Volkswagen and Audi settled environmental marketing claim with $15 million penalty

Vanessa Leung

On December 19, 2016, Volkswagen Group Canada Inc. (VW) and Audi Canada Inc. (Audi) entered into a consent agreement with the Commissioner of Competition to resolve the Commissioner’s concerns that VW and Audi had made false or misleading environmental marketing claims about certain of its 2.0 litre diesel vehicles. The consent agreement is one component of a broader Canadian settlement relating to VW’s and Audi’s allegedly misleading environmental claims.

The Bureau alleged that software installed in the affected VW and Audi vehicles could detect a test being conducted and alter the operation of the vehicle during the test to reduce nitrogen oxide emissions. The Bureau also alleged, however, that during normal use, the nitrogen oxide emissions would exceed the amounts at which the vehicle had been certified. The Bureau concluded that the statements, warranties and/or guaranties made about the performance or efficacy of these vehicles were false and misleading in a material respect, and were not based on adequate and proper testing, contrary to the Competition Act

In addition to its independent consent agreement, the Bureau participated in a proposed class action settlement that Volkswagen reached with consumers of certain affected vehicles. If approved by the courts, the settlement will provide total buyback and restitution payments totalling up to C$2.1 billion. The Bureau’s consent agreement provides for an additional, C$7.5 million administrative monetary penalty for each of VW and Audi, and provides that the parties will compensate the Bureau for C$200,000 toward its investigative costs. In the consent agreement, the Bureau also acknowledged an “Owner Credit Package” program, established voluntarily by VW and Audi, that provides certain benefits for affected owners and lessees.

As part of the consent agreement, VW and Audi agreed not to create a false or misleading general impression that: (a) their vehicles’ emissions are “clean”; (b) their vehicles produce lower emissions than other vehicles; (c) their vehicles are less polluting than other vehicles; (d) their vehicles are “green”, or less harmful to the environment than other vehicles; and/or (e) their vehicles are environmentally friendly. VW and Audi further agreed that, unless adequate and proper testing was performed, they would not make any representations that: (a) their vehicles’ emissions are cleaner than gasoline; (b) their vehicles produce less sooty emissions than older diesel engines; and/or (c) their vehicles produce fewer emissions than other vehicles.

VW and Audi also agreed to use their best efforts to stop selling or leasing affected vehicles, unless the emissions system of the vehicles was first modified to reduce nitrogen oxide emissions. VW and Audi will also enhance and maintain a corporate compliance program to ensure compliance with the Competition Act.

The Bureau noted that it had agreed to more favourable terms in the consent agreement due to VW and Audi’s cooperation with its inquiry. The Bureau also noted that the consent agreement does not resolve its ongoing inquiry with respect to certain vehicles equipped with 3.0 litre diesel engines. The consent agreement is part of a broader, global investigation into VW’s and Audi’s environmental marketing claims, and demonstrates the Bureau’s active role in such broader, industry investigations, both as a participant in the private class action process and as an independent law enforcement agency to enforce the provisions of the Competition Act.

Moose Knuckles resolves misleading "Made in Canada" representations

Vanessa Leung - 

On December 7, 2016, Moose International Inc. (Moose Knuckles) reached a consent agreement with the Commissioner of Competition. The consent agreement resolves the Commissioner’s concerns about deceptive marketing practices in respect of the “Made in Canada” claims on certain Moose Knuckles parkas.

According to the Bureau, Moose Knuckles claimed that its parkas are “Made in Canada” (both on its website, and on the interior of the parkas themselves). The Bureau alleged that, in fact, the parkas were imported from Vietnam and Asia in a nearly finished form. The Bureau concluded that Moose Knuckles’ advertising was therefore inconsistent with its (non-binding) “Made in Canada” guidelines, which have three key requirements:

  1.  That the “last substantial transformation” of a product occur in Canada. (In fact, the Bureau alleged that the last substantial transformation of Moose Knuckles’ parkas occurred outside Canada.)
  2. That at least 51% of the total direct costs of producing or manufacturing the product be incurred in Canada. (The Bureau alleged that this requirement was also not satisfied.)
  3. That the “Made in Canada” claim is accompanied by an appropriate qualifying statement, such as “Made in Canada with imported parts” or “Made in Canada with domestic and imported parts.” (The Bureau alleged that Moose Knuckles’ qualifying statement – “Made in Canada with imported textiles” – was included only on the care labels in a sleeve, and therefore did not change the misleading general impression of the claims.)

