Steve Szentesi
Kevin Wright (Davis LLP)
Extract from a chapter to be published in CLEBC
Annual Review of Law & Practice – 2014
2013 was once again a busy year for Canadian competition and foreign investment law, administration and policy, including the June 12, 2013 announcement that then Interim Commissioner John Pecman had been appointed to a five year term as Commissioner of Competition, the head of the federal Competition Bureau (the “Bureau”).
The following are several of the key Canadian misleading advertising law highlights from 2013.
For Canadian competition law developments in 2013 in other areas (mergers, Investment Canada Act, civil competition law matters, criminal matters, private actions and association enforcement) visit: Canadian Competition & Regulatory Law. I’ll be posting excerpts from our forthcoming chapter in those areas over the next week.
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Competition Bureau v. Chatr Wireless Inc.
(Misleading Advertising and Performance Claims)
On August 19, 2013, the Ontario Superior Court of Justice issued its decision in the Chatr advertising case (Canada (Competition Bureau) v. Chatr Wireless Inc., 2013 ONSC 5315 (CanLII) (Ont. Sup. Ct.)). The Bureau challenged Rogers for two performance claims made for its new Chatr cell phone brand: Chatr had “fewer dropped calls than new wireless carriers” and subscribers would have “no worries about dropped calls”. The Bureau challenged these claims under the civil misleading advertising and performance claims provisions of the Competition Act (the “Act”) arguing that Rogers had poorer dropped call rates in some markets than other carriers and in others there was only a negligible difference. The Bureau also challenged Rogers’ testing methodology for its claims (the Act requires advertisers to have “adequate and proper testing” before making performance claims). Rogers disputed these allegations and challenged the performance claim and “administrative monetary penalty” (“AMPs”) sections of the Act under sections 2(b) and 11 of the Charter. In an important and extensive decision the Court held: that the appropriate consumer to consider for such claims was a “credulous and technically inexperienced consumer” (partially adopting the standard in the recent Supreme Court case Richard v. Time, [2012] 1 S.C.R. 265, which adopted a lower standard than previously held under the Act); that Rogers’ claims were not false based on the type of performance data the Bureau sought to rely on; that a “fewer dropped calls” claim will not necessarily be misleading unless there is a discernible difference between carriers; that Rogers’ “drive testing” methodology for claims, the industry standard, was acceptable; and confirmed that what is “adequate and proper” testing is factual and contextual. The Court also dismissed Rogers’ constitutional challenges to the performance claim and AMP sections of the Act.
Competition Bureau Challenges Leon’s and
The Brick’s “Buy Now, Pay Later” Promotions
(Misleading Advertising and General Impression)
On July 9, 2013, the Bureau filed an action before the Ontario Superior Court against Leon’s Furniture Limited and The Brick Inc. for “buy now, pay later” promotions (see: Competition Bureau, Announcement, “Competition Bureau Takes Action Against Leon’s and The Brick for Deceptive ‘Buy Now, Pay Later’ Promotions” (July 9, 2013)). The Bureau claims that the two retailers “buried details of additional up-front fees in fine print”, which led to higher than advertised prices for consumers who chose deferred payment. This ongoing case shows the Bureau’s continued focus on product price claims, disclaimers and the overall “general impression” of advertising (which, together with the literal truth of claims, is relevant in determining whether advertising is false or misleading under the Act).
First Breach of Consent Agreement Case
(Prior Settlement for Civil Misleading Advertising)
In June, 2013, an Alberta man was found guilty of misleading advertising in relation to an online job opportunities scheme and breach of a consent agreement under the Act (see: Competition Bureau, Announcement, “Alberta Man Found Guilty of Misleading Representations and Breach of Consent Agreement” (June 25, 2013)). The case is the first conviction for violating a registered consent agreement under the Act. The accused had settled civil misleading advertising allegations with the Bureau in relation to online promises for a fee of oil and gas industry employment (the accused agreed to pay a $100,000 AMP and stop making misleading claims, including in relation to the size of the business, identity of potential employers and false endorsements, testimonials and money back guarantees). Consent agreements with the Bureau are used for settlements under the Act and once filed have the force of a Competition Tribunal or court order. Penalties for violating consent agreements include, on indictment, a fine in the discretion of the court, imprisonment for up to five years, or both (Act, s. 66). This case shows that misleading advertising remains an enforcement priority for the Bureau, that it has taken a sterner approach to enforcing settlements and that it also now periodically monitors compliance with consent agreements.
Ontario Court of Appeal Upholds $500,000 Penalty
(Deceptive Business Directories)
On February 4, 2013 the Ontario Court of Appeal upheld an Ontario Superior Court decision ordering an individual to pay a $500,000 AMP in connection with a deceptive business directory marketing scheme (see Competition Bureau, in Brief, “Ontario Court of Appeal upholds $500,000 penalty for deceptive marketing scheme” (February 28, 2013) and Canada (Competition Bureau) v. Yellow Pages Marketing B.V., 2013 ONCA 71 (CanLII) (Ont. C.A.)). In this case, an individual ordered to pay a $500,000 AMP for misleading advertising appealed the lower court’s judgment, which had found a group of companies and individuals liable under the civil misleading advertising provisions of the Act for sending deceptive faxes designed to lead recipients to believe that they were merely confirming online directory information for the legitimate Yellow Pages Group. In fact the companies, unrelated to the Yellow Pages Group, used fine print disclaimers to sign-up recipients to new two-year online directory contracts with significant fees.
On appeal, the Court of Appeal found that the lower court’s finding was “unassailable” based on evidence that the appellant knew the companies were making false and misleading representations and was aware of prior Bureau enforcement. The Court of Appeal also pointed to the appellant’s responsibility for complaints and key aspects of the companies’ deceptive marketing activities. Finally, regarding the size of AMP, the Court of Appeal found that the lower court made no error in setting the amount at $500,000 and accepted its finding of the appellant’s significant financial circumstances and that the companies were “only vehicles for their principles”. Since being amended in 2009, the Act lists a number of relevant factors for determining AMPs, which include the reach of conduct, frequency and duration, whether vulnerable people are targeted, likelihood of self-compliance, market effects and revenues and parties’ financial positions.
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I am a Toronto competition/antitrust lawyer and advertising/marketing lawyer who helps clients in Toronto, Canada and the US 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.
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