“Businesses should not make any performance claims unless they can back them up. The Competition Act prohibits any representation in the form of a statement, warranty or guarantee of the performance, efficacy or length of life of any given product, not based on adequate and proper testing. The onus is on advertisers to prove that the representation is based on an adequate and proper test. The test must have been concluded before the representation is made and the data must be readily available upon request by the Bureau.”
Ensuring Truth in Advertising, Misleading Advertising and Labelling)
“[i]n summary, and in respect of this case, I conclude that a ‘proper and adequate’ test depends on the claim made as understood by the common person; must be reflective of the risk or harm which the product is designed to prevent or assist in preventing; must be done under controlled circumstances or in conditions which exclude external variables or take account in a measurable way for such variables; are conducted on more than one independent sample wherever possible; results need not be measured against a test of certainty but must be reasonable given the nature of the harm at issue and establish that it is the product itself which causes the desired effect in a material manner; and must be performed regardless of the size of the seller’s organization or the anticipated volume of sales.”
(Canada (Commissioner of Competition) v. Imperial Brush Co. (2008)
MAJOR COMPETITION LAW COMPLIANCE UPDATE: On June 3, 2015, the Competition Bureau (Bureau) finalized its new core competition law compliance materials. The Bureau’s new compliance materials, which include information on most major competition law areas, misleading advertising, associations and the Bureau’s Leniency Program, are essential reading for corporate compliance officers, senior management and in-house and general counsel. For an overview of the developments (with links) see: Canadian Competition Law Compliance Programs.
In addition to the “general” misleading advertising provisions, the Competition Act also regulates a variety of specific types of advertising and marketing practices. These include promotional contests, bait and switch sales, sales above advertised price, multi-level marketing and pyramid selling schemes, ordinary sale price claims and telemarketing.
The Competition Act also contains a standalone civil provision that prohibits performance claims that are not based on an “adequate and proper test”. In this regard, the Competition Act prohibits representations made to the public, in the form of a statement, warranty or guarantee, of the performance, efficacy or length of life of a product that is not based on an adequate and proper test, the proof of which lies on the person making the claim.
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.
False performance claims can be challenged by the Competition Bureau in courts (provincial courts or Federal Court) or before the Competition Tribunal. False performance claims may also be challenged by private plaintiffs in misleading advertising claims commenced under section 52 of the Competition Act (i.e., based on the theory that inaccurate performance claims are either literally false or misleading).
The federal Competition Tribunal (in the Imperial Brush case) 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 key requirements of the performance claim provision of the Competition Act were also recently summarized by the Ontario Superior Court of Justice in Canada (Competition Bureau) v. Chatr Wireless Inc., 2013 ONSC 5315 (CanLII), which adopted a number of the reasons from the Competition Tribunal in Imperial Brush:
“The burden of proving adequate and proper testing lies upon the respondents by virtue of the express wording of s. 74.01(1)(b) of the Competition Act. The adequate and proper test must be made prior to the representation to the public. … The phrase ‘adequate and proper test’ is not defined in the Competition Act. Whether a particular test is ‘adequate and proper’ will depend on the nature of the representation made and the meaning or impression conveyed by that representation. Subjectivity in the testing should be eliminated as much as possible. The test must establish the effect claimed. The testing need not be as exacting as would be required to publish the test in a scholarly journal. The test should demonstrate that the result claimed is not a chance result …”
In practice, 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 take steps to ensure that adequate and relevant testing is conducted before performance claims are made.
Written advisory opinions are also available from the Competition Bureau in relation to proposed performance claims (and other types of proposed advertising and marketing claims).
LINKS AND RESOURCES
Competition Act: Competition Act – Competition Tribunal: Competition Tribunal – Competition Bureau Enforcement Guidelines and Bulletins: Bulletin, Corporate Compliance Programs, Bulletin, Fee and Service Standards Handbook for Written Opinions, Pamphlet, False or Misleading Representations and Deceptive Marketing Practices.
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