Under the consent agreement, Moose Knuckles agreed to cease making representations that create the general impression that its parkas are made exclusively with Canadian components (in any advertising medium, including its website, print publications and social media). Moose Knuckles also agreed to either: a) add a “Made in Canada with Canadian and imported components” hang tag to the “Made in Canada” label on the parkas’ collars, with equal or greater prominence; or b) remove the “Made in Canada” label on the parkas’ collars. A corrective notice will also be posted on Moose Knuckles’ website’s product information page for one year, and a corporate compliance program will be implemented to ensure compliance with the Competition Act. Lastly, Moose Knuckles will donate $750,000 over five years to charities that support children in need in Canada.

However, no fines (or administrative monetary penalties) were imposed, nor was Moose Knuckles required to reimburse the Bureau’s investigative costs. Such financial penalties are common in consent agreements involving alleged misleading advertising. It is not immediately clear why no monetary penalties were imposed.

This is the second case where a consent agreement has been reached by mediation, and the Bureau welcomed this method as another tool to resolve concerns efficiently.

Competition Bureau questions: Why don't we see more health care advertising?

William Wu and Vanessa Leung - 

Due to regulations by provincial governments and self-regulating professional bodies, Canadian health care professionals face significant restrictions on how they are permitted to advertise their services in the marketplace. For example, price advertising, where professionals advertise the prices they will charge for particular services, is often limited; comparison advertising, where a professional compares his or her services and skills to those of another professional, is generally prohibited.

On October 4, 2016, the Competition Bureau published a report assessing the effect of advertising restrictions on the health care marketplace. The report suggests that advertising restrictions, while well-intentioned, may result in unnecessarily high prices for consumers, and calls on regulatory bodies to begin collecting data to conduct further empirical studies on the effect of advertising restrictions.

The report acknowledges the policy justification for advertising restrictions in health care professions: to prevent a “race to the bottom” in service quality. There is significant information asymmetry in the health care market, where service providers know significantly more about treatments and procedures than their patients do. With consumers unable to adequately discern service quality in the health care market, price can be seen as the primary difference between service providers, which may prompt providers to undercut one another in prices, to a point where they could not maintain high quality services. Unregulated advertising in regulated professions is thought to increase the risk of a “race to the bottom”. Regulators seek to ensure high quality services by enforcing standards of education and practice, and therefore, advertising restrictions for health care professionals are intended to protect consumers.

The report reviews a number of academic studies on the impact of advertising restrictions. Two studies cited by the report found that, where advertising is restricted, consumers tend to stick with established, well-known products, which makes it difficult for new products to become established as effective alternatives. As a result, advertising restrictions may insulate established products from competition and innovation, which could ultimately result in higher prices for consumers. The report cites two additional studies on optometric services, which found that advertising results in lower prices for optometric services without an associated reduction in quality (i.e., that the feared “race to the bottom” does not in fact occur when advertising is not restricted).

Based on its review of the economic literature, the report suggests that there is a risk that advertising restrictions may cause consumers to pay unnecessarily high prices for health care services in Canada. The Bureau recognized that it does not have easy access to the data necessary to empirically study the actual impact of advertising restrictions in Canada. The Report calls on governments and self‑regulatory bodies to begin collecting and compiling information on marketplace outcomes in Canada’s health care markets, and to move toward greater emphasis on empirical evidence in decision-making.

The publication of the report is a part of the Bureau’s larger advocacy effort directed at governments and decision‑makers, emphasizing the need to consider the effects that regulations have on competition. In the most recent issue of Competition Advocacy, published by the Bureau on the same day as the report, the Bureau outlined four internationally-recognized principles that can help regulators to minimize any negative or unintended effects on competition:

  1. Regulation should only address legitimate policy concerns;
     
  2. Regulation should be based on the best available evidence;
     
  3. Regulation should be proportionate to the associated harm; and
     
  4. Regulation should be regularly reviewed to reflect market conditions.

As the Bureau has previously done in a study of the Canadian taxi industry, the report calls on regulators to reassess advertising restrictions with a greater emphasis of empirical evidence and with additional consideration for their effects on competition.

