Misleading Advertising 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. (1970))

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“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, 2012)

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What is “Misleading Advertising”?

While by no means the only Canadian legislation regulating advertising, the federal Competition Act is one of the main statutes.  It contains criminal and civil sections that prohibit false or misleading representations and deceptive marketing practices.  These are frequently 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 criminal misleading advertising provision, is substantially similar but also requires that false or misleading claims be made intentionally (i.e., “knowingly or recklessly”).

As is discussed below in more detail, in addition to general misleading advertising provisions under sections 52 and 74.01, the Competition Act also either prohibits or regulates many other types of advertising and marketing practices.  These include: drip-pricing, false or misleading electronic messages, deceptive telemarketing, deceptive prize notices, double ticketing, multi-level marketing, pyramid selling schemes, performance claims, testimonials, ordinary selling price (OSP) claims, bait and switch selling and promotional contests.

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 as a civil “reviewable practice” (under section 74.01) or as a criminal offence (under section 52).  In this regard, the 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 Bureau will pursue a civil track unless certain criteria are satisfied as follows: (i) there is clear and compelling evidence suggesting that an accused knowingly or recklessly made a false or misleading representation to the public; and (ii) a criminal prosecution would be in the public interest.

In making the public interest determination, the Bureau considers 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 Bureau also considers certain mitigating factors, including whether a prosecution or conviction would be disproportionately harsh or oppressive and the existence of an effective compliance program.

In addition, civil actions and class actions can 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
enforcement priorities?

The Competition Bureau brings 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.  Over the past several years, some of the Bureau’s enforcement priorities have included false or misleading price claims (e.g., drip-pricing cases), false or misleading endorsements/testimonials (e.g., where the material connection between a brand and influencer is not adequately disclosed) and performance claims that are made without adequate and proper testing.

What other marketing practices are included
in the Competition Act?

In addition to the general misleading provisions under sections 52 and 74.01, 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 (essentially civil fines).

These include provisions relating to deceptive telemarketing (section 52.1); deceptive prize notices (section 53); double ticketing (section 54); multi-level marketing (section 55); pyramid selling schemes (section 55.1); representations that are not based on adequate and proper tests – i.e., performance claims (subparagraph 74.01(1)(b)); false or misleading ordinary selling price representations (subsections 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 misleading advertising provisions of the Competition Act (sections 52 and 74.01), including false or misleading price claims or endorsements/testimonials.

What has to be proven to establish
misleading advertising?

For a representation to be false or misleading under subparagraph 74.01(1)(a) (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 business interest; (iv) the representation is false or misleading; and (v) the representation is “material”.

The general criminal misleading advertising offence under the Act (subsection 52(1)) is substantially the same, except that to establish criminal misleading advertising 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 that the plaintiff (or plaintiffs) have suffered actual loss or damage.

What is a “representation”?

The first element of misleading advertising is that a “representation” (i.e., some type of print or oral claim, etc.) must be 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 Bureau’s position is also that all representations, regardless of form, are subject to the Competition Act.

It is also worth noting that online representations fall well within the scope of “representation” and the Bureau has issued enforcement guidelines addressing misleading advertising in the online environment.

As a practical matter, the Bureau also periodically conducts online “sweeps” of Internet advertising (typically once or twice a year in chosen 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 the phrase broadly.

A claim 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 (so 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.

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 opportunities, etc.).

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.

To put it another way, advertising can be literally true (i.e., each statement read separately / in isolation is true) and still misleading if the overall impression is misleading (e.g., important conditions or limitations are excluded from a claim).

What does “material” mean?

Finally, to contravene both the civil and criminal misleading advertising provisions, 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, 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 licences to run lotteries.

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 and the federal Criminal Code (the “Code”).

Other laws that frequently apply to the operation of contests in Canada include CASL (Canadian anti-spam law) (if entrant information will be used for electronic marketing), intellectual property law (e.g., if entrants will submit original material as part of participating or a sponsor uses third party IP) and privacy law (relating to the collection and use of entrants’ personal information).

Also, if a contest will be open to Quebec residents, there are separate requirements including filing requirements, translation of rules and advertising, the payment of a duty and in some cases bonding.

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 relevant laws.

In this regard, the main components of a Canadian contest are generally to include both short and long contest rules setting out the rules for the contest, a winner release form (which is particularly important in higher risk promotions, such as trip contests), 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 and other requirements of CASL (Canadian anti-spam law).

In some cases, sponsors also enter into co-sponsor agreements (e.g., where there are multiple sponsors or prize sponsors) or indemnification agreements with third parties involved in the contest (e.g., where a sponsor only contributes prizes and/or its brand assets such as its marks and images and another party, such an influencer or contest administrator, is largely responsible for the actual marketing and operation of the contest).

Such agreements can be useful to shift risk where a sponsor wants to limit potential liability, particularly with unsophisticated co-sponsors or marketing partners. We have drafted many such agreements for our brand and advertising agency clients.

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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/Forms.

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Are performance claims prohibited?

No.  However, in addition to the “general 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 not based on an “adequate and proper test”.

The testing or verification of any performance claims must be made before a claim is made and the onus is on the person making the representation to prove that the performance claim is based on an adequate and proper test.

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 (or appropriate statistics or support are obtained) before a 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 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?

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 performance claims are made, false or misleading claims are made about a competing brand or a competitor’s name, trade-marks or other intellectual property is used without consent).

As such, when making comparative advertising claims, it is prudent to ensure that, as is the case with advertising generally, claims be accurate, that any important information or conditions are clearly disclosed and, if performance claims form part of the comparative advertising, that the claims are substantiated before the claims are made.

What are the penalties for misleading advertising?

Potential penalties for violating the Competition Act’s criminal or civil misleading advertising provisions can be severe.

Under the criminal misleading advertising provision (section 52) the potential penalties are, on indictment, a fine in the discretion of the court, imprisonment for up to fourteen years, or both; and, on summary conviction, the potential penalties are a fine of up to $200,000, imprisonment for up to one year, or both.

Under the civil misleading advertising provisions of the Competition Act, penalties include orders to cease the conduct, publish a corrective notice, pay restitution and/or pay administrative monetary penalties: (i) for individuals up 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 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 company’s annual worldwide gross revenues.

In practice, the 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 being initiated.

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 possible?

Yes.  Private parties may commence civil damages actions for contravention of the criminal provisions of the Competition Act, including section 52 (the criminal misleading advertising provision) or other criminal misleading advertising related offences under Part VI of the Competition Act.

The necessary elements to be proved are all of the elements of the relevant criminal offence and that the conduct has caused a plaintiff(s) actual loss or damage.

Private actions and class actions are increasingly common in Canada for misleading advertising matters.

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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