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.

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.”

House arrest off the table for cartels and bid-rigging

Mark Walli and Graeme Deuchars-

On November 20, 2012, amendments to the Criminal Code of Canada under the Safe Streets and Communities Act (the SCCA) came into force, restricting the availability of conditional sentences for individuals convicted of certain offences, including conspiracy to fix prices and bid-rigging under the Competition Act. Conditional sentences are non-custodial punishments, such as house arrest, that may only be assessed where the judge determines the offender is not a danger to the community. While these amendments were not specifically directed at Competition Act offences, the result of the legislative changes is to eliminate the discretion to allow for serving custodial sentences for serious Competition Act offences in the community.

The SCCA, introduced in 2011, included a slate of amendments to the Criminal Code and other legislation which the Department of Justice stated were intended to “combat crime and terrorism”. Among other things, the SCCA provides that conditional sentences are unavailable for all offences for which the law prescribes a maximum term of imprisonment of 14 years or more – this includes cartel agreements among competitors, bid-rigging and willful or deceitful misleading advertising under the Competition Act.

The sentencing changes now in effect under the SCCA follow upon sweeping amendments to the Competition Act in March 2009, which, among other changes, created a per se cartel offence (in effect since March 2010, which prohibits agreements among competitors to fix prices, allocate markets or limit production, whether or not such an agreement had an impact on competition in a relevant market) and increased the maximum punishment for offences such as price-fixing, bid-rigging and willful or deceitful false advertising from five to 14 years.

The new sentencing regime should also be considered in light of the dissatisfaction recently expressed by the Federal Court with joint sentencing recommendations for fines as part of agreements to plead guilty with respect to criminal offences under the Competition Act. In R. v Maxzone Auto Parts (Canada) Corp., a case involving a charge of criminal conspiracy under section 46 of the Competition Act (implementation of a foreign directed cartel), Chief Justice Crampton of the Federal Court observed that “… achieving effective general and specific deterrence requires that individuals face a very real prospect of serving time in prison if they are convicted for having engaged in such conduct”. Finding that past practice gave rise to “understandable expectations” regarding sentencing, the Chief Justice “reluctantly” imposed the jointly recommended sentence of a substantial fine in that case.

A move toward custodial sentences for criminal convictions under the Competition Act may have far-reaching implications for the Competition Bureau's enforcement regime, including participation in its Leniency Program, whereby an accused agrees to cooperate with an investigation in exchange for a prosecutorial recommendation of more lenient treatment. The removal of conditional sentences (and judicial discontent over fines instead of prison terms) may well discourage participation in the program, as accused persons weigh the risks of what "leniency" may entail. Indeed, if jail time is seen as the likely result of criminal conviction for competition offences, there may well be less cooperation, fewer guilty pleas and more contested trials on the horizon in Canada.
 

CRTC guidance on check-boxes for e-marketing likely to tick off business community

David Elder -

Although the date on which Canada’s Anti-Spam Legislation (CASL) may come into force is uncertain, the CRTC has issued two bulletins that provide guidance as to how to comply with the new law, once proclaimed in force.

But while some of the new guidance is helpful, other provisions will likely create significant operational concerns for businesses.

The Commission is the body charged with oversight and enforcement of most provisions of the new law, including the core provisions respecting commercial electronic messages (CEMs), alteration of transmission data and the installation of computer programs.  In addition, the CRTC has the power to make regulations under the Act with respect to certain matters.

As we noted previously, the CRTC registered its Electronic Commerce Protection Regulations (CRTC) in March of 2012, providing additional clarification of these new regulations in a subsequent Regulatory Policy.

The first of the new Compliance and Enforcement Bulletins provides further, and in some cases helpful, guidance on the interpretation of these Regulations, such as providing details on acceptable unsubscribe mechanisms for each of email and SMS messages, including visual mock-ups of acceptable approaches.

However, the Bulletin also indicates that the Commission considers that, where included in general terms and conditions of use or sale of a product or service, requests to send commercial electronic messages, alter transmission data or download computer programs must be obtained through separate positive affirmations of the user, such as the proactive checking of a tick-box to signify consent to each of these actions, in addition to the acceptance of other contractual terms or an organization’s privacy policy. 

Most problematically, in a second Compliance and Enforcement Bulletin, the CRTC seems to be ruling out default settings that favour consent, even where the user can uncheck a box to exercise their choice (a process that the Commission refers to as “toggling”) and where the user does provide a positive affirmation to a set of terms or an agreement.  The following example, included in the Bulletin, shows that even where the pre-checked box and related consent is featured prominently, and is adjacent to a button that the user must pressed to signify agreement to a contract, the CRTC will not consider this to be valid consent to the receipt of CEMs under the anti-spam law.

Another area of likely concern for businesses relates to CRTC guidelines respecting the collection of oral consent, a form of consent which is explicitly authorized by the Electronic Commerce Protection Regulations (CRTC).  The Bulletin suggests that in order to be able to discharge the onus of proving that it obtained oral consent, a business would have to have that consent verified by an independent third party or retain a complete and unedited audio recording of the consent.

We would note that, while these methods may work where consent is collected by telephone, through a call centre, they would create significant operational problems where consent is collected during a face-to-face interaction, such as might commonly occur at point of sale.

While the Bulletins do not have the force of law, they do provide a clear indication of how the CRTC will interpret the law and regulations that is charged to enforce.

 

CRTC reaffirms competitiveness of mobile wireless industry, even as it plans new wireless consumer code

David Elder -

The Canadian Radio-television and Telecommunications Commission (CRTC) has denied requests by consumers, consumer groups and some new entrants to re-regulate retail and wholesale wireless services generally, finding that competition in the mobile wireless market continues to be sufficient to protect the interests of users with respect to rates and choice of competitive service provider.

The finding, in Telecom Decision CRTC 2012-556, followed a public proceeding to consider whether the conditions of forbearance in the Canadian wireless market had changed sufficiently to warrant CRTC intervention with respect to retail mobile wireless data and voice services. That proceeding was triggered by an application by consumer groups to prohibit certain billing practices by wireless service providers, as well as an application by wireless service providers for the Commission to establish a uniform national consumer code for wireless services.

In its decision, the CRTC indicated that it would establish such a national consumer code, initiating another public proceeding to determine the content, application and enforcement of such a code; however, it would continue to forbear from regulating mobile wireless service rates or competitiveness in the mobile wireless market generally, despite concerns raised by some interveners about the competitiveness of the Canadian wireless market, including issues related to choice of provider and pricing.

In a series of decisions commencing shortly after it received the forbearance power in 1993, with the enactment of the Telecommunications Act, the CRTC has determined that wireless services in Canada are subject to sufficient competition to protect the interests of users, and that it would allow market forces to guide the mobile wireless industry’s growth.   Accordingly, it has consistently forborne from exercising many of its powers under that Act, including the requirement for prior approval of rates, and the determination that rates be just and reasonable.

In its most recent decision, the Commission has maintained this approach, noting that there is no evidence that the conditions for forbearance have changed sufficiently to warrant regulatory intervention with respect to mobile wireless service rates or competitiveness in the mobile wireless market. 

In fact, the Commission noted that market indicators, including those included in its recently published 2012 Communications Monitoring Report, continue to demonstrate that consumers have a choice of service providers and a range of rates and payment options for wireless services. In addition, the average monthly cost for mobile services has remained relatively stable. Meanwhile, new entrants in the mobile wireless market continue to increase their market share and coverage and companies continue to invest in new infrastructure to bring new innovative services to more Canadians. 

Private member's bill would prohibit commercial advertising to children under 13

Michael Laskey -

On June 6, 2012, NDP MP Peter Julian introduced Bill C-430, An Act to Amend the Competition Act and the Food and Drugs Act (Child Protection Against Advertising Exploitation). The private member’s bill would amend the civil misleading advertising section of the Competition Act to prohibit the direction of any advertising or promotion, for commercial purposes, at persons under 13 years of age. The proposed test for such advertising would take into account the manner, time and place of the ad and the nature and intended purpose of the product or business being promoted. The bill also clarifies that advertising may be found to be directed at persons under 13 even though it is presented in printed material intended for people 13 and older, in broadcast during air time intended for persons 13 and older, or in any manner intended for persons both over and under 13. Finally, the criminal misleading advertising section of the Act would be amended to deem all such advertising to be a “recklessly made representation that is false or misleading in a material respect”, and so child-directed advertising would also violate the criminal misleading advertising law.

Child-directed advertising is already subject to a patchwork of regulatory tools. The Broadcast Code for Advertising to Children restricts broadcast advertisers from pressuring children to buy or use their products, among other restrictions. Advertising Standards Canada’s voluntary Canadian Code of Advertising Standards states that advertising directed at children “must not exploit their credulity, lack of experience or their sense of loyalty…”. In Quebec, the Consumer Protection Act and associated regulations impose significant restrictions on the content and presentation of child-directed advertising.

Bill C-430 has not yet received second reading, and it is unlikely to be passed in its current form. However, the bill portends an increased focus on child-directed advertising, and could lead to increased uncertainty in an already hazy area of law and policy.

Supreme Court of Canada: average consumer is "credulous and inexperienced" for misleading advertisement purposes

Ashley Weber -

In February 2012, the SCC released its decision in Richard v. Time Inc., a case brought forward from the Quebec Court of Appeal, which considered the “general impression” test in relation to the misleading advertising provisions of the Quebec Consumer Protection Act (CPA). Given the recently increased enforcement activity of the Competition Bureau with respect to deceptive marketing practices, companies that advertise to consumers anywhere in Canada should take heed of the SCC decision. The misleading advertising provisions of the Quebec CPA are based, to a large extent, on what is now the federal Competition Act, and similar types of consumer protection laws exist in the other Canadian provinces. Accordingly, the impact of the SCC decision will go beyond the CPA, affecting enforcement of deceptive marketing practices under both federal and provincial consumer protection laws in Canada. 

The SCC decision provides clear guidance on how to assess an advertisement’s target audience for purposes of the “general impression” test, and clarifies that both the layout of the advertisement and the meaning of the words, taken in their entirety, form the general impression of an advertisement. As such, regulators and companies now have a firmer understanding of what test to consider when determining whether an advertisement is misleading in a material respect.

The case began in 1999 when Richard, a native French speaker and resident of Quebec, received an English letter in the mail addressed to him, alleging that he had won a sweepstakes. The layout of the letter, with certain sentences bolded and in a larger font than others, was designed to catch the reader’s attention by suggesting that he or she had won a large cash prize. There were also certain graphic details on the letter that led him to believe the letter came from Time magazine. Upon closer scrutiny of the letter, it became clear that the letter was in fact notifying the recipient of a chance to enter to win the grand prize. The instructions also provided that, if the recipient subscribed to Time magazine for a period of time, he became eligible to receive a free camera and photo album. After reviewing the letter carefully, and seeking input from colleagues at work about its content, Richard concluded that he had in fact won the grand prize. Accordingly, he sent in the required response (which in fact was the entry ballot), and subscribed to Time magazine. A short time later, he received his free camera and photo album, but did not receive anything with respect to the grand prize. After several failed attempts to contact officials at Time magazine, Richard launched an action before the Quebec Superior Court. 

The Quebec Superior Court decided in favour of Richard, arguing that the general impression of the letter contained misleading and even false representations contrary to the Quebec CPA. The decision was then appealed to the Quebec Court of Appeal, where it was overturned on the basis that the letter did not contain false or misleading representations, and that the average Quebec consumer would not have been given the general impression that the recipient was the grand prize winner. The decision was further appealed to the SCC. In hearing the case, the SCC considered the proper approach in Quebec for determining whether an advertisement constitutes a false or misleading representation for purposes of the CPA.

The SCC held that the letter was in fact false or misleading in a material respect. In its decision, it explained that both the “literal meaning” of the words that are simply interpreted in their ordinary sense, and the “general impression” given by a representation must be considered when making this determination. The SCC held that the general impression test is one of first impression, which is distinct from a rushed or partial reading of an advertisement. The general impression is the one a person has after an initial contact with the entire advertisement, and incorporates both the physical layout and the meaning of the words used.

The SCC further explained that the general impression must be analyzed from the perspective of the average consumer, without considering his/her personal attributes, who is “credulous and inexperienced” and takes “no more than ordinary care to observe that which is staring him or her in the face”. The method for assessing the general impression is therefore two-fold: (1) describe the general impression that the representation is likely to convey to a credulous and inexperienced consumer; and (2) determine whether that general impression is true to reality. The court also confirmed that there is a presumption of prejudice to the consumer such that the consumer does not have to prove that the merchant intended to mislead.

Given the recently increased enforcement activity of the Competition Bureau with respect to deceptive marketing practices, companies should take heed of the SCC decision. To avoid running into problems once an advertisement has been put to market, companies should implement appropriate checks and balances in their advertising review process to ensure their marketing and legal teams understand both the general impression test, as it has now been defined, and that the lens used to interpret the test is that of the credulous and inexperienced consumer.