No more "unlimited" calling and Internet services: Comwave resolves misleading telecom service and price representations

William Wu and Vanessa Leung - 

On September 13, 2016, the Competition Bureau reached a consent agreement with Comwave Network Inc., which resolved the Bureau’s concerns over allegations of false or misleading advertising by Comwave in respect of representations made to public on its telecommunication services and prices.  The Bureau had three sets of concerns:

1. Comwave allegedly made representations to the public about the prices of the telecommunications services it provided, and then allegedly charged consumers additional fees that were only disclosed to consumers in fine print disclaimers and during its telephone sales intake process. The Bureau concluded that the disclaimers and the intake process were insufficient to alter the misleading general impression created by the prices advertised by Comwave, which were in fact not attainable due to the additional fees;

2. Comwave had allegedly been making representations regarding unlimited local calling and unlimited Internet usage through a number of advertising media since about 2011. Disclaimers allegedly contained terms and conditions that limited residential phone service to 3000 minutes per month and effectively limited Internet usage by significantly slowing download speeds when consumers reached a certain amount of data per month. The Bureau concluded that the disclaimers were insufficient to alter the general impressions created by the advertising that consumers could get unlimited local calling home phone service and unlimited Internet usage; and

3. Comwave allegedly made representations regarding special offers such as “free services for six months”, with additional terms and conditions that were not disclosed to consumers until the telephone sales intake process. The Bureau concluded that these subsequent disclosures were insufficient to alter the misleading general impression that consumers could receive free phone service for a specified period of time.

Under the consent agreement, Comwave agreed to bring its advertising practice into compliance with the misleading advertising provisions of the Competition Act, to publish a corrective notice, and to pay a $300,000 administrative monetary penalty and $60,000 towards the Bureau’s investigative costs over a three-year payment schedule. Comwave also agreed to implement a corporate compliance program to comply with the Competition Act in general and the misleading advertising provisions in particular.

This case demonstrates the Bureau’s continued focus on false or misleading representations and businesses’ need to ensure that material information is clearly and promptly disclosed so as to ensure that the representations do not convey to consumers any misleading impressions that are contradicted in the fine print. It should be noted that the Bureau has agreed to more favourable terms than usual in this consent agreement due to Comwave’s prompt and full cooperation in the investigation. 

Avis and Budget reach settlement in alleged misrepresentation of fees and discounts

Vanessa Leung and Ashley Piotrowski

On June 2, 2016, the Competition Bureau reached a consent agreement with Aviscar Inc. and Budgetcar Inc. / Budgetauto Inc., over allegations of false or misleading advertising for prices and discounts on car rentals and associated products.  A Bureau investigation concluded that certain prices and discounts initially advertised were not attainable because consumers were charged additional mandatory fees that were only disclosed later when making a reservation. Pursuant to the consent agreement, the parties will pay a $3 million administrative monetary penalty, as well as $250,000 towards the Bureau’s investigative costs.  The parties have also agreed to implement a compliance program.

Background

In March 2015, the Bureau filed an application against the Aviscar Inc. and Budgetcar Inc. / Budgetauto Inc., alleging that the parties had made false or misleading representations to the public to promote the use of their rental cars and associated products, and that the parties had supplied their rental cars and associated products at a higher price than was advertised to consumer. The representations were made across a broad range of media including print, website, mobile applications, television commercials and electronic messages.

The Bureau argued that the initial price offered in the advertisements created a false general impression about discounts that were allegedly available to consumers for rental cars, which did not take into account mandatory fees that increased the ultimate price of the rental.  Such mandatory fees were allegedly disclosed only once a consumer had chosen to make a reservation. As such, the Bureau’s view was that rental cars were not available at the prices initially advertised to consumers.   The Bureau concluded that these mandatory fees could increase the cost of a rental by 5% to 20% above the initial advertised price. Furthermore, the disclosure associated with these mandatory fees allegedly misled consumers to believe that they were taxes and surcharges levied by government and authorized agencies when in fact they were fees emanating from the parties themselves. To address the Bureau’s concerns, the parties voluntarily redesigned their Canadian websites in July 2015 to ensure consumers are made aware of any mandatory fees when they are first shown the advertised price.

The consent agreement serves as an important reminder to businesses that the general impression of an advertisement is just as important as the fine print, and that mandatory fees that are not clearly disclosed to consumers at the initial stage of advertising a price, including in electronic messages and online price building tools, could result in misleading advertising.  

Telus agrees to pay $7.34 million in customer rebates to resolve false and misleading advertising allegations

Jeff Brown and Margaret Kim - 

On December 30, 2015, the Competition Bureau announced that it had reached a consent agreement with Telus Communications Inc., one of Canada’s “Big Three” wireless carriers, over allegations of false or misleading advertisements for premium text messaging and rich content services, such as trivia, daily horoscopes, and ring tones. 

As part of the consent agreement, Telus will issue rebates in an aggregate amount up to $7.34 million to certain current and former wireless customers, who the Bureau alleged were unknowingly charged extra for the text message services. The Bureau noted that the amount for consumer rebates made available under the consent agreement is the most obtained by it under any consent agreement to date.  In March 2015,  Rogers Communications Inc. settled with the Bureau, agreeing to pay $5.42 million in refunds to customers for the same fees as part of the same investigation. Similar proceedings against Bell Canada and the Canadian Wireless Telecommunications Association are ongoing.

