Misleading Advertising

SWEEPING CANADIAN COMPETITION ACT
AMENDMENTS (BILL C-59) PASSED JUNE 20, 2024

On June 20, 2024, Bill C-59 was passed (the Fall Economic Statement Implementation Act, 2023), which introduced the third of three significant rounds of amendments to Canada’s federal Competition Act in two years (together with Bill C-19 and Bill C-56). This new round of amendments to the Competition Act completes a sweeping overhaul of the Competition Act across virtually all key provisions of Canada’s competition legislation. These amendments are also the most significant changes to Canadian competition law since the modern Competition Act came into effect in 1986 replacing the former Combines Investigation Act.

The Bill C-59 amendments, among other things, strengthen the Competition Bureau’s powers to enforce key deceptive marketing provisions of the Competition Act (e.g., relating to drip pricing, performance claims and ordinary selling price (OSP) claims), strengthen private party rights to seek Competition Tribunal remedies (e.g., for civil deceptive marketing and violations of the civil agreements provisions of the Act), introduce new penalties (e.g., administrative monetary penalties for violating the civil agreements provisions of the Act and for reprisal actions penalizing individuals for complying with the Act) and introduce a new clearance regime for environmental protection related agreements. Canada’s Competition Act merger review regime was also substantially overhauled, eliminating the efficiency defence, introducing market share presumptions and a more restrictive remedial test for restoring competition.

These amendments, together with those enacted in June 2022 and December 2023 (Bill C-19 and Bill C-56), increase the potential competition law risk for companies, trade and professional associations and other entities, particularly those without credible and effective competition law compliance programs and that have not reviewed their business practices to reflect Canada’s new competition laws. For the Competition Bureau’s summary of the June 20, 2024 Bill C-59 amendments to the Competition Act, see: Guide to the June 2024 amendments to the Competition Act (June 25, 2024).

Our blogs will be updated to reflect these amendments.

********************

“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)

********************

OVERVIEW OF MISLEADING ADVERTISING
IN CANADA

The federal Competition Act is the principal legislation governing misleading advertising in Canada. In addition to this federal framework legislation that applies to most businesses and industries in Canada and marketing to Canadians, many other federal and provincial laws can also apply to advertising and marketing practices in Canada, depending on the type of claim and industry sector.

These include provincial consumer protection laws (e.g., the Ontario Consumer Protection Act and other provincial and territorial consumer protection statutes), sector specific legislation (e.g., relating to food and drugs, cosmetics, liquor and cannabis) and federal packaging and labelling legislation (e.g., the Consumer Packaging and Labelling Act, Textile Labelling Act and Precious Metals Marking Act).

In addition, many professional bodies and trade/professional associations self-regulate their members’ advertising and marketing activities (e.g., lawyer advertising under professional rules of conduct, other professionals including architects, chiropractors, dentists, doctors, real estate agents and brokers and others and Ad Standards, which regulates its voluntary advertising/marketing industry members through The Canadian Code of Advertising Standards).

GENERAL MISLEADING ADVERTISING SECTIONS
OF THE COMPETITION ACT

The federal Competition Act, which is the primary legislation governing advertising and marketing in Canada, contains both civil and criminal misleading representation provisions that apply to false or misleading claims made to promote the supply or use of products (including services) or business interests.

Under the general civil misleading advertising section (section 74.01), 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 in Canada under section 52 of the Competition Act is substantially similar, but in addition also requires that a false or misleading claim be made “knowingly or recklessly” (i.e., intentionally).

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. The term “business interest” has been broadly interpreted by Canadian courts to include virtually any business related purpose, including by charities and non-profits.

2. A representation to a single person can be sufficient to be “to the public”.

3. Both the literal meaning and the “general impression”of an advertising or marketing claim are relevant in determining whether the claim is false or misleading in a material respect (e.g., an advertising/marketing claim that is literally true may, nevertheless, be false or misleading if the “general impression” of the claim is misleading). As such, advertisers not only need to consider whether advertising is literally true but whether the general impression of any of the material aspects of the advertising may be misleading (particularly, relating to price claims, product/service performance claimsand sales claims, all of which are consistently Canadian Competition Bureau enforcement priorities).

4. It is not necessary to show that any person has actually been deceived or misled as a result of a false or misleading marketing/advertising claim. Similarly, the monetary value of a sale is not relevant to whether a claim is materially false or misleading.

5. It is not necessary to prove that an advertising/marketing claim was made to Canadian consumers (i.e., cross-border misleading advertising by Canadians to international consumers can be caught) or was made in a publicly accessible place (i.e., the general criminal and civil misleading advertising sections of the Competition Act, sections 52 and 74.01, can apply to more “private” type of marketing events/seminars, telemarketing activities, etc.).

In general, the Bureau will in most cases follow the civil misleading advertising law track under section 74.01 of the Competition Act in its enforcement unless certain criteria are satisfied to pursue a criminal law track, including clear and compelling evidence that misleading advertising was engaged in intentionally and that a criminal prosecution would be in the public interest.

OTHER COMPETITION ACT
ADVERTISING/MARKETING LAW SECTIONS

In addition to the “general” misleading advertising provisions discussed above, the Competition Act also contains a number of other criminal and civil provisions that either prohibit (i.e., criminal offences) or civilly regulate specific types of marketing practices.