Rogers Communications claims misleading advertising case, AMPs violate Canadian Constitution

Susan M. Hutton and Marisa Berswick -

Rogers Communications Inc. will appear before the Ontario Superior Court in June, claiming that two aspects of the Competition Act dealing with civilly reviewable misleading advertising are unconstitutional: AMPs (administrative monetary penalties) in the millions of dollars, and the “adequate and proper” testing requirements. If they are ruled unconstitutional, the case stands to gut the Competition Bureau’s ability to seek multi-million dollar penalties under the civil misleading advertising provisions of the Competition Act, and may have implications for its ability to do so in abuse of dominance provisions as well.

The Competition Bureau’s legal proceedings against Rogers began in September, 2010 when Wind Mobile filed a formal complaint with the Competition Bureau regarding Roger’s new discount cell phone service, Chatr Wireless. In November 2010, the Commissioner started legal proceedings against Rogers to stop the allegedly misleading advertising of Chatr, based on claims that it had fewer dropped calls than competitors.

Section 74.01(1)(b) of the Competition Act makes it civilly reviewable conduct, among other things, to make a representation to the public in the form of a statement regarding the performance a product or service that is not based on an “adequate and proper test thereof”, the proof of which lies on the person making the representation. Under section 74.1(1)(c) of the Act, the Competition Tribunal or the courts may make orders prohibiting the conduct in question, requiring the issuance of corrective notices, requiring the payment of restitution to affected customers, and/or requiring the payment of up to $10 million in an “administrative monetary penalty” or “AMP” (for a first such “offence”, and up to $15 million thereafter). The Commissioner sought orders against Rogers seeking all four remedies, including an order to pay the maximum AMP of $10 million.

Rogers argues that a $10 million AMP is unconstitutional because penalties of that magnitude are essentially criminal fines, but under section 74.1 of the Competition Act they are awarded after a civil trial. The various aspects of criminal procedure that protect defendants, such as requiring the Crown to prove its case beyond a reasonable doubt, are lacking under section 74.1 proceedings. 

In addition, Rogers is also asking the court to strike down section 74.01(1)(b) of the Competition Act which requires companies to make “adequate and proper” tests of a product’s performance before making advertising claims, arguing that the provision violates its right to freedom of expression under s. 2(b) of the Canadian Charter of Rights and Freedoms.

Interestingly, these same questions were previously addressed by the Competition Tribunal in its 2006 decision in the case of Commissioner of Competition v. Gestion Lebski Inc. et al (CT-2005/007). The Tribunal held that the “adequate and proper test” provision infringed the respondents’ rights to freedom of expression under section 2(b) of the Charterin that it penalized representations that could be true, on the ground that they were not based on a prior adequate and proper test. Turning to the question of whether the infringement was justified in a free and democratic society under section 1 of the Charter, the Tribunal held that no evidence had been led on the basis of which it could find that paragraph 74.01(l)(b) constituted minimal impairment of the right to freedom of expression. The provision therefore failed the Oakes test for justification of Charter infringements in that case and was found to be of no force or effect. 

The AMP (which at the time was limited to a maximum of $200,000), on the other hand, was found by the Tribunal to be of a magnitude that was not penal in nature, and which was consistent with the stated aims of civil penalties to encourage compliance and to deter prohibited conduct. The Tribunal also found that since the proceedings were civil in nature, and the AMP is not a “true penal consequence” (if unpaid, AMPs are collected by civil means as a debt due to the Crown; failure to pay the AMPs is not a criminal offence). The AMPs in question in that case were found to violate neither section 11 nor section 7 of the Charter.

The Tribunal’s constitutional rulings expressly applied to that case alone, however, since under Supreme Court of Canada precedent (Nova Scotia (Workers’ Compensation Board) v. Martin), only the courts can rule definitively on constitutional questions while administrative tribunal rulings on such issues have effect only in the case at hand.

Moreover, the maximum AMP in question in the Rogers case increased in 2009 from $200,000 to $10 million. In addition, the views of the courts on constitutional questions can have precedential value. The courts’ views of Rogers’ constitutional claims stands, accordingly, to have important ramifications for the ability of the Commissioner to seek multi-million dollar AMPs in respect of non-criminal conduct, as well as for the Competition Act requirement that advertisers conduct “adequate and proper” tests prior to making performance claims. Although not at issue in this case, depending on its outcome, the ability of the Commissioner to seek AMPs of up to $10 million for “abuse of dominance” (also a civilly reviewable practice under the Competition Act) may also come into question.

Superior Court issues partial sealing order in Commissioner's case against Chatr Wireless

D. Jeffrey Brown and Robert Mysicka - 

In a recent ruling, Ontario’s Superior Court of Justice explored the principles underlying the law respecting sealing orders and its application to reviewable matters under Part VII.1 of the Competition Act.  On a motion by the Commissioner of Competition, the Court issued a partial confidentiality (or sealing) order with respect to certain information used by the Commissioner in her application against Rogers Communications Inc. and its wholly owned subsidiary, Chatr Wireless Inc., for alleged misleading advertising. Information about “dropped call” rates, which the Court characterized as being at the “very heart” of the Commissioner’s application, was excluded from the sealing order after the Court determined that it was essential for that aspect of the proceedings to remain transparent. 

Investigation into Misleading Advertising

The application to which the confidentiality order relates originated in November, 2010, when the Competition Bureau commenced legal proceedings against Rogers and Chatr. The Bureau’s application came after complaints were made by competing discount wireless carriers, Wind Mobile and Mobilicity, alleging that Rogers’ Chatr discount brand was misleading consumers into believing that its network was more reliable and had fewer “dropped calls” than those of other discount carriers.

In her application to the Court, the Commissioner alleged that Rogers and Chatr had engaged in misleading advertising under sections 74.01(1)(a) and (b) of the Competition Act. The Commissioner is seeking orders under section 74.1(1) of the Act:

  • directing Rogers to immediately cease its advertising campaign and refrain from engaging in similar campaigns;
  • requiring Rogers to pay an administrative monetary penalty (AMP) of $10  million dollars;
  • requiring Rogers to pay restitution to Chatr customers affected by the advertising (more specifically, $20 for each month that a customer was a Chatr customer during the currency of the alleged misleading advertising); and
  • Issuing a corrective notice informing the general public about the nature and provisions of the foregoing orders.

The Commissioner’s application is set to be heard by the Superior Court on November 7, 2011.

The Motion for Confidentiality

As part of its investigation into the allegations against Rogers and Chatr, the Bureau collected information from recent discount wireless carrier entrants Public Mobile, Wind Mobile and Mobilicity. The information that was the subject of the Commissioner’s confidentiality motion was divided into: (i) data on “dropped call” rates; (ii) information on call volumes, geographic locations of calls, subscriber data, financial information (including average revenue per user, or “ARPU”), marketing plans and strategy; and (iii) other information of a competitively or commercially sensitive and/or proprietary nature.

In her submissions to the Court, the Commissioner supplied an affidavit of the Assistant Deputy Commissioner that outlined the importance of maintaining confidentiality in the Bureau’s investigations under the Competition Act. In her affidavit, Ms. Salvatore explained that the Bureau’s ability to access information required in enforcement proceedings, and its duty not to release information that could frustrate the goals of the Competition Act,required it to maintain the confidentiality of confidential business records supplied to it for investigatory purposes. 

In considering the motion, Marrocco J. discussed the Bureau’s 2007 Information Bulletin on the Communication of Confidential Information under the Competition Act. He noted that, although the Bulletin clearly establishes the Bureau’s commitment to protecting confidential information, it also recognizes that, due to the nature of the legislative scheme under which the Bureau operates, there is a risk that certain information may be required to be disclosed in the event that legal proceedings are initiated. Marrocco J. noted that this exception to the general rule against disclosure is expressly provided for in section 29(1) of the Competition Act and that “there is a risk of disclosure every time the Commissioner concludes an investigation and decides to commence proceedings.”

In deciding whether to issue a sealing order, Marrocco J. applied the Supreme Court’s decision in Sierra Club of Canada v. Canada (Minister of Finance), which set out the following two-part test for determining when a confidentiality order should be made:

(a) The order is necessary to prevent a serious risk to the proper administration of justice because reasonably alternative measures will not prevent the risk; and

(b) The salutary effects of the publication ban outweigh the deleterious effects on the rights and interests of the parties and the public, including the effects on the right to free expression, the right of the accused to a fair public trial and the efficacy of the administration of justice.

As applied to the Commissioner’s application, Marrocco J. accepted that the information in respect of which the order was sought was treated by the parties, and by the industry generally, as confidential business information. He also accepted the Commissioner’s submissions that “indiscriminate disclosure” of such information “will discourage telecommunications providers from voluntarily co-operating with the Competition Bureau,” thereby satisfying the first part of the Sierra Club test. Marrocco J. rejected a further argument that disclosure of the information would cause injury to competition, since the information would be historical by the time the Commissioner’s application was heard, however this further finding did not alter his conclusion that the first part of the Sierra Club test was met, i.e., based on the Commissioner’s legitimate need to ensure her ability to protect information.

Applying the second part of the Sierra Club test to the Commissioner’s application:

  • Marrocco J. denied the Commissioner’s request for an order sealing information on “dropped calls,” which information, as noted previously, he observed lies at the “very heart” of the proceeding.   According to Marrocco J., such an order would have a deleterious effect on the public, since customers of Rogers and Chatr Wireless would be unable to determine for themselves whether Rogers had deliberately engaged in the reviewable conduct alleged by the Commissioner.
  • Marrocco J. found that the salutary effects of sealing information on call volumes, geographical locations of calls, subscriber data, financial information (including ARPU) and marketing and strategic plans outweighed the deleterious effects on the rights of Rogers and Chatr to free expression and a fair public trial. 

Accordingly, Marrocco J. allowed the Commissioner’s application to seal the marketing and strategic information of Wind Mobile, Mobilicity and Public Mobile, but he refused the order in respect of “dropped call” rates. Information about “dropped calls”, therefore, will not be sealed and will form part of the public record of the proceeding. With respect to the Commissioner’s request for an order respecting competitively or commercially sensitive confidential information and/or information of a proprietary nature, Marrocco J. refused “to make a sealing order in these general terms,” albeit without prejudice to the Commissioner’s right to “apply to seal a specific item of information not otherwise affected” by his order.

The Superior Court’s decision provides a useful reminder that, notwithstanding the strong protections of confidentiality in section 29 of the Competition Act, provision of information to the Bureau, whether on a compulsory or voluntary basis, is not risk free, particularly if the subject matter of the Bureau’s examination proceeds to litigation.

The Commissioner’s application is scheduled to be heard by the Superior Court on November 7, 2011, and will be carefully watched. It has the potential to provide an important precedent for applications under the reviewable matters provisions in Part VII.1 of the Competition Act, especially given the Commissioner’s decision to seek payment of a $10 million AMP (the maximum available under the Competition Act’s civil misleading advertising provisions) and to seek the first order requiring payment of restitution to affected customers since the Competition Act was amended to allow for such orders in 2009.

Groupon falls afoul of UK advertising regulator

Ashley Weber and Graeme Deuchars  -

On June 8, 2011, the UK Advertising Standards Authority (ASA) found that online coupon provider Groupon, Inc. had misrepresented the ordinary selling price of a third party service that was advertised to Groupon’s online subscribers, and ordered Groupon to remove the advertisement from circulation.  The ASA also ordered Groupon to ensure its compliance with proper advertising policies, so as to prevent similar events in the future.  The decision is one of several regulatory decisions by the ASA in recent months, illustrating that – despite disclaimers to the contrary in the terms of use - “deal-a-day” online websites offering “red flag” or “last minute” for third party products and services may not be immune to scrutiny for representations made in online advertising in the UK, and possibly elsewhere.  Whether such services could rely upon the exception in Canada’s Competition Act for those who “print, publish or otherwise disseminate” an advertisement has not been tested.

The ASA decision came in response to a complaint that Groupon had overstated the savings for a third party salon treatment that was offered to Groupon subscribers at “£24 instead of £90”. The ASA found that Groupon did not have adequate evidence to substantiate the ordinary selling price of £90 in order to make the savings claim (Groupon had relied on an e-mail price list provided by the third party salon which quoted the regular price of the treatment).  The ASA ruled that the advertisement could not appear again in its current form, and informed Groupon that it would need to obtain documentary evidence of its suppliers’ pre-discount prices for future advertising.

In Canada, Advertising Standards Canada (ASC) is a similar independent, self-regulated advertising body to the ASA in the UK, with a mandate to protect the integrity and viability of advertising in Canada by monitoring and enforcing compliance with the Canadian Code of Advertising Standards.  The ASC works along side regulators, such as the Competition Bureau in Canada, to enforce compliance with misleading advertising laws.