 Background

Section 74.01(1)(a) of the Competition Act (the Act) addresses materially false or misleading representations to the public.  Under this provision, engaging in such activity for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, is a civilly reviewable matter.  

In September 2012, following a five-month investigation, the Bureau commenced legal proceedings against Rogers, Telus, Bell and the CWTA in the Ontario Superior Court.  The Bureau alleged that that the carriers and the CWTA made, or permitted to be made, false or misleading representations to customers in advertisements for premium text messages appearing in pop-up ads, apps and social media. The Bureau also alleged that the carriers permitted charges to be made by two third-party companies, Jesta and MMS, for texting services, such as trivia questions and ringtones, that wireless customers did not intend to purchase and for which they had not agreed to pay.  

In her statement, then-Commissioner Melanie Aiken stated that the Bureau’s investigation had revealed that “consumers were under the false impression that certain texts and apps were free”, and that “unfortunately, in far too many cases, consumers only became aware of unexpected and unauthorized charges on their mobile phone bills.” 

In the Bureau’s investigation, a tool known as a “common short code” was at the heart of the issue.  Text messages and digital content are delivered through this common short code, which is a number assigned by the CWTA’s Short Code Council. The CWTA then leases out the assigned number to a third party for the sale and delivery of digital content.   While such text messages and digital content can be made available for free to a wireless customer or billed at standard text messaging rates, these codes can also be used to charge higher rates to customers.  According to the Bureau, its investigation revealed that premium-rate digital content could cost up to $10 per transaction, and up to $40 for a monthly subscription. The digital content at issue was offered through advertisements in popular free apps on wireless devices, and also online. According to the Bureau, consumers were led to believe that such products were free but then later incurred charges. The Bureau also alleged that “the disclosure to customers had been wholly inadequate,” and the carriers “profited from these charges, at their customers’ expense”.

The Bureau’s sought remedies including full customer refunds and administrative monetary penalties of $10 million from each of Rogers, Telus and Bell, and $1 million from the CWTA. 

Overview of the Settlement

The rebates will apply to Telus, Telus Mobility and Koodo customers who incurred charges for certain premium text messaging services between January 1, 2011 and August 16, 2013.  The current affected customers will automatically receive a rebate as credits, while former affected customers will be notified with details on how to obtain their rebates by email or a letter with 120 days to make a claim.

In addition to the rebates, the consent agreement stipulates that Telus will publish a notice to all affected customers and establish a consumer awareness campaign to educate consumers on how to avoid unwanted wireless charges.  Telus will also create a corporate compliance program with a specific focus on its “billing on behalf of” practices and the Competition Act generally. The consent agreement requires that the compliance program be framed in a manner consistent with the Bureau’s “Corporate Compliance Programs Bulletin,” which was updated in June 2015.

Telus will also donate a total of $250,000 to the Ryerson University Privacy and Big Data Institute;  Éducaloi, an NGO dedicated to helping the public understand their rights and responsibilities under the law; and the Centre de recherche en droit public de l'Université de Montréal. The donations are earmarked for research on issues such as:

  • Citizen’s rights and consumer education regarding how wireless service providers use personal information and data collected from customers;
     
  • How wireless carriers could make more transparent to Canadian consumers what personal information the carriers are collecting and how that personal information will be used; and
     
  • The role that the law currently plays and could play in ensuring that consumers receive accurate information

Going forward: Bureau consumer protection efforts  likely to continue to be an enforcement priority

Going forward, it can be expected that the Bureau will continue to make enforcement of the Act’s false and misleading representation provisions an  enforcement priority.  The Bureau recently updated its Deceptive Marketing Practices Digest Bulletin, which focuses on the importance of truthful and accurate marketing practices in the digital economy.  The Bulletin also reflects Canada’s recently enacted Anti-Spam Legislation, which applies to the sending of electronic messages, as well as recent growth of online marketing through adoption of digital technology, in particular, mobile devices such as smartphones.

To this end, Matthew Boswell, Senior Deputy Commissioner of Competition, stated, “consumers expect and deserve truth in advertising. Allowing a third party to take advantage of consumers through misleading advertising is a violation of the Competition Act,” and indicated that the Bureau would continue enforcing misleading advertising “to ensure that consumers benefit from accurate information in the digital economy.”

