On February 8, 2022, Canada’s Competition Bureau released a submission entitled Examining the Canadian Competition Act in the Digital Era in response to Senator Howard Wetston’s invitation to comment on Canada’s competition policy framework.
The Bureau’s submission includes sweeping recommendations to amend many of the core provisions of the Competition Act, including its purpose (section 1.1) and its abuse of dominance (sections 78 and 79), civil agreements (section 90.1), conspiracy (cartels) (section 45), bid-rigging (section 47) and criminal and civil deceptive marketing (section 52 and 74.01) provisions. The last major legislative overhaul of Canada’s Competition Act was in 2009 (see: Amendments).
The Bureau’s recommendations for Competition Act reform stem from its enforcement experience as well as its goal to bring Canada’s competition laws into better alignment with other major jurisdictions and to address gaps and inconsistencies in the current legislation (including lack of private access under some key provisions, too high a bar for private access to Canada’s Competition Tribunal and current criminal and civil penalties that may be too low to encourage compliance).
In its submission, the Bureau acknowledges that since the Competition Act came into force in 1986, many technological changes have emerged to create what is commonly referred to as the “digital economy”. While these technologies have in many ways enhanced competition and innovation, they have also “grown a class of so-called ‘digital giants’ …. [which] have obtained a high degree of influence across a wide range of economic activity” according to the Bureau.
As such, an effort to modernize Canada’s federal Competition Act to address technological change is another overarching goal for the Bureau’s proposals for Competition Act reform.
The following is an overview of a few deceptive marketing related and other key Competition Act amendment recommendations by the Bureau.
DECEPTIVE MARKETING PRACTICES
RELATED RECOMMENDATIONS
According to the Bureau, advertising allows businesses to educate consumers on their competitive advantages (e.g., on price, quality, innovation, performance, customer satisfaction, environmental impacts and other attributes that may be valuable to consumers). Consumers then use this information to determine which products of services to purchase.
However, deceptive marketing activities undermine this advantage by influencing consumers into making misinformed decisions. In turn, honest competitors lose sales while consumers purchase goods and services that are not the best choice for them. In this sense, the Bureau states that the impacts of deceptive marketing activities are comparable to “conduct that attempts to raise prices, reduce choice, or negatively impact innovation”.
The Bureau further notes that many of the deceptive marketing provisions of the Competition Act have not been updated in decades and that there are a number of significant enforcement gaps.
With respect to the deceptive marketing provisions of the Competition Act, the following are some of the Bureau’s key recommendations:
Drip Pricing Should Be Explicitly Prohibited
By the Competition Act
“Drip pricing” refers to the practice of when an advertiser promotes a product (including services) at one price, while concealing the total price from consumers until later in the purchasing process (e.g., until check-out). At or before the point of purchase, additional mandatory costs are then added that have not been adequately disclosed to consumers upfront.
While drip pricing is not currently expressly prohibited by the Competition Act, it can violate section 52 or 74.01 of the Act if either claim is explicitly false or misleading based on the general impression test under the Act (e.g., if material information that may influence a purchasing decision is not adequately disclosed).
While the Bureau says that it has successfully taken enforcement action against drip pricing over the past few years, it has required significant resources to be ready to prove to a court, in every case, why drip pricing is deceptive.
As such, the Bureau recommends explicitly prohibiting drip pricing under the Competition Act. The Bureau’s recommendation to introduce a stand-alone drip pricing provision also reflects its ongoing enforcement priority relating to accurate online pricing claims.
For more information about drip pricing, see Advertising Law and Misleading Advertising FAQs.
See also: The Price, the Whole Price and Nothing But the Price: StubHub Pays $1.3 Million Penalty Following Bureau Drip Pricing Probe, Ticketmaster Entities Agree to $4 Million Penalty to Settle Drip Pricing Advertising Case and $1.25 Million Settlement in Car Rental Drip Pricing Case.
Sellers Should Bear the Burden
Of Proving Discounts Are Genuine
False or misleading discounts can be reviewed under the OSP claims/sales provisions of the Competition Act. Claims relating to the ordinary or regular price of a product cannot be made unless one of two statutory tests set out in the Competition Act are met: the “volume test” or the “time test”.
The OSP provisions of the Competition Act can apply to both savings claims made in relation to a seller’s own ordinary prices or the ordinary prices in the market generally.
Currently, the Bureau bears the burden to prove that savings claims are deceptive, which, according to the Bureau, requires gathering, and analyzing and efficiently presenting large volumes of sales and marketing data to the courts while advertisers bear no burden to show that a savings claim represented a genuine discount.
For more information about the OSP provisions of the Competition Act, see: OSP claims/sales.