Under Canada’s Competition Act and the ASC’s Code, claims and representations made by advertisers must be supportable, and advertisements may not include exaggerated claims as to the worth or value of an advertised product or service, with the result that exaggerated savings claims or “sales” claims can and do attract consequences under Canadian misleading advertising laws.  As in the U.K., evidence in support of these claims would likely be required.  At the same time, there is an exception under section 74.07 of the Competition Act for companies that “print, publish or otherwise disseminate representations to the public in the ordinary course of their businesses”, such as newspapers and other media outlets selling advertising space, which may arguably apply to online coupon websites. 

Whether the U.K.’s decision will raise “red flags” in Canada for “deal-a-day” websites such as Groupon, LivingSocial, Yipit and Dealbot, remains to be seen. 
 

Savings cards enforcement action

On June 29, 2010, the Competition Bureau announced that Zellers Inc. agreed to take steps to address the Bureau's position that a Zellers' savings card promotion violated the Competition Act.  The Bureau stated that Zellers promoted the savings cards, valued at $10, with the purchase of the movie Avatar on DVD or Blu-Ray and that one of the conditions associated with the savings card was a $50 minimum purchase in order to redeem the savings card. The Bureau claimed that this condition was omitted from the advertising for the promotion and only disclosed after consumers made their initial purchase.

The steps to be taken by Zellers to resolve the Bureau's concerns are as follows:

  • Customers who present a $10 savings card, or a sales receipt for the movie Avatar purchased between April 22 and 24, 2010, will receive a $10 credit with no minimum purchase required;
     
  • The redemption period will be extended to August 6, 2010;
     
  •  Zellers will bring these changes to the attention of consumers through in-store signage and a notice posted on their Web site; and
     
  • Two corrective notices will be published in major Canadian newspapers, and Zellers will advertise the details of the redemption in flyers.

Competition Bureau confirms enforcement approach to new Guidelines on "Made in Canada" and "Product of Canada" claims

The Competition Bureau today clarified its enforcement approach with respect to the Bureau's revised Enforcement Guidelines for "Product of Canada" and "Made in Canada" Claims released in December 2009. The Guidelines will be an important resource for businesses who need to understand the Bureau's approach in assessing "Product of Canada" and "Made in Canada" claims for non-food products under the false or misleading representations provisions of the Competition Act, the Consumer Packaging and Labelling Act and the Textile Labelling Act. The Guidelines will take effect on July 1, 2010 and a six-month transitional period will follow. During this period, the Bureau states that it will only consider enforcement action in circumstances of bad faith.  In other cases, the Bureau will limit its response to apparent non-compliance to education and warning letters.

Reitmans agrees to revise Smart Set promotion

Today,the Competition Bureau announced that Reitmans (Canada) Limited, a major Canadian clothing retailer, will modify a promotion, alleged to be misleading, offered by Smart Set, a division of Reitmans. The promotion in question consisted of a "Savings Pass" offered to customers of Smart Set. There were conditions associated with the redemption of the "Savings Pass" that the Bureau viewed as not being disclosed in Smart Set's in-store signage or Smart Set's Web site. The Bureau considered this to be contrary to the false or misleading representations provisions of the Competition Act.

Certification of competition class actions: The tide turns against defendants

Katherine L. Kay and Danielle Royal

Until recently, Canadian courts were generally reluctant to certify class actions alleging violations of competition law, principally on the basis that plaintiffs failed to put forward a workable class-wide method for determining the existence of harm for each class member.

In 2009, however, two significant decisions in Ontario and British Columbia - Irving Paper Ltd. v. Atofina Chemicals Inc.1 in the Ontario Superior Court of Justice and Pro-Sys Consultants Ltd. v. Infineon Technologies AG et al. in the Court of Appeal for British Columbia - signaled a new openness to such claims.

A third example of this trend is the recent 2010 British Columbia Supreme Court ruling in Pro-Sys Consultants v. Microsoft Corporation et al.,in which the plaintiff alleges that Microsoft engaged in anti-competitive behaviour that allowed it to charge higher prices for all of its operating systems and some of its application software. The plaintiff seeks damages for the tort of intentional interference with economic interests and common law conspiracy and also pursues civil remedies for breach of sections 45 (conspiracy) and 52 (misleading advertising) of the Competition Act, as well as relief for unjust enrichment and waiver of tort.

The proposed class in Microsoft consists of British Columbia residents who, on or after January 1, 1994, indirectly acquired a license for Microsoft Operating Systems and/or Microsoft Applications Software for their own use and not for purposes of further selling or leasing, including those who purchased new computers pre-installed with Microsoft's software. The key issue to be determined on the motion was whether the plaintiffs had put forward "a credible or plausible methodology" for establishing an overcharge and pass-through to this indirect purchaser class.

It is clear from Justice Myers' decision in Microsoft that he felt constrained in his approach by the appellate decision of the B.C. Court of Appeal in Infineon. Justice Myers held that Infineon stands for the following propositions with respect to certification:

  • A plaintiff need only show a "credible or plausible methodology" for proving class-wide issues. Because the threshold is low, conflicting expert evidence is not to be given the level of scrutiny to which it would be subject at trial.
  • Until the issue of waiver of tort has been determined substantively, a waiver of tort claim may be certified on the assumption that it will be sufficient at trial to show wrongful conduct by and resulting gain to the defendant without proof of any loss to the plaintiff.
  • In a claim for damages for tortious economic loss, it is not necessary to propose a methodology that can demonstrate harm to all class members. Instead, it is sufficient if harm can be shown to some of the class members. In addition, the aggregate damages section of the B.C. Class Proceedings Act allows for harm to be shown in the aggregate to the class as a whole.

Given these extremely low thresholds, it is not surprising that the chambers judge in Microsoft was satisfied that the proceeding met the test for certification as a class action.

The plaintiff in Microsoft used economic and econometric analyses employed by plaintiffs' experts in similar U.S. actions against Microsoft to persuade the chambers judge that they did indeed have a "credible or plausible methodology" for establishing that the price overcharge was passed on through each level in the distribution channel to the class members. The fact that one of the economic models was based solely on American data did not detract from its status as a "credible or plausible methodology", in the chambers judge's view. Nor was he persuaded by Microsoft's argument that the plaintiffs had failed to satisfy section 4(2) of the B.C. Class Proceedings Act, which provides that the court must consider as a factor whether "a significant number of the members of the class have a valid interest in individually controlling the prosecution of separate actions." Microsoft argued that volume purchasers of its software would have a valid interest in separate actions, pointing specifically to purchasers with at least 250 desktop computers. Having noted that the possibility that certain class members might opt out does not preclude certification, the chambers judge added that the fact that an entity is a volume user does not automatically support the inference that it would have an interest in pursuing a separate action, particularly considering the costs of doing so. Finally, to the extent that volume purchasers are differently situated, the chambers judge felt that difference could be addressed by the formation of sub-classes.

Given the low level of judicial scrutiny applied in Infineon, Irving and now Microsoft, there appears to be a risk that the certification of price-fixing and other competition class actions (including classes comprised solely of indirect purchasers) will become the "new normal" in Canada. The Infineon case is the subject of a pending application for leave to appeal to the Supreme Court of Canada. If leave is granted, the highest court in Canada will weigh in on these challenging issues. For defendants, the hope is that appellate intervention will reverse the recent turning of the tide.


1 [2009] O.J. No. 4021 (S.C.J.) (QL).

Bamboo labelling and advertising

The Competition Bureau announced today that more than 450,000 textile articles have been re-labelled and over 250 Web pages corrected as a result of the Bureau's efforts to ensure that textile articles derived from bamboo are accurately labelled and advertised. The Bureau took this initiative because of concerns over potentially misleading labelling and advertising in the marketplace with respect to textile articles labelled "bamboo".

Federal Court of Appeal clarifies misleading advertising provisions

Jeffrey Brown and Susan M. Hutton


On October 15, 2009, the Federal Court of Appeal allowed the Commissioner of Competition's appeal of a Competition Tribunal decision involving misleading representations by a Vancouver career-consulting business.

The principal issue in the case, The Commissioner of Competition v. Premier Career Management Group Corp. and Minto Roy, 2009 FCA 295, was "whether . representations to certain individuals, though made individually and in private, were nevertheless made 'to the public'" within the meaning of the Competition Act. The Court also addressed the issue of whether or not the representations in question were false and misleading and, if yes, whether they were false and misleading in a material respect.

In its decision, the Tribunal had identified three types of representations made by the respondents to prospective customers: a "screening representation," whereby clients were told during an initial meeting that only qualified applicants would be invited for a second meeting; a "contacts representation," whereby clients were told, for example, "that the respondents had a wide network of personal contacts with leaders and business executives at companies that were hiring" and access to a "hidden job market"; and a "90 Day/Good Job Representation" to the effect that clients "would very likely find good jobs within ninety days, should they engage [the respondents'] services." The Tribunal had found that each of these representations was false and misleading, but that only the "contacts representation" and the "90 Day/Good Job Representation" were false and misleading in a material respect (there being no evidence that the screening representation had "motivated" clients to purchase the respondents' services).

The Tribunal ultimately dismissed the Commissioner's application on the basis that the representations, which were made in the course of private meetings between the respondents and prospective clients, were not made "to the public" within the meaning of the Competition Act. The Federal Court of Appeal disagreed. Noting that the respondents had admitted in oral argument that the representations would have been made "to the public" had they been made to a group of prospective clients together, Sexton J.A., speaking for the Court, said he "[could not] accept that because the representations were made to individuals of the public in a private place, this means that they were not made to the public." While the Tribunal had stressed that "personal matters" were discussed during some of the meetings, Sexton J.A. noted that such matters would have been raised by clients, not the respondents, and that "[a]t issue in this case are representations made by the respondents to the customers" (emphasis in original). In determining whether a representation was made to the public, the important question, according to the Court, is "to whom were the representations made, and under what circumstances?" In this case, the Court answered that question as follows: "the representations were made to a significant section of the public who had been invited by advertising to attend at the offices of the respondent."

One of the interesting features of the Competition Act's misleading-advertising provisions is the fact of their presence in Canada's competition legislation, the purpose of which, as set out in section 1.1 of the Competition Act, the Court described as "not to foster competition for its own sake, but rather to promote derivative economic objectives, such as efficiency, global participation, high quality products, and competitive prices." While, unlike other provisions of the Competition Act, harm to competition is not listed as an element of the misleading-advertising provisions, the Court noted that "it is a truism that the Act always seeks to prevent harm to competition" and, that being the case, it is "presumed that whenever the elements of paragraph 74.01(1)(a) are made out, there is per se harm to competition." The Court therefore accepted the Commissioner's submission that, "when a firm feeds misinformation to potential consumers, the proper functioning of the market is necessarily harmed, and the Act is rightly engaged, given its stated goals." Thus, while focused on the consumer, the real purpose of the Competition Act's misleading advertising provisions is not to protect consumers, but rather to contribute to the "ultimate objective" of "maintaining the proper functioning of the market in order to preserve product choice and quality."

For these and other reasons, the Court allowed the Commissioner's appeal, and remitted the matter back to the Tribunal for an appropriate order to be made under section 74.1 in accordance with Court's findings.

New legislation to improve protection and efficiency in electronic commerce

Ashley M. Weber

On December 1, 2009, Bill C-27, also known as the Electronic Commerce Protection Act, passed through first reading in the Senate. Its objective is to regulate certain activities that discourage reliance on electronic means of carrying out commercial activities, such as spam, spyware and internet fraud, in order to promote efficiency and adaptability in the Canadian economy. More specifically, it will prohibit the sending of commercial electronic messages without the prior consent of the recipient, as well as provide rules governing the sending of those types of messages and a mechanism for withdrawing consent. It will also prohibit practices relating to the alteration of data transmission and the unauthorized installation of computer programs. When implemented, Bill C-27 will amend the Canadian Radio-television and Telecommunications Commission Act, the Competition Act, the Personal Information Protection and Electronic Documents Act and the Telecommunications Act.

The Electronic Commerce Protection Act defines both express and implied consent for receipt of electronic messages. Where express consent is required, commercial communications may not take place unless the person or corporation in question "opt-in" to being contacted. Conversely, implied consent is acceptable under circumstances where it can be deemed that that the person or corporation might be interested; however, the recipient must be given the ability to "opt-out" of the communications. Under the new legislation, implied consent will be assumed in cases where there is an existing business or non-business relationship that meets specified criteria. In the absence of such an existing relationship, the sender must obtain express consent to send unsolicited commercial electronic messages.

Amendments to the Competition Act include the addition of new criminal and reviewable conduction provisions under sections 52 and 74, which broaden the scope of misleading representations and telemarketing to better address online activity. Through these changes, it will become an offence to promote, directly or indirectly, any business interest or the supply or use of a product, whether knowingly or recklessly, that includes a false or misleading representation in the sender or subject matter information, the electronic message or the locator. Noteworthy is the distinction made for the electronic message itself, which states that only "material" false or misleading representations will be caught by the criminal and reviewable provisions of the Competition Act. There is no similar materiality threshold for the sender or subject matter information, or the locator. As with the other provisions in the Competition Act on misleading advertising, proof that a person was misled by the representations is not required to constitute an offence. The proposed legislation also introduces a mechanism for the Commissioner to conduct investigations and share information with foreign states in order to assist in their investigations of misleading advertising.

