty).
Is comparative advertising prohibited
by the Competition Act?
No.
Comparative advertising can lead to price and other competition by allowing prospective customers to compare prices and service offerings.
While comparative advertising is not itself prohibited under the Competition Act, and accurate and truthful comparisons can be highly pro-competitive, comparative advertising can in some instances raise issues (e.g., where unfounded product performance claims are made, false or misleading claims are made about a competing brand or a competitor’s name, trademarks or other intellectual property is used without permission).
As such, when making comparative advertising claims, it is prudent to ensure that, as is the case with advertising in Canada generally, claims are accurate, that any important information or conditions are clearly disclosed upfront to consumers and, if performance claims form part of the comparative advertising, that the claims are substantiated before the claims are made.
What are the penalties in Canada
for misleading advertising?
The potential penalties for violating the Competition Act’s criminal or civil misleading advertising provisions can be severe.
The potential penalties for violating the civil misleading representation provisions of the Competition Act include administrative monetary penalties: (i) for individuals, up to the greater of $750,000 ($1 million for each subsequent order) and three times the value of the benefit derived from the deceptive conduct if that amount can be reasonably determined; and (ii) for corporations, up to the greater of $10 million ($15 million for each subsequent order), three times the value of the benefit obtained from the deceptive conduct or, if the latter amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenues.
The potential penalties for violating the criminal misleading representations provisions of the Competition Act include up to 14 years imprisonment and/or a fine in the discretion of the court (i.e., without a legislatively prescribed limit).
In practice, many misleading advertising matters are resolved by way of negotiated settlement with the Competition Bureau under a consent agreement. In some cases, a misleading advertising matter may also be resolved voluntarily without formal proceedings.
In other cases, however, particularly where there is evidence of intent or fraud, the Competition Bureau may seek significant criminal penalties and imprisonment (e.g., in the case of clearly intentional misleading advertising, deceptive telemarketing schemes, etc.).
Are private actions or class actions
possible under the Competition Act
for misleading advertising?
Yes.
Private parties can commence private actions or class actions seeking damages actions for contravention of the criminal provisions of the Competition Act, including section 52 (the criminal general misleading advertising provision) or other criminal misleading advertising related offences under Part VI of the Competition Act.
The necessary elements to be proven are all of the elements of the relevant criminal offence (e.g., all of the required elements of criminal misleading advertising under section 52 of the Competition Act) and that a plaintiff (or plaintiffs in the case of a class action) have suffered actual loss or damage as required by section 36.
********************
SERVICES AND CONTACT
We are a Toronto based Canadian competition and advertising law firm that helps clients in Toronto, Canada and the United States practically navigate Canada’s advertising and marketing laws and offers Canadian advertising/marketing law services in relation to print, online, new media, social media and e-mail marketing.
Our Canadian advertising/marketing law services include advice in relation to anti-spam legislation (CASL), Competition Bureau complaints, the general misleading advertising provisions of the federal Competition Act, Internet, new media and social media advertising and marketing, promotional contests (sweepstakes) and sales and promotions. We also provide advice relating to specific types of advertising issues, including performance claims, testimonials, disclaimers, drip pricing, astroturfing and native advertising.
For more information about our services, see: services
To contact us about a potential legal matter, see: contact
For more information about our firm, visit our website: Competitionlawyer.ca