These include bait and switch selling (section 74.02(2)), deceptive prize notices (section 53), deceptive telemarketing (section 52.1), double ticketing (section 54), drip pricing (sections 52(1.3) and 74.01(1.1)), some specific types of electronic advertising (section 74.011), multi-level marketing and pyramid selling schemes (sections 55 and 55.1), ordinary selling price (OSP) and sales claims (section 74.01(2)-(3)), performance claims (section 74.01(1)(b)), promotional contests (i.e., sweepstakes) (section 74.06), selling products above advertised prices (section 74.05) and testimonials and endorsements (i.e., influencer marketing) (sections 52, 74.01 and 74.02).

Some of the key misleading advertising related provisions of the Competition Act are discussed below.

FALSE OR MISLEADING
PRODUCT PRICE CLAIMS

False or misleading price claims about products or services have consistently been one of the Canadian Competition Bureau’s top enforcement priorities. In this regard, false or misleading pricing claims can violate the general civil or criminal misleading representation provisions of the Competition Act (sections 52 or 74.01) if either a stated price is literally false or some component of the price is not stated upfront (i.e., the general impression of a price claim is misleading).

Canada’s federal Competition Act, however, also includes a number of other civil and criminal price claim related provisions that either prohibit or regulate specific types of product price related advertising/marketing claims.

These include the civil bait and switch provision (section 74.04), criminal and civil drip pricing provisions (sections 52(1.3) and 74.01(1.1)), civil ordinary selling price (OSP) provisions (sections 74.01(2)-(5)) (discussed below), criminal double ticketing offence (section 54) and sale above advertised price provision (section 74.05).

For more information, see: Price Claims Under the Competition Act.

ORDINARY SELLING PRICE (OSP) CLAIMS
AND SALE CLAIMS

The Competition Act contains “ordinary selling price” or “OSP” provisions, which are intended to prevent advertising 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.

Under these OSP provisions of the Competition Act, claims relating to the “ordinary” or “regular” price of a product or the use of similar types of terms referencing the regular price of a product/service 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 (the “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 (the “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).

When reviewing ordinary selling price claims, it is also important to consider whether the comparison claim is being made to the seller’s regular price or market generally, as the Competition Act includes provisions and tests relating to both.

For more information, see: Ordinary Selling Price (OSP) Claims and Sale Claims.

PRODUCT PERFORMANCE CLAIMS

The Competition Act contains a standalone civil provision (section 74.01(1)(b)) that prohibits product 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 company’s product performance is compared to another company’s product) and claims relating to preferences or perceptions.

While performance claims themselves are not prohibited under Canadian competition law, 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 prove that it is based on “adequate and proper testing” as set out under section 74.01(1)(b) and related case law.

The Competition Tribunal has set out a non-exhaustive list of factors relevant to determining whether testing is “adequate and proper”.  Testing, however, 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 (e.g., diet patches, skin care cream, sauna belts, weight loss devices and natural products), clothing (e.g., the alleged therapeutic benefits of some types of clothing), fuel saving devices, chimney cleaning products, UV ray protection, anticorrosion devices, disease cures (e.g., cancer and AIDS medicines) and the therapeutic benefits of tanning, among others.

As such, it is important for companies and their marketing/advertising agencies to ensure that relevant testing is conducted before any product performance claims are made.

For more information, see: Performance Claims.

PROMOTIONAL CONTESTS / SWEEPSTAKES

Promotional contests (i.e., sweepstakes as they are referred to in the United States) in Canada are primarily governed by the Competition Act (mandatory disclosures under section 74.06 and the general misleading advertising provisions) and the federal Criminal Code (Code) (avoiding the Code’s illegal lottery provisions.

Other laws that frequently also apply to the operation of contests/sweepstakes in Canada include intellectual property law (e.g., if entrants will submit original material as part of participating or a sponsor uses third party intellectual property) and privacy law (relating to the collection and use of entrants’ personal information).

CASL (Canadian federal anti-spam law) is also often relevant when running contests and promotions in Canada, including if electronic distribution lists will be used to market the contest/promotion, the contest/promotion will include the collection of e-mails for marketing unrelated to administration of the promotion, if participants’ e-mail addresses will be shared with third parties (e.g., related entities or affiliate marketers) or participants are asked or incentivized (e.g., with bonus contest entries) to “share” the contest/promotion with friends or family. For more information about contests and CASL, see: Contests and CASL and CASL Compliance Errors. For CASL checklists and precedents that we offer for sale to comply with CASL, see: CASL Checklists and Precedents.

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 (e.g., misleading advertising, false or misleading influencer claims or violating CASL), particularly with unsophisticated co-sponsors or marketing partners. For more information, see: Influencer/Co-Sponsor Agreements.

********************

DECEPTIVE TELEMARKETING

The Competition Act makes it criminal offences to engage in deceptive telemarketing or telemarket unless certain required disclosure under the Competition 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.

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 orders to pay 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; and (ii) for corporations, up to the greater of $10 million ($15 million for each subsequent order) or 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.

In addition, as a result of June 2024 amendments to the Competition Act (under Bill C-59), starting on June 20 2025, private parties will also be able to seek leave from the Competition Tribunal to commence proceedings under the civil deceptive marketing practices provisions with the only leave requirement for standing being that the proceedings are in the “public interest”.

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.

The Competition Bureau also commonly negotiates civil consent agreements (i.e., settlements) with parties, which can include remedies not expressly set out under the Competition Act such as the requirement to adopt a competition law compliance program, or seeks a prohibition order under the criminal provisions of the Competition Act.

The enforcement of the criminal and civil deceptive marketing provisions of the Competition Act is also an ongoing priority for the Competition Bureau, particularly false or misleading price claims, performance claims and ordinary selling price claims.

********************

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