The proposed amendments will also change the standard of review for the issuance of temporary orders under section 74 of the Competition Act. The current standard to be met is a strong prima facie case that a person is engaging in reviewable conduct. Under these amendments, the standard of review will be reduced to the mere appearance to the court of reviewable conduct.

With regard to penalties, under the Electronic Commerce Protection Act, a new private right of action will be created with a three-year limitation period, granting affected individuals the right to apply to the court for an order of compensation in an amount equal to the actual loss or damages suffered. Under section 74 of the Competition Act, the amendments grant a court the ability to issue: (a) a compensatory order and (b) a fine (or administrative monetary penalty) of as much as $200 per contravention up to a maximum $1,000,000 per day, even if the application by the private person did not allege a violation under the new provision.

The Government believes that the new legislation and related amendments will boost Canadians' confidence in online commerce by cracking down on internet fraud, spam, spyware and other related threats.

Competition Bureau Reaches Agreements with Hot Tub Retailers on ENERGY STAR Claims


The Competition Bureau announced today that it has entered into consent agreements with two Canadian hot tub retailers, Polar Spas (Edmonton) Ltd. and Sleepwise Inc., regarding claims that certain hot tub products were associated with the ENERGY STAR Program.

Bureau Guidelines focus on consumer rebate promotions

Kim D.G. Alexander-Cook


On September 21, 2009, the Competition Bureau released its Enforcement Guidelines on Consumer Rebate Promotions. These Guidelines set out the Bureau's (non-binding) interpretation of both the criminal and the civil provisions relating to false or misleading representations under the Competition Act, the Consumer Packaging and Labelling Act, and the Textile Labelling Act as applied to consumer rebate promotions, and include examples of recommended best practices.
 

The Guidelines define consumer rebate promotions to include any type of promotion that involves a partial refund or discount from a manufacturer or retailer to consumers upon purchase, and make a distinction between "instant" rebates and "mail-in" rebates, the latter of which include any rebate obtained other than immediately at the time of purchase. The Bureau does not consider gift cards and other forms of credit on future purchases to be "rebates" for the purposes of the Guidelines, apparently taking the view that most consumers are likely to associate the term "rebate" specifically with the return of a portion of the price paid for the article or service in question.

The Guidelines review the issue of who bears responsibility for making false or misleading representations in connection with consumer rebates. As a general principle, liability for a representation attaches only to the person(s) who cause the representation to be made. The Guidelines make it clear that, pursuant to statute, the Bureau will generally view both the manufacturer and the retailer to be liable for misleading consumer rebate representations on or accompanying a product, unless the manufacturer is outside Canada, in which case the Bureau will view the importer and the retailer to be liable.

The heart of the Guidelines describes, with examples, the following five consumer rebate promotion practices that, in the Bureau's view, could comprise false or misleading representations, and in each case advises how to avoid problematic representations:

  • Inadequate Disclosure of Rebate Conditions, Limitations and Exclusions - avoided by clear and conspicuous disclosure of all information that may be material to a consumer's purchase decision (a list is provided);
     
  • Rebates Disguised as the Sale Price or Regular Price - avoided by refraining from the use of "sale" in reference to a consumer rebate;
     
  • Mail-in Rebates Disguised as Instant Rebates - avoided by prominent disclosure of the type of rebate offered;
     
  • Discounts on Future Purchases Disguised as Rebates - avoided by excluding any gift card or other future-purchase discount from representations as to the "price" of a product or as a "rebate";
     
  • Mail-in Rebates that are not Fulfilled - avoided by taking measures to ensure fulfillment houses and other service providers are performing in accordance with the rebate terms and conditions. The Guidelines go on to provide hypothetical examples of best practices with respect to instant and mail-in rebate offers.

The Guidelines reaffirm the Bureau's view that a case-by-case application of the false and misleading representations prohibitions under the legislation it administers is most appropriate for a wide variety of marketing practices, including consumer rebate promotions. However, the Guidelines also signal that the Bureau will firmly apply certain rules, at least presumptively, as it enforces these prohibitions. In particular, the Bureau clearly opposes the framing of any "in kind" payments to consumers (e.g., gift cards) as "rebates," and the characterization of a "rebate" as a type of "sale." In view of this, marketers will do well to ensure that any use of "rebate" or "sale" is accompanied "clear and conspicuous disclosure" to consumers of just what is meant by these terms as used in the representations in question.

Primer on amendments to Canada's Competition Act and Investment Canada Act

Susan M. Hutton and Kevin Rushton

On March 12, 2009, the Canadian government enacted the most significant amendments in over 20 years to Canada's competition and foreign investment regimes, as part of Bill C-10, the Budget Implementation Act, 2009. The amendments to the Competition Act result in fundamental changes to the way that business operates in Canada, and provide the Competition Bureau with unprecedented enforcement tools and/or penalties in all areas. Fewer foreign investments in Canada will meet the increased thresholds for Ministerial review and approval under the changed Investment Canada Act, but all such investments will face potential scrutiny under a new "national security" test. The most significant amendments to both these laws are discussed below.

Competition Act Amendments
Two-tracks for dealing with agreements between competitors

The amendment of section 45 of the Act creates a "per se" criminal conspiracy offence with respect to agreements or arrangements ("agreements") between competitors (which includes potential competitors) to:  fix prices; allocate sales, customers or markets; or fix or control production or supply of a product.A new counterpart civil provision permits the Commissioner to deal with anti-competitive agreements that are not "hard core" (see below). A defence to criminal prosecution exists if the accused can establish on a balance of probabilities that the alleged conspiracy is "ancillary" to a broader or separate agreement between the same parties that does not itself contravene the provision and is "directly related to, and reasonably necessary" for giving effect to the objective of the broader agreement ("ancillary restraint defence"). The amendments expressly preserve the application of the common law "regulated conduct" doctrine (which exempts actions which are authorized or required pursuant to legislation).Agreements relating solely to exports are still exempt. Penalties under the new offence have more than doubled from the former maximum 5 years imprisonment and/or C$10 million fine, to a maximum of 14 years and/or C$25 million - still far lower in terms of potential fines than in the U.S. or the EU. The new conspiracy offence has a delayed effective date of one year after March 12, 2009, during which time businesses can seek an advisory opinion on the legality of existing or proposed agreements (but may not be granted immunity against violations of the existing law unless they otherwise qualify under the immunity program).

  • In contrast to the old conspiracy provision, which required the prosecution to establish an "undue" prevention or lessening of competition, the amended offence, albeit narrower in terms of the type of conduct it encompasses, does not on its face require market power or any impact on competition for conviction.  Rather, it requires only that the parties to the impugned agreement be competitors or potential competitors, which will necessarily raise issues around the definition of the "market" for the product. In consultations on language similar to that in the Bill C-10, many parties criticized the ancillary restraint defence as being too narrow and potentially subjecting many widely-accepted agreements (e.g., franchise or exclusive distribution arrangements) to criminal prosecution.  We will have to see whether the "rule of reason" analysis followed by US courts will become relevant in Canada, as our courts struggle to interpret the new defence.

The "second track" of the new approach to cartels creates a new civilly reviewable matter in respect of existing or proposed agreements between persons, two or more of whom are "competitors", which prevent or lessen competition substantially.  The factors to be considered in undertaking this assessment are effectively the same as the existing merger review provisions. On application by the Commissioner of Competition, the Competition Tribunal may prohibit any person, whether or not a party to the agreement, from doing anything under the agreement or, subject to a person's consent, may order the person to take any other action.  In terms identical to the existing merger review provisions, an efficiencies defence applies if the agreement brings about "gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition" and the efficiency gains would not be attained if a prohibition order were issued.  Like the amendments to section 45, the new "civil conspiracy" provision has a delayed effective date of one year after March 12, 2009.

  • In contrast to the per se criminal conspiracy offence, the new civil conspiracy provision applies to agreements between competitors to do anything (not simply to fix prices, for example) but only if the agreement substantially lessens or prevents competition.  While the civil conspiracy provision only applies to agreements between "competitors", the provision, in contrast to the proposed criminal conspiracy offence, omits the requirement that the parties be competitors in respect of the product that is the subject of the agreement. Moreover, empowering the Competition Tribunal to make a prohibition order against a person who is not a party to the agreement potentially raises issues of procedural fairness.
De-criminalized pricing practices

De-criminalization of price discrimination, predatory pricing and disproportionate promotional allowances.

  • These "unfair" pricing practices were previously liable to criminal prosecution and punishable by imprisonment for up to 2 years. Stakeholders on all sides have long recognized the criminal sanctions to be inconsistent with modern economics.  With the repeal of section 50 of the Competition Act, low prices that undercut the competition or the provision of different prices to different customers can only be sanctioned civilly as part of a "practice of anti-competitive acts" under the abuse of dominance provisions - and only if they substantially lessen or prevent competition.  The liberalization of Canada's pricing laws will bring welcome relief to many Canadian businesses and will enhance competition to the extent the old law was chilling pro-competitive price competition.
Price Maintenance - Replacement of criminal provision with civil provision

The previous criminal prohibitions against attempting to induce another person to raise or refrain from lowering their prices, and against discriminating against a customer because of its low pricing policy, have been replaced by a new civil provision.  On application by the Commissioner of Competition or by a private party to whom leave has been granted, the Competition Tribunal may prohibit the conduct or require a person to accept another person as a customer if the conduct has had, is having or is likely to have an "adverse effect on competition in a market."

  • While the amendment effectively limits the provision to resale situations (the previous provision did not), the choice of "adverse effect on competition" as the relevant competitive effects test, which is currently used under the civil "refusal to deal" provision, suggests that a lower impact on competition may be required than is the case in respect of other civil matters (such as abuse of dominance and mergers) where a "substantial" prevention or lessening of competition must be shown.  At the same time, the threshold for a private party to obtain leave to bring an application in respect of price maintenance is lower than in refusal to deal cases, since the amendments require only that the applicant be "directly affected" by the conduct, not that the applicant also be "directly and substantially affected", as in respect of refusal to deal and exclusive dealing cases. That said, civil review is thought by many to be more appropriate than the old criminal prohibition, which subjected Canadian businesses to greater restrictions than were imposed on their US counterparts.
Deceptive marketing practices/obstruction of justice

Increased penalties for the criminal offences of:  misleading advertising, deceptive telemarketing, and deceptive notice of winning a prize (in each case, to a maximum 14 years imprisonment and/or a fine in the discretion of the court); obstruction (to a maximum 10 years imprisonment and/or a fine in the discretion of the court, if convicted on indictment, or if on summary conviction, a maximum of 2 years imprisonment and/or a maximum C$100,000 fine); and failure to comply with search warrants and court orders to provide information (to a maximum 2 years imprisonment and/or a fine in the discretion of the court, if convicted on indictment, or if on summary conviction, a maximum of 2 years imprisonment and/or a C$100,000 fine).

Increased penalties for (non-criminal) misleading advertising

Introduction of a restitution remedy in respect of the civilly reviewable practice of making materially false or misleading representations to the public for the purpose of promoting a business interest.  Subject to a due diligence defence, restitution, in any manner ordered by a court or the Competition Tribunal, will be capped at the total amount paid for affected products and be payable to persons who purchased the products, "except wholesalers, retailers or other distributors, to the extent that they have resold or distributed the products".  A court or the Competition Tribunal may issue an interim injunction prohibiting disposing or dealing with assets so as to frustrate a restitution remedy.

  • As worded, the new restitution remedy has the potential to raise complicated issues regarding, among other things, passing-on (or indirect effects) with respect to the apportionment of overcharges at various levels of the distribution chain.  It does not apply to criminal deceptive marketing practices.

Increased administrative monetary penalties for all civilly-reviewable deceptive marketing practices (including inaccurate "ordinary price" claims).  In the case of individuals, the maximum penalty increased to C$750,000 for a first infraction and C$1 million for each subsequent infraction, with corresponding increases for corporations to C$10 million and C$15 million, respectively.

  • Previously, penalties for individuals were capped at C$50,000 for a first infraction and C$100,000 for each subsequent infraction, while penalties for corporations were limited to C$100,000 and C$200,000 for first and subsequent infractions, respectively.
Fines for abuse of dominance/repeal of "airline" provisions

Introduction of "administrative monetary penalties" for abuse of dominance (so-called to negate the constitutional argument that their imposition by the Competition Tribunal pursuant to its civil procedures would amount to the imposition of criminal sanction without due process).  Where ordered by the Competition Tribunal, the maximum fine is C$10 million for a first infraction and C$15 million for each subsequent infraction.

