“When navigating the digital marketplace, consumers often rely on the opinions shared by influencers. To make informed purchasing decisions, consumers must know if these opinions are independent or an advertisement. Ensuring truth in advertising in Canada’s digital economy is a priority for the Competition Bureau.”
Commissioner of Competition
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OVERVIEW OF PRODUCT TESTIMONIALS AND ENDORSEMENTS
MADE UNDER THE COMPETITION ACT
Testimonials and endorsements (i.e., where a brand uses an expert, celebrity, influencer or other person to endorse their product on social media or other in other media) are both a consistently popular marketing tool and increasingly being scrutinized by regulators, including the Canadian Competition Bureau (Bureau) and the U.S. Federal Trade Commission (FTC).
While the Competition Act, which is the primary legislation governing misleading advertising in Canada, does not contain any specific provisions relating to, for example, the disclosure of material connections, testimonials/endorsements that are false or misleading can nonetheless violate the Act.
This is because the general criminal and civil misleading advertising provisions of the Competition Act prohibit materially false or misleading claims.
In the context of influencer marketing, this can include, among other things, where an influencer has not actually used the product/service being promoted, product claims don’t reflect the influencer’s actual experience, unsubstantiated performance claims are made or, often most importantly for enforcement agencies, where the material connection between a brand and the influencer is not adequately disclosed to consumers.
Such material connections can include, among other things, where the person making the endorsement/testimonial is being paid or has received free product.
Importantly, both the Canadian Bureau and U.S. FTC have made it clear that potential liability rests not only with an endorser/influencer that makes false or misleading claims but can also result in liability for a brand or agency that is involved in making the claim.
False testimonials/endorsements have been one of the Bureau’s key advertising-related enforcement priorities over the past several years, with the Bureau both taking enforcement action and issuing compliance guidance for companies.
Some of the guidance issued by the Bureau includes its Influencer Marketing Guidelines and Deceptive Marketing Practices Digest. For example, in one case the Bureau commenced enforcement against Bell Canada whose employees allegedly made misleading endorsements about one of their employer’s apps without disclosing that they were employees (see Bell Canada reaches agreement with Competition Bureau over online reviews).
In addition to the Competition Act, other laws and rules can apply to false or misleading testimonials/endorsements, including the U.S. FTC Act, which is enforced by the FTC, and Advertising Standards Canada’s Canadian Code of Advertising Standards. The federal Canadian Cannabis Act also prohibits promoting cannabis and cannabis accessories using testimonials/endorsements.
The following are some of the key Canadian testimonial/endorsement laws and guidelines and some key compliance tips for influencer marketing campaigns.
Key Canadian Testimonial/Endorsement
Laws and Guidelines
False or misleading testimonials/endorsements: In Canada, testimonials can be challenged under the general civil or criminal misleading advertising provisions of the Competition Act (sections 52 and 74.01) where they are either literally false or misleading. A testimonial/endorsement may be false or misleading where, for example, the person giving the testimonial is not real, has not used the product or has not disclosed a material connection (e.g., they are being paid, are an employee or have received free product for giving the testimonial/endorsement).
Performance claims: In addition to the general misleading advertising provisions, the Competition Act also includes specific provisions that require that performance claims be substantiated prior to being made (i.e., that performance claims be supported by “adequate and proper testing”). Claims made by influencers about the performance of a product or service that is not adequately substantiated can violate section 74.01(1)(b) of the Competition Act.
Standalone testimonials provisions: The Competition Act also includes a standalone testimonials provision (section 74.02), which prohibits using testimonials unless the person publishing the testimonial can show that it was previously made or published or approved and permission to make/publish it was given in writing. Any testimonial must also generally accord with what has been actually said.
Canadian Code of Advertising Standards: Advertising Standards Canada’s Code of Advertising Standards includes a testimonials rule, which provides that testimonials, endorsements or other representations of opinion or preference must comply with all of the following: reflect the genuine, reasonably current opinion of the individual(s), group or organization making the representation; be based on adequate information about or experience with the identified product or service; and not be deceptive. The ASC has also issued a specific Interpretation Guideline for testimonials and endorsements (Interpretation Guideline #5 – Testimonials, Endorsements, Reviews), which imposes specific disclosure requirements. These include requiring the disclosure of any material connection between an endorser, reviewer, influencer or person making the claim and the entity that makes the product available to the endorser; clear and prominent disclosure of any material connection; and for disclosures to be in close proximity to the claim about the product or service.
Potential Penalties
Some of the potential penalties for violating the civil deceptive marketing practices provisions under Part VII.1 of the Competition Act include Competition Tribunal or court orders to stop the conduct, publish a corrective notice, pay restitution to consumers and administrative monetary penalties (AMPs).
Following 2022 amendments to the Competition Act, the maximum AMPs for civil deceptive marketing increased: (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 derived 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 general criminal misleading advertising section of the Competition Act (section 52) include, on indictment, a fine in the discretion of the court and/or imprisonment for up to 14 years and, on summary conviction, a fine of up to $200,000 and/or imprisonment for up to one year.
Legal Tips for Testimonials/Endorsements
to Comply with the Competition Act
Several tips for using testimonials/endorsements in Canada include:
1. Do ensure that any material connection is disclosed (e.g., where an endorser has been paid or has received free product).
2. Do ensure that any material connection is prominently disclosed (e.g., top left and “above the break” online, at the beginning of videos, clearly in graphics, with a readily understandable hashtag, etc.).
3. Don’t use testimonials from people who haven’t used the product.
4. Don’t make claims that look like testimonials when there is no customer/user – i.e., fictional “customers” endorsing a product.
5. Don’t use the results of product performance tests and/or testimonials in advertising unless authorized to use them.
6. If authorized to use a product performance test, don’t distort user statements or test results and also ensure they’re relevant to the product.
7. Ensure that any performance claim made in connection with a testimonials/endorsement can be supported by adequate and proper testing before the claim is made.
8. If in doubt, get some advice – false and misleading testimonials/endorsements are an enforcement priority for both the Canadian Competition Bureau and Federal Trade Commission.
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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
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For more information about our firm, visit our website: Competitionlawyer.ca