Red Light: Competition Bureau alleges misleading advertising by car rental firms

Jennifer Rad -

The Competition Bureau has filed an application with the Competition Tribunal against Aviscar and Budgetcar, and their parent company, Avis Budget Group Inc., alleging deceptive marketing practices contrary to several provisions of the Competition Act. The Bureau’s investigation into the pricing practices of Avis and Budget, two of the largest rental car companies in Canada, uncovered price representations which the Bureau considers to be false or misleading in a material respect, dating back to 1997.

In its Notice of Application, the Bureau submits that the prices advertised to the public by Avis and Budget are “not in fact attainable,” thereby creating a false general impression about prices and discounts. The Bureau submits that actual rental costs could be up to 35% higher than advertised once “non-optional” fees imposed by both companies are included. Although these “non-optional” fees are known to Avis and Budget, the Bureau alleges that the companies choose to exclude them from advertised prices and/or discounts. The Bureau also alleges that the “non-optional” fees, once revealed to the customer, are characterized as charges being imposed on customers by governments or other third-parties, when in fact they are Avis’ and Budget’s own charges related to the cost of doing business.

The representations in question were allegedly made across a broad range of media including print, mobile applications, online, oral representations and electronic messages. Because the Bureau’s case involves allegations of deceptive marketing practices carried on through electronic messages, this proceeding is the Bureau’s first under the new provisions of the Competition Act that were implemented as part of Canada’s Anti-Spam Legislation (CASL) in July 2014.

The relief sought by the Bureau includes an end to the alleged false or misleading price representations, $30 million in administrative monetary penalties ($10 million from each of the three companies), and reimbursements to affected consumers. The Bureau estimates that Avis and Budget have accrued over $35 million worth of “non-optional” fees since March 2009. None of the Bureau’s allegations has been proven before the Competition Tribunal.

Clarity and accuracy in pricing were the core themes in 2011 when the Bureau investigated Bell Canada and ultimately entered into a consent agreement in which Bell agreed to pay a $10-million administrative monetary penalty for making allegedly false or misleading representations in its advertising regarding its home phone, Internet, television, and wireless service prices. Now, almost four years later, the Commissioner of Competition remains focused on the accuracy of pricing claims, stating that "consumers are entitled to clear and precise information when making their purchasing decisions and need to be confident that the information they receive regarding additional fees is truthful and accurate."

Competition Bureau puts deferred payment plans under the microscope in misleading advertising charges against Canadian Furniture Retailers

Ashley Weber and Erica Lindberg -

On July 9, 2013, the Competition Bureau announced that it would be pursuing civil charges of deceptive marketing under the Competition Act against Canadian furniture retailers Leon’s Furniture Ltd. and The Brick Ltd. (acquired by Leon’s earlier in 2013).

In a civil action filed with the Ontario Superior Court of Justice, the Bureau alleges that the retailers’ “buy now, pay later” programs, in which consumers are encouraged to purchase products under a deferred payment program, gives the false general impression that consumers can take advantage of the programs at no extra charge, and fails to adequately disclose the surcharges that will be applied to the balance of the purchase price (section 74.01(1)(a)).  By way of example, a customer wanting to defer payment on a $1500 sofa could be required to pay up to $350 at the time of purchase, despite advertisements stating customers would pay “absolutely nothing” for up to 21 months.

The Bureau also alleges that the administration and processing fees applicable to the deferred payment programs are “hidden”, and can result in substantial additional costs (including both up-front costs as well as costs added to the balance to be paid), which result in the final price of the product being higher than the advertised price (section 74.05(1)).

The Bureau acknowledged that, in many instances, the representations were accompanied by disclaimers that referenced the need to pay certain fees at the time of purchase.  It noted, however, that lengthy disclaimers buried in the fine print and not in close proximity to the associated representations, particularly if the disclaimers contradicted the representations’ literal meaning and/or general impression, are ineffective in addressing the reviewable conduct.  In a statement, Commissioner of Competition John Pecman said that “Canadian consumers must receive clear and accurate information about what must be paid at the time of purchase, and what the actual cost of a particular item is if they use a deferred payment option." He went on to say that “[r]etailers cannot hide details of additional fees in lengthy disclaimers.”

The Bureau has increasingly shown indications that it considers it a priority to pursue deceptive marketing and disclaimer practices, which, it is argued, take advantage of a struggling economy to exploit vulnerable consumers.  In September 2012, the Bureau took action against cell phone providers Bell, Rogers and Telus for fine-print disclaimers and allegedly “hidden” cell phone fees.

It has been estimated that “buy now, pay later” transactions could comprise up to 50% of the furniture retailers’ transactions across Canada. Leon’s and The Brick have indicated that they will defend their positions in court.