  • Administrative monetary penalties were previously only available under the abuse of dominance provision against domestic airlines, which have now been repealed. Both their utility and their legality have been questioned by some commentators.
Merger review procedures

Increase in the "size-of-transaction" threshold for transactions requiring pre-merger notification.  For the remainder of 2009, the target, together with its affiliates, must either have assets in Canada that exceed C$70 million or annual gross revenues from sales in or from Canada generated from those assets that exceed C$70 million.  In the case of corporate amalgamations, the revised C$70 million threshold must be exceeded by each of at least two of the amalgamating corporations, together with its affiliates.  The C$70 million threshold will be indexed annually to GDP, unless and until a different amount is prescribed by regulation.

  • The size-of-transaction threshold previously was C$50 million in assets in Canada or annual gross revenues from sales in or from Canada generated from those assets.  It was not indexed, nor in the case of corporate amalgamations did it need to be met be each of two parties to the transaction.
     

Introduction of a U.S.-style two-stage merger review process for transactions subject to pre-merger notification.  An initial 30-day waiting period applies following the submission of certain prescribed information and could be reset for an additional 30 days following compliance with a second request by the Commissioner of Competition for additional information.

  • Previously, parties to a notifiable transaction had the option of submitting either a "short-form" notification, which carried with it a 14-day waiting period, or a "long-form" notification, which carried with it a 42-day waiting period (if a short-form notification was filed, the Commissioner could request a long-form notification during the 14-day waiting period, in which case the 42-day waiting period began only once the long-form notification was filed).  In either case, the waiting period was finite, and could not be extended.  The Commissioner's powers to obtain information beyond that contained in a notification were limited to voluntary information requests and court orders.
     
  • The new procedure increases the waiting period for all transactions (more than 90% of which are reviewed by the Bureau within 14 days of receipt of a request for an Advance Ruling Certificate (ARC) or similar competitive analysis), to a minimum of 30 days unless terminated earlier by the issuance of an ARC or a no-action letter.
     
  • For complicated transactions, however, the new provisions will effectively mean there is no determinable end to the waiting period, as it will depend on how long it takes for the parties to comply with the "second request" for additional information that is relevant to the Commissioner's assessment of the proposed transaction.  As with the U.S. system, this may provide an incentive for the Commissioner to request as much information as possible within the 30-day initial waiting period, when detailed analysis has typically yet to begin in very complex transactions.  It remains to be seen whether this will result in an "everything and the kitchen sink" approach by the Bureau to second requests. 
     
  • In the face of the Federal Court's criticism of the Commissioner for issuing overly broad requests for information in the Labatt/Lakeport case last year, however, it seems that the Government is responding, some would say perversely, by removing the express provision for judicial oversight of the process.

Introduction of injunctive relief to enforce compliance with waiting periods.  If a person has completed or is likely to complete a proposed transaction before expiry of the applicable waiting period, a court or the Competition Tribunal, on application by the Commissioner of Competition, can issue an interim injunction prohibiting implementation of the transaction or requiring its dissolution and, in the case of a completed transaction, can impose administrative monetary penalties of up to C$10,000 for each day of non-compliance with the waiting period.

  • Failure to comply with the statutory waiting period was previously a criminal offence punishable by a maximum fine of C$50,000.

Decrease to one year the period of time within which the Commissioner of Competition may challenge a merger following its substantial completion.

Investment Canada Act amendments

Bill C-10 also made significant amendments to the review of foreign investments under Canada's Investment Canada Act:

  • Increase in the minimum threshold for Ministerial review and approval of direct acquisitions of control of Canadian businesses by WTO-member based investors.  The threshold will be C$600 million in the  "enterprise value" of the assets of the Canadian business for investments made within two years after the federal Cabinet proclaims the thresholds in force, C$800 million for the subsequent two years, C$1 billion for the subsequent year and the portion of the year thereafter that ends on December 31, and thereafter indexed to GDP.  Please note:  these new thresholds have not yet been proclaimed in force.

    • The threshold for review of direct acquisitions by WTO investors in 2009 is currently C$312 million and this amount is indexed annually to GDP.  It will increase to C$600 on an as-yet-unknown date when the new thresholds are proclaimed in force.
    • Indirect investments by WTO investors will remain exempt from review, unless they fall within certain "sensitive" sectors, the scope of which is to be narrowed to only "cultural businesses", see below.
       

    Elimination of the lower C$5 million review threshold for direct acquisitions (and the C$50 million threshold for review of indirect acquisitions of control) of Canadian businesses engaged in the "sensitive sector" activities of financial services, transportation services and uranium production, leaving only "cultural businesses" subject to this threshold and to review and approval by the Minister of Canadian Heritage.

    Retroactive creation of a "national security" test for every investment in or establishment of a business with assets, employees, agets o offices in Canada, regardless of the value of the business or its assets, which the Minister of Industry has "reasonable grounds" to believe "could be injurious to national security".  Ultimately, if the Minister of Industry, after consultation with the Minister of Public Safety and Emergency Preparedness and representations from the investor, is satisfied that the investment would be "injurious to national security", the federal Cabinet may "take any measures" it "considers advisable to protect national security", including ordering the investment not to be implemented or to be implemented subject to conditions or written undertakings, and if the investment has been implemented, requiring divestiture of the Canadian business.
     

    • "National security" is not defined in Bill C-10, nor do the amendments specify factors that are to be considered in determining whether an investment is "injurious" to national security.  Time periods for the national security review provisions would be prescribed by regulation.
       
    • The national security test is applicable to all transactions that have closed since February 6, 2009 (the day the Bill was announced).
       

 

Bill C-10 Competition Act and Investment Canada Act amendments enacted

Jeffrey Brown and Kevin Rushton

On March 12, 2009, the most significant amendments to Canada's competition and foreign investment regimes in more than 20 years were enacted when Bill C-10, the Budget Implementation Act, 2009, received Royal Assent. The amendments were described in detail in the February 20, 2009 edition of The Competitor.
 

With the exception of the new hybrid/"dual-track" conspiracy provisions, all of the Competition Act amendments enter into force immediately. These include

  • a new U.S.-style "two-stage" merger regime;
     
  • an increase in the "size-of-transaction" threshold for pre-merger notification;
     
  • de-criminalization of predatory pricing, price discrimination and promotional allowances;
     
  • conversion of resale price maintenance from a per se criminal offence to a civilly reviewable practice;
     
  • substantial increases in the penalties for deceptive marketing practices and misleading advertising; and
     
  • introduction of substantial administrative monetary penalties for abuse of dominance.

A delayed one-year implementation date applies to the new "dual-track" conspiracy provisions, which create a per se criminal offence for agreements between competitors to fix prices, allocate sales, customers or markets, or fix or control production or supply of a product, and subject other types of agreements between competitors to civil review if they prevent or lessen competition substantially.

All of the Investment Canada Act amendments are also now in force (indeed, most changes are retroactive to February 6, 2009), with the exception of increased thresholds for review of direct investments by WTO investors, which will come into force on a day fixed by order of the Governor in Council (the federal Cabinet). Provision is also made for Cabinet to prescribe regulations in respect of certain of the amendments. The Competition Bureau and the Investment Review Division of Industry Canada have yet to issue guidelines specifying how the new provisions will be enforced.

Massive amendments to Competition Act and Investment Canada Act tabled today

Susan M. Hutton

The Canadian Competition Bureau will be pleased today, as significant and far-reaching amendments to the Competition Act and the Investment Canada Act were included in the Budget Implementation, 2009 bill (C-10), which was tabled today in the House of Commons by the Canadian government (see Parts XII and XIII).

The proposed amendments to the Competition Act include provisions to strengthen the hand of enforcers in just about every area of the law:

  • the creation of a "per se" criminal conspiracy offence (Canada's conspiracy provision, unchanged since the 1890s, had required the Crown to show an "undue lessening or prevention of competition" and no such competitive impact need now be shown for certain kinds of agreements such as cartels to fix prices, allocate markets, etc.),
  • an increase of the penalties for criminal conspiracies to up to 14 years in jail and/or $25 million in fines,
  • removal of the criminal predatory pricing, price discrimination, promotional allowance and price maintenance provisions (the latter replaced by a provision allowing for civil review of price maintenance),
  • significant increases to penalties for misleading advertising,
  • extending bid-rigging to include not only undisclosed submission of bids arrived at by agreement or arrangement but to withdrawal of bids as well,
  • introduction of administrative monetary penalties (fines) for abuse of dominance of up to $10 million for a first offence and $15 million for subsequent offences,
  • deletion of the "abuse of dominance" provisions that had been applicable only to domestic airlines,
  • creation of a new provision for civil review of anti-competitive agreements between competitors that are not "per se" criminal but are nonetheless anti-competitive,
  • raising the "size of the target" threshold for advance merger notification to more than $70 million (Cdn) in assets in Canada or gross revenues from sales in or from Canada (to be indexed for inflation, unless otherwise specified), and
  • the introduction of a US-style two-stage merger review process, complete with a 30-day initial waiting period and a provision that "stops the clock" on the expiry of that waiting period until 30 days after the parties have complied with a second request for information (which can now be issued without judicial oversight).  Fines for non-compliance with the waiting periods have also been significantly enhanced.


The Investment Canada Act is also to be significantly amended, with the threshold for review of direct acquisitions of control by WTO-member based investors increasing to C$600 million, based on the "enterprise value" of the Canadian business (as opposed to the current threshold based on book value), for the next two years after the bill enters into force, to C$800 million for the two years following, and to C$1 billion for another two years, to be indexed according to inflation thereafter.  More importantly, a new "national security test" has been created, allowing the federal Cabinet to block investments on the basis that they threaten national security (with no minimum threshold for the size of investments potentially subject to such review), and the so-called "sensitive sectors" subject to lower review thresholds have been eliminated (other than "cultural businesses").

These proposed reforms represent the most significant overhaul of Canadian competition laws since the introduction of the modern statute in 1986.  They provide the Commissioner of Competition with unprecedented new enforcement tools in all areas of antitrust law, from the prosecution of cartels, to penalizing firms that abuse dominant positions or engage in misleading advertising, to impeding those wishing to close mergers that raise antitrust issues.  With these amendments, the Government has signaled a desire to get very serious about competition law enforcement in Canada.  In light of its new powers, the Bureau will be under pressure to demonstrate stepped-up enforcement of the cartel and abuse of dominance provisions, and businesses should expect to see lengthier and more burdensome merger reviews for difficult cases.

With the creation of a CFIUS-style national security test for investments within the Investment Canada Act, the government's ability to block foreign investments on national security grounds is clarified and strengthened, even as the number of transactions subject to review for ensuring they will be of "net benefit" to Canada has decreased.

While the Bill has just been introduced to the House of Commons, and must still pass through several stages before it becomes law, by including these amendments within the budget implementation bill, the Government has potentially forestalled serious debate.  Of course, anything is possible in a minority Parliament, as the events of the past few months have shown, and time will tell whether all of these amendments will be enacted.  As unprecedented as the scope of the amendments, however, has been the Government's failure to publicly consult with stakeholders with respect to some of the proposed changes. 

Throne speech promises big changes to Canada's competition and foreign investment regimes

Susan M. Hutton

Canada's 40th Parliament opened on Wednesday, November 19, 2008 with the traditional Speech from the Throne, outlining the government's legislative priorities. In keeping with the turbulent economic times and with calls for greater supervision of business, the throne speech promised to "proceed with legislation to modernize our competition and investment laws, implementing many of the recommendations of the Competition Policy Review Panel."

Given the apparent trend toward the significant strengthening of competition law enforcement in Canada, as well as the loosening of the foreign investment review regime (while at the same time, in all likelihood, empowering the government to reject foreign investments on "national security" grounds), the business and legal communities in Canada and abroad will be keenly interested in future legislative announcements.

Competition Act Reforms:

The throne speech was short on specifics, but as previously reported in this newsletter, the Competition Policy Review Panel's report, Compete to Win, recommended several important amendments to the Competition Act, including:

Criminal Matters
  • Replacing the conspiracy (cartel) provisions with a per se criminal offence for so-called "hard core" cartels such as price-fixing and market-sharing agreements, with no need to show anti-competitive effects (and subjecting them to increased maximum fines); as well as introducing a second, civil track for review by the Competition Tribunal of other anti-competitive agreements between competitors;
  • Repealing the criminal price discrimination, promotional allowance and predatory pricing provisions (leaving such practices to be dealt with, as potential aspects of a civil "abuse of dominance" case); and
  • De-criminalizing resale price maintenance (currently a per se criminal offence in Canada), and permitting private parties as well as the Commissioner of Competition to bring actions before the Competition Tribunal in respect of price maintenance with substantial anti-competitive effects.
Civil Matters
  • Empowering the Competition Tribunal to impose administrative monetary penalties (i.e., fines) of up to $5 million for abuses of a dominant position (currently, a civilly reviewable practice that is not liable to fines, damages or enforcement proceedings other than by the Commissioner of Competition).
Mergers
  • Harmonizing Canada's merger review procedures with those of the United States under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (HSR), with an initial review period of 30 days (most non-controversial mergers are currently cleared by the Competition Bureau in 14 days or less) and the discretion, on the part of the Commissioner of Competition, to initiate an indeterminate "second stage" review period that would end 30 days after the merging parties comply with a "second request" for documents and information (merging parties are currently free to close even problematic transactions as early as 42 days after filing long-form notification materials); and
  • Increasing the financial thresholds for merger notification.