Greater Flexibility is Needed
For Deceptive Marketing Investigations
Enforcement against certain types of deceptive marketing practices is addressed under the civil provisions of the Competition Act; for other types of conduct (e.g., deceptive telemarketing), the Act only provides for criminal penalties. However, in other cases, the same conduct may be pursued either civilly or criminally.
According to the Bureau, the differing civil remedies and criminal penalties across the deceptive marketing provisions of the Competition Act mean that it can be difficult to address multiple issues in a particular case.
For example, in a contest where the advertiser engages in deceptive marketing activities across multiple mediums (e.g., on a website, in mailouts, in social media and during telemarketing calls), some of the claims could be investigated under either the civil or criminal provisions while others (e.g., telemarketing related claims) could only be reviewed under the criminal provisions.
As such, the Bureau recommends that the Competition Act should provide both criminal and civil tracks for deceptive marketing practices to allow the seriousness of alleged deceptive conduct to determine on which track it is addressed.
For more information about Bureau enforcement, see: Bureau Enforcement.
The Competition Act Needs Better Remedies
to Address Deceptive Conduct
Currently, penalties against corporations under the civil deceptive marketing provision of the Competition Act (section 74.01) are capped at a maximum of $10 million ($15 million for subsequent orders).
According to the Bureau, the monetary penalties under the civil misleading advertising provisions of the Competition Act are insufficient to achieve deterrence, particularly against corporations with billions of dollars in revenues. They are also well below that of other major jurisdictions, notably the United States and European Union.
There are also remedies that are available to the courts when dealing with private litigants that are not available when trying to address breaches of the Competition Act (e.g., the ability to cancel contracts following a deceptive marketing campaign).
Given the Bureau’s view that the existing deceptive marketing related remedies are “generally small and inflexible” it recommends that the monetary penalties under the Competition Act be increased and that the Act should also provide a wider range of remedies to counteractive deceptive marketing practices.
OTHER KEY RECOMMENDATIONS
The Bureau’s sweeping and detailed submission with recommendations to amend the Competition Act includes suggestions to strengthen many of the cornerstone civil and criminal provisions of the Act.
Of particular note, are recommendations to generally: (i) increase the rights of private access to enforce the Act where they have not previously been available (e.g., with respect to abuse of dominance and the civil agreements provision, section 90.1); (ii) significantly increase monetary penalties in line with other major jurisdictions to deter anti-competitive conduct and encourage compliance; and (iii) to lower the bar for private access applications to Canada’s Competition Tribunal.
Some of the other recommendations made by the Bureau reflect increased commentary and perceived gaps in the existing legislation. These include broadening section 45 (price-fixing and other conspiracy offences) to apply to anti-competitive upstream agreements (e.g., wage-fixing and no poaching agreements), broadening the existing abuse of dominance provisions to include conduct intended to harm competition (as opposed to the current narrower test of conduct intended to be predatory, exclusionary or disciplinary toward a competitor) and align the civil agreements provision (section 90.1) with other sections of the Act to also apply to past anti-competitive conduct.
IMPLICATIONS
The sweeping recommendations for Competition Act amendment made by the Bureau, if they are passed, would be the most extensive changes to Canada’s competition law since 2009, which was the last major overhaul of the Act.
The Bureau’s recommendations are also consistent with the Minister of Innovation, Science and Industry’s interview with the Toronto Star and news release on February 7, 2022 in which he stated that the government will carefully evaluate potential ways to improve the Competition Act’s operation, including, among other things: (i) fixing loopholes that allow for harmful conduct; (ii) more clearly addressing drip pricing; (iii) adapting the law to today’s digital reality to better tackle emerging forms of harmful behaviour in the digital economy; (iv) and modernizing the penalty regime to ensure it serves as a genuine deterrent against harmful business conduct.
Having said that, despite detailed recommendations for amendments in the conspiracy, abuse of dominance, merger review and other areas, the suggestions for reform to the civil and criminal deceptive marketing provisions of the Competition Act do not appear to address a number of emerging and accelerating digital (and disruptive) marketing related issues and technologies, including those relating to algorithms, third-party management software, online reviews, privacy and some social media related issues, among others.
As such, it remains to be seen whether the government or the Bureau will consider the growing digital marketing related issues that could be addressed in an amended Competition Act and as are being reviewed and forming the basis for enhanced guidance and enforcement by other major international enforcement agencies.
For more information on deceptive marketing under the Competition Act, see: Advertising Law, Anti-Spam (CASL), Environmental Claims, Misleading Advertising, Misleading Advertising FAQs, Testimonials, OSP Claims/Sales, Performance Claims.
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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. I also provide advice relating to specific types of advertising issues, including performance claims, testimonials, disclaimers, drip pricing, astroturfing and native advertising.
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