Legislation to create a per se offence for hard core cartels (without requiring the Crown to prove an anti-competitive effect) has been widely expected, but remains controversial. Similarly, giving the Tribunal the power to issue fines for abuse of dominance has been opposed by some, but was the subject of several bills in the past few years, and has been popular among all major political parties. Combined with the proposed indeterminate second-stage review procedure for difficult mergers, and the removal of the Federal Court from its role as the gatekeeper of Competition Bureau information demands in the merger review process, the Panel's intention to strengthen the Competition Bureau's hand in all aspects of competition law enforcement was evident.

The precise timing and scope of amendments is unclear, but draft legislation seems imminent, and opposition parties are likely to seek only to further strengthen government legislation.  Of note, the Conservative party platform mentioned reforms to the cartel provisions as well as fines for abuse of dominance, but made no mention of the Panel's proposal to adopt US-style merger review procedures.

Investment Canada Act Reforms:

The Competition Policy Review Panel report also recommended several important changes to Canada's foreign investment review regime, some of which were also mentioned in the Conservative party election platform:

  • Increasing the minimum threshold for Ministerial review and approval of foreign acquisitions of control of Canadian businesses (to C$1 billion based on the as-yet-undefined "enterprise value" of the business, from the current C$295 million test based on book value of assets);
  • Shifting the onus to the Minister to find that the proposed investment would be "contrary to Canada's national interest" (the current onus is on the purchaser to satisfy the Minister that the acquisition will be of "net benefit" to Canada);
  • Eliminating the lower review thresholds for the "sensitive" sectors of financial services, transportation services and uranium mining (currently, virtually all such businesses will meet the C$5 million asset threshold for direct acquisitions), leaving only "cultural businesses" subject to such low thresholds and to special review by Heritage Canada; and
  • Eliminating the requirement to notify the government of non-reviewable foreign acquisitions of Canadian businesses.

Of note, the federal government already issued guidelines (in December, 2007) regarding the review of investments by foreign state-owned enterprises (SOEs), but has yet to implement a national security test for foreign review (Canada's answer to the review implemented in the United States under the aegis of the Committee on Foreign Investment in the United States, or CFIUS, post-9/11). But the throne speech did mention the need to "safeguard. national security" in the same breath as the need to "expand the opportunities for Canadian firms to benefit from foreign investment", and a national security test is widely anticipated in any upcoming legislation.

Other nuggets from the throne speech:

The throne speech also hinted at other noteworthy changes to several of Canada's regulatory regimes. Highlights include:

  • "Ensuring freedom of choice for grain marketing in Western Canada" (this could mean significant changes for the Canadian Wheat Board);
  • Modernizing Canada's copyright laws and ensuring stronger protection for intellectual property (somewhat controversial amendments to the Copyright Act, including measures to protect digital rights management, were before Parliament when the election was called);
  • "The reduction of regulatory and other barriers" to extending Canada's natural gas pipeline network in the North, and support for new nuclear power initiatives;
  • Working with the provinces to remove barriers to internal trade, investment and labour mobility by 2010 (Canadian provinces often have higher trade barriers between each other than Canada has with other countries);
  • Working to develop a North American cap and trade system for greenhouse gas emissions.

To quote Bob Dylan (1963): "The Times They Are a-Changin".

Appeal underway in travel industry misleading advertising case

Kim D.G. Alexander-Cook

The parties in Maritime Travel Inc. v. Go Travel Direct.com Inc.,1 a misleading advertising private action decided earlier this year, have recently filed their initial appeal and cross-appeal submissions.2

At trial, Maritime Travel, an established Canadian east-coast travel agency, alleged that upstart tour operator Go Travel Direct.com Inc. ran materially misleading newspaper advertisements. Maritime Travel claimed damages based on section 36 of the Competition Act, which provides a civil remedy for damages suffered as a result of a breach of a criminal provision of the Act. In this case, Maritime Travel alleged that Go Travel had knowingly or recklessly made representations to the public that were false or misleading in a material respect, contrary to section 52 of the Act. Developments in the law around sections 36 and 52 of the Act are important, because these sections provide the only basis for private damages for misleading advertising under the Act.

Go Travel was found liable at trial for one price comparison ad. Go Travel had lowered its price on a travel package for up to a four-day period and had advertised on one of those days both a price comparison with the Maritime Travel posted price on the same package, and a claim that ". Go Travel offers vacations for less by eliminating the travel agent middleman .".  There was no question that the posted price of Maritime Travel had been higher than the advertised price of Go Travel during the period, and Go Travel had made it clear that the price comparison was made only for a particular date (albeit in small print). But the evidence also showed that, at some point prior to advertising, Go Travel had become aware that Maritime Travel agents had the discretion to match Go Travel's prices.

The trial judge was not prepared to conclude that the ad was false, because the single-day price comparison was not incorrect as regards posted prices and because it was not clear that Maritime Travel always matched Go Travel prices. However, in the judge's view, the ad was misleading because it left the reader with the "overall impression" that Maritime Travel was always more expensive that Go Travel Direct, because commissions increased the Maritime Travel package price. The judge also concluded that Go Travel had "knowingly" created the misleading impression, due to its prior knowledge of discretionary price matching by its competitor.

In its appeal, Go Travel argues that the trial judge erred in finding that the overall impression was misleading when the specific price comparison was technically correct.  It further argues that even if its ad was misleading, Go Travel did not make the misrepresentation "knowingly or recklessly," and also that Maritime Travel did not prove any damages.

Of particular importance for Canadian jurisprudence will be the appeal court's determination as to whether Go Travel knowingly created a false overall impression, apparently without direct evidence of actual intent in this regard.

The question of just what the plaintiff must show in terms of damages is also a significant question in this case. In connection with an ad that ran for a single day, the trial judge was willing to award estimated lost profits for a period of weeks, based on an estimate of lost sales which was itself based on a year-over-year comparison of broad market data.

If the trial judge's decision is upheld on appeal, it could establish a relatively low threshold for plaintiffs to obtain significant damages in respect of misleading advertising under the Competition Act.


12008 NSSC 163

2Nova Scotia Court of Appeal, 2008, C.A. No. 297729.

3The Competition Act also contains civil prohibitions against misleading advertising, but private parties can only sue for damages incurred as a result of allegedly criminal violations of the Act.  Unless the misrepresentations are made knowingly or recklessly, therefore, private parties harmed by a competitor's misleading advertising have no access to damages.

New Canadian standards for industry and advertisers: Bureau releases Environmental Claims Guide

Kim D.G. Alexander-Cook

On June 25, 2008 Canada's Competition Bureau (Bureau) released Environmental Claims: A guide for industry and advertisers (Environmental Claims Guide or Guide), its new environmental claims guidance document produced in partnership with the Canadian Standards Association (CSA).

The Environmental Claims Guide is meant to provide industry and advertisers with best-practices guidance for compliance with the prohibitions against false or misleading advertising in Canada's Competition Act, Consumer Packaging and Labelling Act and Textile Labelling Act, in addition to providing industry with a guide to the application of the CAN/CSA-ISO 14021, Environmental labels and declarations - Self-declared environmental claims (Type 11 environmental labelling) regulations.1

In the Environmental Claims Guide, the Bureau states that although businesses are free to adopt any practice concerning self-declared environmental claims, as long as those claims are not false or misleading, the Bureau will use the Guide as a reference for evaluating environmental claims. The Bureau further indicates that while the examples provided in the Guide are not binding statements of how its discretion will be exercised in any particular situation, environmental claims made in compliance with the Guide are unlikely to raise any concerns under the statutes administered by the Bureau.

Scope of Guidance

The Environmental Claims Guide is meant to cover any statement or symbol that refers to or creates the general impression that it reflects the environmental aspects of any product or service, including any statements, symbols or graphics on a product or package labels, or in product literature, technical bulletins, advertising, publicity, telemarketing and digital or electronic media. The Guide is organized largely around the 18 specific requirements of CAN/CSA-ISO 14021, which include, among others, that self-declared environmental claims: shall be accurate and not misleading or exaggerated; shall be substantiated and verified; shall be relevant to the product and used in appropriate context; shall be specific; shall be made only if the environmental aspect to the claim exists or will be realized during the life of the product; and shall be presented in a manner that clearly indicates that any claim and explanatory statement(s) should be read together. For each of the 18 requirements, both an explanation and one or more examples are provided.

In addition, the Environmental Claims Guide explains the standards to be met and provides numerous examples regarding: vague or non-specific claims; claims of ". free"; sustainability claims; explanatory statements; symbols; evaluations and claim verification; comparative claims; and certain common claims (each of which receives detailed consideration) including "compostable", "designed for disassembly", "extended life product", "recovered energy", "recyclable", "recycled", "reduced resource use", "reusable and refillable" and "waste reduction".

Substantive Implications for Industry and Advertisers

The Environmental Claims Guide is intended by the Bureau to press industry and advertisers to observe higher standards and to increase the consistency of environmental claims in Canada. A few of the examples provided under the new guidance illustrate the point:

  • Claims of "... free" are to be made only where both (i) the material in question is present in no more than trace contaminant levels, and (ii) previously, such products had commonly featured the material in question in greater than trace contaminant levels;
  • Claims of sustainability are not to be made at all;
  • Claims without explanatory statements are to be made only if the claim is valid in all foreseeable circumstances without qualifications;
  • Claims must be verifiable, but will not be considered to be verifiable if verification cannot be made without access to confidential business information;
  • Claims qualifiers such as "... where facilities exist", in connection with, for example, recyclable or compostable claims, are not adequate; more detailed information about availability is required. For an unqualified claim, the claim should be verified to apply to a majority of the purchasers, potential purchasers and users of the product.

Although many businesses may comply or believe that they comply with many of the standards set out in the Environmental Claims Guide, a key change is the Bureau's clear intention to now require that businesses be able to provide the Bureau and consumers with substantiation and verification in connection with any environmental claim. Indeed, the Bureau identifies "the core principle . to be that businesses should only make claims that are substantiated and verified."

With the foregoing in mind, the Bureau has also indicated that it expects that companies may wish to reassess their advertising and labelling in light of the Environmental Claims Guide. It is allowing a one-year transition period for businesses to move into full compliance (excluding particularly egregious cases of false or misleading environmental advertising), following which Canadian advertisers can presumably expect a crack-down on unsubstantiated or unverified environmental claims.


1The Environmental Claims Guide represents a revision of a draft version that was issued for public review and comment in March, 2007.

Something old, something new: Private member's Bill moves forward with potential for big changes to Canada's Competition Act

Susan M. Hutton

Nearly six years after the Standing Committee on Industry, Science and Technology released its report "A Plan to Modernize Canada's Competition Act," and more than two years after the death of Bill C-19 on the parliamentary order paper, Parliament is once again considering a proposal to make significant amendments to the Competition Act.

A private member's bill, introduced by Bloc Québécois MP Roger Gaudet last October, has received second reading in Parliament, and will now move to Committee for debate. If passed in its current form, it would entail such significant - and controversial - changes as:

  • enabling the Commissioner to commence an inquiry into an entire industry sector whenever she "has reason to believe.that grounds exist" for doing so1;
  • removing the word "unduly" from section 45 (thus turning agreements with any negative impact on the named aspects of commerce or competition into per se criminal offences) but introducing a reverse onus defence if the accused can establish that the agreement is "reasonably necessary to attain gains in efficiency or encourage innovation";
  • increasing the maximum fine under section 45 from $10 million to $25 million;
  • deleting the criminal prohibitions against price discrimination and predatory pricing (thus making them amenable of redress only under the civil abuse-of-dominance provision);
  • adding a general definition of "anti-competitive act" to section 78 (abuse of dominance): "abusive exploitation of a dominant position in the market";
  • deleting the airline-specific definitions of anti-competitive act from section 78, as well as section 4.1 in its entirety2;
  • giving the Competition Tribunal the ability to impose not only large fines for abuse of dominance (up to $10 million for a first offence, and as much as $15 million for each subsequent order, or greater amounts so long as they are not more than the gross revenues earned as a result of the practice of anti-competitive acts), but also to award damages to private complainants in abuse cases (section 79)3
  • giving the Tribunal the ability to award damages to a private party in "refusal to supply" (section 75), and "vertical restraint" cases (exclusive dealing, tied selling and market restriction, section 77);
  • increasing fines for civil deceptive-marketing practices by 10 times or more for individuals (e.g., from a maximum of $50,000 for a first offence to $750,000) and by 100 times or more for corporations (e.g., from a maximum of $100,000 for a first offence to $10 million) while leaving criminal fines at existing levels (in the discretion of the court for conviction on indictment, but a maximum of $200,000 for conviction on summary conviction);
  • further toughening the civil misleading-advertising provisions to permit courts to order restitution to ultimate purchasers of the purchase price for the articles in question in civil deceptive-marketing cases, and to issue preserving orders to prevent the disposition of assets in order to frustrate attempts to satisfy an order for damages;
  • reducing the notification threshold, under the merger control provisions, of amalgamations involving one or more Canadian businesses to $50 million from $70 million for the combined size of the Canadian assets or revenues of the amalgamating businesses (while failing to update the thresholds for the assets and revenues of the target in a share or asset acquisition, which have since been updated by Regulation and are thus incorrect as they appear on the face of the statute).

Clearly, Bill C-454 as written would elicit some support, and much opposition, from many stakeholders. For example, the repeal of the criminal predatory-pricing and price-discrimination provisions has long been supported by many parliamentarians and members of the competition bar, as has the repeal of the airline-specific provisions. Giving the Tribunal the ability to impose fines for abuse of dominance is certainly not uncontroversial, and was included in Bill C-19, the previous government's attempt to amend the Act, and it had all-party support before it died on the order paper with the calling of a federal election. Similarly, Bill C-19 also proposed to significantly increase maximum fines for civil misleading advertising.That said, Bill C-19 did not propose that private parties be permitted to bring abuse cases before the Tribunal, much less that the Tribunal be empowered to award them damages in addition to imposing fines.

Also bound to be controversial would be the proposed deletion of the word "unduly" from section 45, thus criminalizing all agreements with any negative impact on competition. The new Bill proposes to add in an efficiency defence of sorts, but without the caveat found in the existing efficiency defence to mergers  that the efficiencies must be "greater than and offset" the anti-competitive effects of the merger and not otherwise attainable. Given the Commissioner's ongoing review of section 45 with a view to creating a criminal per se prohibition of "hard-core" cartel behaviour, as well as a companion civil provision to cover otherwise anti-competitive agreements, not to mention the work of the Competition Policy Review Panel (due to report in June), it is difficult to imagine that such a proposal will survive review in Committee.

Bill C-19 would also have given the Commissioner the ability to launch industry-wide investigations, without grounds to believe that an order should issue from the Tribunal or that an offence had been committed. Again, however, that aspect was not uncontroversial, as many in the petroleum industry in particular remember the thirteen-year investigation by the Restrictive Trade Practices Commission into price-fixing in that industry in the 1970s and 80s, which failed to uncover any illegal behaviour.Concerns include the high public and private cost of such studies, the lack of necessity for such powers of investigation, the need for procedural safeguards and the risk that such inquiries would become "politically charged"-not to mention the practical problem that such investigations would require additional resources that the Bureau simply does not have.

Because Bill C-454 is a private member's bill, its chances of becoming law in its current form are inherently slim - but anything can happen with a minority government.  The bill has received support from Members of all three opposition parties, and its progress in Committee deserves to be followed closely in the months ahead. Hearings before the House Standing Committee on Industry, Science and Technology have not yet been scheduled.


1No specification of the circumstances that would give rise to such grounds are given, and presumably it would not be necessary to believe that an offence has been committed or that grounds exist for an order under the civil provisions.

2Section 4.1 exempts collective bargaining over commissions by travel agents with a dominant domestic air carrier (at least 60% of revenue passenger-kilometres from domestic services in a given year) from the prohibitions against conspiracy and price maintenance under sections 45 and 61, respectively.

3Currently, only the Commissioner can bring an abuse-of-dominance case before the Tribunal.  Private parties have no right to do so, although they can bring an application based on refusal to supply (s.75), exclusive dealing, tied selling or market restriction (s.77) before the Tribunal, with leave of the Tribunal.  Moreover, the Tribunal is not currently empowered either to issue fines or to award damages to any party.

New draft guidance on multi-level marketing and pyramid selling

Kim D.G. Alexander-Cook

On March 31, 2008 the Commissioner of Competition (the Commissioner) issued a draft Information Bulletin entitled Multi-level Marketing and Scheme of Pyramid Selling, Sections 55 and 55.1 of the Competition Act.  Once finalized, this bulletin will replace existing 1996 guidance on the same topic.  Written comments on the draft Bulletin will be accepted by the Competition Bureau until June 30, 2008.
 

Section 55 of the Competition Act (the Act) criminally prohibits an operator of or participant in a multi-level marketing (MLM) plan from making representations about compensation under the plan other than those that constitute or include "fair, reasonable and timely" disclosure relating to compensation actually received or likely to be received by "typical participants" in the plan. In addition, section 55 obligates MLM plan operators to ensure that compensation representations made by plan participants to prospective plan participants meet this "fair, reasonable and timely" disclosure standard, subject to a due diligence defence.Section 55.1 of the Act defines when an MLM comprises a "scheme of pyramid selling," and prohibits a person from establishing, operating, advertising or promoting a scheme of pyramid selling. Both sections 55 and 55.1 are criminal provisions featuring a maximum sentence for conviction on indictment of five years in prison and/or a fine in the discretion of the court, and a maximum sentence on summary conviction of one year in prison and/or a fine of $200,000.

The draft Bulletin revises and extends the Bureau's 1996 guidance. However, it does not appear to signal any significant change in the Commissioner's approach to interpreting and enforcing sections 55 and 55.1 of the Act.

Beyond rearranging and refining the contents of the 1996 guidance, the following additional material is included in the draft Bulletin:

  • Bureau definitions for "operator," "prospective participant," "non-typical participant" and "operator's or seller's cost";
  • a more detailed description of communication that in the Bureau's view comprises a "representation relating to compensation";
  • additional examples of conduct that in the Bureau's view comprises or may comprise a "scheme of pyramid selling," in particular related to:
    • prohibited compensation for the recruitment of others to an MLM plan,
    • prohibited purchase requirements as a condition of participation in an MLM plan, and
    • inadequate rights for participants in an MLM plan to return products for substantial reimbursement;
  • a list and description of information required in support of a written advisory opinion from the Bureau concerning an MLM plan; and
  • a list and description of circumstances under which the Bureau will refuse to provide a written advisory opinion concerning an MLM plan.

The new draft Bulletin undoubtedly improves upon the 1996 Bulletin.  It is more comprehensive and carefully crafted, and the additional examples of suspect conduct are a helpful elaboration on the Bureau's views.  Moreover, the description of information required by the Bureau for an advisory opinion and the description of when such an opinion will not be rendered will be of genuine practical assistance to anyone proposing an MLM plan.

Recent marketing and advertising enforcement actions

Kim D.G. Alexander-Cook

Premier Fitness hit by $200,000 AMP and ten-year agreement

On November 27, 2007, the Competition Bureau announced that it filed with the Competition Tribunal a ten-year consent agreement with Premier Fitness Clubs, resolving concerns that membership advertising from 1999 to 2004 did not adequately disclose additional fees that consumers were obligated to pay to enjoy membership. Premier Fitness owns and operates thirty-five clubs in Ontario. Under the terms of the consent agreement, Premier Fitness must pay an administrative monetary penalty of $200,000; publish a corrective notice in certain newspapers; display a corrective notice in its clubs and on its Web site; implement a compliance policy to cover its marketing practices; and not make false or misleading representations in future promotional materials.

Commissioner strips Lululemon of clothing claims

The Bureau announced on November 16, 2007 that Vancouver-based Lululemon Athletica Inc. has agreed to remove all claims alleging therapeutic benefits from its "VitaSea" line of clothing products, marketed in its forty retail stores across Canada. The popular yoga- and exercise-wear chain has agreed to remove from clothing tags all therapeutic claims regarding the VitaSea technology (claimed to, for example, moisturize), remove from its Web site and in-store advertising all references to the VitaSea technology, inform its employees that they should not provide information on the impugned claims to customers, and undertake a review of all Lululemon promotional and marketing materials to ensure compliance with relevant legal requirements.  In describing this enforcement action, the Bureau noted that it is closely watching an increasing trend in the marketplace in claims about the use and attributes of sustainable fibres.

Health and environmental claims an ongoing bureau focus

Investigations and enforcement actions over marketing and advertising claims related to health products and services have been a significant part of the Bureau's recent fair-business-practices work. In addition to the steps taken against Lululemon described above, in the past three years the Bureau has announced numerous specific actions relating to misleading health claims, including in connection with UV protective clothing, "light" and "mild" cigarettes, nutrition information software, diabetes "cures," tanning-studio health claims, fitness club services, diet patches, herbal products, weight-loss programs and bogus cancer-therapy clinics.

The Bureau's focus on false or misleading health claims extends also to claims related to the environment.  According to a recent survey of environmental claims undertaken by a Canadian environmental marketing firm (which information has also caught the eye of the Bureau), the use of environmental claims is now pervasive across product categories.  The majority (57%) of the environmental claims examined in the survey reportedly failed to disclose attributes of the product relevant to (potentially negative) environmental effects; 26% of claims could not be substantiated by accessible information or third-party certification; 11% were deemed by the survey authors to be vague (e.g., claims of "all-natural"); and 5% were judged irrelevant (e.g. "CFC-free" oven cleaner, when CFCs are banned) and/or meant to distract from a more significant (negative) product feature (e.g., "organic" cigarettes).

In March, 2007, the Bureau issued for public comment new draft guidance on environmental claims.  Based on the draft document, the Bureau may be preparing to take a rigid stance on certain types of environmental claims. For example, in the draft document: (i) claims that a product is "free" of a substance may not be made when historically the product has never contained that substance; (ii) verification materials related to environmental claims must be available to both purchasers and potential purchasers, with no qualification related to confidential information; and (iii) consumers are misled if an explanatory statement for an environmental claim on a product is not displayed on the same display panel as the claim itself.

Amendments to Canada's Competition Act Could Pass this Spring

Susan M. Hutton and Patricia Martino

As reported in the March, 2005 edition of this newsletter, the House of Commons Standing Committee on Industry, Natural Resources, Science and Technology resumed consideration of Bill C-19 on March 9, 2005, after a hiatus of several months due to political skirmishing between opposition parties and the minority government members of the Committee. Further witnesses appeared on March 23, 2005. Although more witnesses may appear, it is still possible that Bill C-19 may become law this spring. So far, the Bill appears to have general all-party support, despite the opposition of some witnesses to certain aspects of the Bill.

Bill C-19 seeks to implement some long-debated - and in some cases controversial - amendments to Canada's Competition Act (the "Act"). The Commissioner of Competition (the "Commissioner") grouped the proposed amendments into five areas in her appearance before the Committee last Fall:

  1. Providing authority for the Tribunal to order restitution for consumer loss resulting from false or misleading representations under paragraph 74.01(1)(a) of the Act1;
  2. Enabling the Tribunal to issue an "administrative monetary penalty" (AMP), or fine, for abuse of dominance in any industry, to a maximum of $10 million for a first offence and $15 million for subsequent orders;
  3. Repealing the airline-specific provisions of the Act2;
  4. Increasing the level of AMPs for civil deceptive marketing practices (to maximums of $750,000 for a first offence and $1 million for subsequent orders against individuals; and to maximums of $10 million for a first offence and $15 million for subsequent orders against corporations); and
  5. Repealing the criminal pricing provisions in sections 50 and 51, leaving such practices as predatory pricing and price discrimination to be dealt with as instances of (civil) abuse of a dominant position.

As noted, while few of the proposals in Bill C-19 are without controversy, the Bill appears likely to pass - although speculation as to the exact timing of such passage is made interesting by the lack of a majority government in Ottawa.

With respect to restitution for victims of false or misleading representations, the Commissioner has noted that restitution can already be ordered for similar offences in other countries such as the United States and Australia. With both restitution orders and drastically increased fines in her arsenal, the Commissioner will seriously increase her leverage over prospective defendants. Million-dollar-plus penalties and voluntary settlements of the type agreed to by The Forzani Group Ltd. ($1.7 million) and Suzy Shier Inc. ($1 million) could well become the norm, even for civil offences.

One of the more controversial proposals in Bill C-19 is the introduction of fines for companies who have abused their dominant market positions. As noted, the Tribunal will be empowered to issue fines of up to $15 million (for repeat offenders). This exceeds the maximum fine available for criminal price fixing under the domestic conspiracy provision (section 45). With the Commissioner vigorously pursuing abuse cases such as that brought recently against Canada Pipe3this provision clearly raises the stakes for firms with large market shares in Canada.

The introduction of criminal-sized fines for abuse of dominance also significantly affects the impact of the repeal of the criminal predatory pricing, price discrimination and promotional allowance provisions. The repeal of these provisions has been widely supported, as they require no finding of dominance or anti-competitive effect. That said, firms with large market shares arguably will face more vigorous enforcement as a result of the lower civil burden of proof and the prospect of large fines for abuse of dominance.

FOOTNOTES:

1] Fines are currently available for both criminal and civil misleading representations. A private party harmed by the offence can also sue for damages caused by misleading representations that are "knowingly or recklessly made" (the standard of intent for the criminal offence), regardless of whether criminal charges have been laid.

2] Currently, amongst other things, there are airline-only definitions of "anti-competitive acts" under the abuse of dominance provisions, and the Tribunal is able to issue fines in respect of abuse of dominance only to dominant Canadian airlines. See sections 78 and 79 of the Act.

3] Commissioner of Competition v. Canada Pipe Company Ltd., 2005 Comp. Trib. 3 (Competition Tribunal). See the March 2005 edition of The Competitor for a description of the Tribunal's decision, which rejected the notion that the exclusivity rebates in question were anti-competitive. The Commissioner has appealed the decision.


 

Bill C-19: Off Again-On Again

On March 9, 2005 The House of Commons Standing Committee on Industry, Science and Technology resumed consideration of Bill C-19, which proposes to amend the Competition Act by creating, among other things, stiff fines for abuse of dominance and misleading advertising practices.

A Landmark Decision in Sears ''Ordinary Price'' Case

On January 24, 2005 the Competition Tribunal (the Tribunal) released its reasons (dated January 11, 2005) in The Commissioner of Competition v. Sears Canada Inc. The Tribunal found that Sears Canada Inc. (Sears) had violated section 74.01(3) of the Competition Act, which prohibits the making of materially misleading representations to the public about the ordinary selling price of a product. The Commissioner of Competition (the Commissioner) specifically alleged that, in 1999, Sears deceived consumers by inflating the "regular" price of certain tires while advertising those tires at "sale" prices. In reaching its conclusions, the Tribunal essentially adopted the analytical approach set out in the Competition Bureau's Information Bulletin - Ordinary Price Claims: Subsections 74.01(2) and 74.01(3) (the Bulletin).

Under the Act, claims regarding the ordinary price at which products are sold are legitimate if: i) a substantial volume of recent sales has occurred at the "regular" or "ordinary" price; or ii) the product has been offered for sale at the "regular" or "ordinary" price in good faith for a substantial period of time just prior to or immediately after the sale. According to the Bulletin, in order to determine whether a product has been offered for sale in good faith for a substantial period of time, the volume and time offered for sale at the regular price is assessed during a 6 month window. The substantial period of time requirement will be met if the product is offered at or about the regular price for more than 50 per cent of the time period considered. Sears conceded that it did not meet the substantial volume test, but maintained that it met the good faith test with respect to time, albeit over a one-year period. The Commissioner argued that Sears did not meet the good faith test when sales were assessed over the six-month period preceding the ads in question and that in any event, Sears had no expectation that it would sell a substantial volume of the tires at its regular prices, and Sears' regular prices for the tires were much higher than the regular prices for comparable tires offered by Sears' competitors.

Sears also challenged the constitutionality of subsection 74.01(3) on the basis that it is an unjustifiable infringement of Sears' fundamental freedom of commercial expression, which is guaranteed by subsection 2(b) of the Canadian Charter of Rights and Freedoms (the Charter). With respect to the constitutional challenge, the Tribunal found that, while subsection 74.03(1) infringed Sears' rights under section 2(b) of the Charter, it was a reasonable limit prescribed by law that is "demonstrably justified in a free and democratic society," thus saving it under section 1 of the Charter.

The Tribunal determined that Sears' regular prices for the tires were not offered in good faith because: Sears only expected to sell between 5 and 10 per cent of tires at the advertised regular prices; Sears did not generally refer to the advertised regular price in conducting competitive profiles; the advertised regular price was higher than the price Sears described as its "everyday pricing" in its internal documents; and Sears did not track the sale of tires sold at the advertised regular price. As most of the tires in the relevant advertisements were "on sale" more than 50 per cent of the time in the six-month period predating the advertisements, the Tribunal also determined that Sears failed to offer those tires to the public at the regular price for a "substantial period of time." In this respect, the Tribunal adopted the analytic approach set out in the Bulletin. Finally, the Tribunal rejected Sears' submissions that its representations were not materially misleading and specifically held that consumer harm is not relevant to the consideration of the materiality of any misrepresentations and "hence is not relevant to the existence of reviewable conduct."

The Tribunal ordered that Sears cease and desist from making ordinary pricing claims that do not conform with the Act for a period of ten years. In response to the Commissioner's request for imposition of an administrative monetary penalty ("AMP") of $500,000, the Tribunal declined to rule on this issue until the parties make further submissions regarding the appropriateness of an AMP. It remains to be seen whether Sears will raise a constitutional challenge to the validity of AMPs under the Act, a topic with widespread relevance given the proposal, currently before Parliament in Bill C-19, to introduce AMPs as high as C$5 million for misleading advertising and for abuse of dominance.

This landmark decision is the most recent development in a series of Competition Bureau investigations and settlements with various retailers for deceptive pricing practices. The Tribunal's findings further validate the Commissioner's stated commitment to ensuring consumers receive honest and accurate pricing information from retailers. Retailers should be aware that "ordinary price" claims may now be subject to greater enforcement scrutiny than ever before. Additionally, as mentioned, the proposed amendments to the Act contained in Bill C-19 would substantially increase maximum administrative monetary penalties to $10 million for a first infringement of the deceptive marketing provisions of the Act and $15 million for any subsequent infringement. As a result, future violations of section 74.01(3) of the Act or the other deceptive marketing provisions could have devastating financial consequences for retailers.

Parliamentary Hearings Suspended on Canada's Competition Act Amendments (Bill C-19)

Susan M. Hutton

In a surprising turn of events, the House of Commons Standing Committee on Industry, Science and Technology voted on December 2, 2004 to suspend further discussion of Bill C-19, An Act to Amend the Competition Act and to Make Consequential Amendments to Other Acts, for an indefinite period. The Committee had only recently commenced hearings concerning Bill C-19, the Government bill proposing important changes to the abuse of dominance, pricing and misleading advertising provisions of the Act, among others (see the November, 2004 issue of The Competitor for details).

The Committee had already heard from several witnesses, including the Commissioner of Competition, Sheridan Scott, as well as representatives from various business and lawyers' groups including the Canadian Council of Chief Executives, the Competition Law Section of the Canadian Bar Association, and the Canadian Chamber of Commerce. Several other witnesses were scheduled to be heard, but their appearance has been postponed, along with further discussion of the bill.

The reason for the suspension actually has little to do with the bill itself ; an NDP Committee member proposed the motion out of frustration with apparent delays on the part of the Government to introduce promised legislation to make corporate fines and "administrative monetary penalties" (such as those proposed in Bill C-19 for abuse of dominance and for civil misleading advertising) non-deductible for income tax purposes. The other opposition MPs voted - for various reasons - with the NDP to pass the motion to suspend consideration of the bill, defeating the Liberal MPs in the process (most of whom then left the hearings).

The upshot is that Committee hearings were suspended a week earlier than they would otherwise have been for the holiday season. The Committee will resume its work in January when Parliament reconvenes, but when it will continue its consideration of Bill C-19 remains to be seen. It is likely only a question of time before deliberations resume, but the events of December 2 showed that with a minority government "anything can happen."

Competition Act Amendments:One Step Closer to Reality with Bill C-19

Kevin Rushton

On November 2, 2004, by tabling Bill C-19, the Canadian government took the first step toward implementing some of the long-debated amendments to Canada's Competition Act (the Act). If Bill C-19 manages to weave its way successfully through Canada's minority Parliament, it will implement the most wide-ranging changes in decades to Canada's competition legislation. Likely the most significant of these is the introduction of the additional remedy of fines ("administrative monetary penalties") for abuse of dominance, which should cause leading Canadian businesses to re-evaluate the way in which they operate.

Background to Bill C-19

Bill C-19 had its genesis in the Government's June 2003 discussion paper, Options for Amending the Competition Act: Fostering a Competitive Marketplace. Very briefly, the discussion paper proposed changes to the Act in four broad areas. The first area - which is the subject of Bill C-19 - was the strengthening of the Act's civil provisions by introducing additional remedies for non-merger offences (i.e., abuse of dominance, exclusive dealing, tied selling, market restriction and refusal to deal). The discussion paper proposed a trio of new sanctions: administrative monetary penalties (fines), restitution in cases of civil misleading advertising and deceptive market practices, and a private right of action for damages (currently confined to damages for behaviour that is criminal under the Act).

Secondly, the discussion paper proposed reforming the Act's criminal conspiracy section, and replacing it with a dual-track provision. A per se criminal provision would apply to anti-competitive agreements, such as those involving price fixing, market allocation and output restrictions. Other agreements between competitors that are generally pro-competitive but have the potential to prevent or lessen competition substantially would be subject to civil review. The amendments proposed in the discussion paper would also have repealed the Act's criminal pricing provisions, instead addressing discriminatory and predatory pricing under the abuse of dominance provision . Finally, the discussion paper proposed allowing the Commissioner to ask an independent and impartial body with economic expertise, such as the Canadian International Trade Tribunal, to inquire into the state of competition in any industry.

In April of 2004, the Public Policy Forum, an independent non-profit organization mandated to conduct public consultations about the proposals put forward in the discussion paper, submitted its final report. Suffice it to say that the consultations revealed sharp divisions amongst stakeholders with respect to most of the proposed amendments, including the proposal to make civil conduct, such as abuse of dominance, subject to administrative monetary penalties.

Bill C-19: An Overview

Bill C-19 deals with the first and third areas listed above: strengthening of the remedies for the civil provisions of the Act, and de-criminalization of the pricing provisions. There are, however, some key differences between Bill C-19 and the discussion paper proposals in these areas.

The most significant amendment - permitting the Competition Tribunal to, in essence, impose civil fines in respect of abuse of dominance - as proposed in Bill C-19, covers only abuse and not the other civil non-merger provisions. Whereas the discussion paper contemplated unlimited fines, Bill C-19 caps them at C$10 million for first offences and C$15 million for each subsequent offence. Secondly, Bill C-19 seeks to increase the maximum amount of AMPs in respect of deceptive marketing practices (already provided for in the Act), in the case of individuals, to $750,000 for a first offence (now $50,000) and $1 million for repeat offences (now $100,000). The maximum "civil" fine for corporations guilty of "civil" deceptive marketing practices will (if Bill C-19 passes in its current form) be increased to C$10 million for a first offence (now $100,000) and C$15 million for repeat offences (now $200,000). If the public comments on the discussion paper proposals are any indication, the imposition of such serious penalties for non-criminal behaviour may well be controversial. Moreover, the "decriminalization" of the pricing provisions (including predatory pricing, price discrimination and promotional allowances in sections 50 and 51 of the Act), might be said to be a question of form over substance if the Tribunal has the power to impose fines at the same level as those available for criminal convictions. Indeed, the lower burden of proof inherent in civil proceedings will facilitate enforcement of these provisions (although, for price discrimination and promotional allowances, the requirement under the abuse of dominance provision that they be proven to substantially lessen or prevent competition may limit the circumstances in which such proceedings might arise).

As indicated in recent Bureau speeches, the creation of a per se criminal conspiracy offence in respect of so-called "hard core" cartels, and a civil track for other anti-competitive agreements, is the subject of continued study. It is our understanding that the Competition Bureau is working on revised draft language and that another round of consultations on such changes will be held. Accordingly, Bill C-19 leaves the conspiracy provisions untouched.

No mention has been made of the proposed "inquiry" procedure put forth in the discussion paper. As comments were generally opposed to such an amendment, however, it is quite possible that this amendment will not be heard of again.

Finally, the Bill does contain a set of new amendments not originally proposed in the discussion paper. Specifically, Bill C-19 will repeal all of the Act's airline-specific provisions, including the expanded definitions of anti-competitive acts for the purposes of abuse of dominance, and the ability of the Commissioner herself to issue injunctive-like cease-and-desist orders against an airline. The latter provision has been held unconstitutional by the Québec Court of Appeal.

Significance of Bill C-19

Given the import of an expanded AMPs regime under Bill C-19, those at the leading edge of Canada's business community will undoubtedly have to re-think the risks involved with being "too" successful. Whether or not Bill C-19 will have the effect of "chilling" vigorous and effective competition, as is feared by so many, remains to be seen.

Bill C-19 passed first reading in the House on November 2, 2004.

For more information about the contents of this newsletter, please contact the author, Kevin Rushton or the editor, Susan Hutton.

Suzy Shier and Competition Bureau reach $1 million settlement over pricing practices

''When is a bargain really a bargain?'' Ordinary price claims case ends with $1 million settlement.
The Competition Bureau has reached a $1 million settlement with Suzy Shier Inc., over marketing practices the Bureau considered to be misleading. In a June 13, 2003 press release, the Bureau stated that Suzy Shier had placed price tags on garments indicating a "regular" and "sale" price even though the garments were not sold at the "regular" price in any significant quantity or for any reasonable period of time.

Raymond Pierce, Deputy Commissioner of Competition, explained in the release: "The issue boils down to one question: When is a bargain really a bargain? The Bureau is committed to ensuring that consumers have accurate information regarding the regular price of clothing so that they may determine the true value of their savings when deciding to purchase items on sale."

In its own statement, La Senza Corp., the then owner of Suzy Shier, stated that Suzy Shier "does not admit any conduct contrary to the Competition Act" but noted that, in recognition of the Bureau's concerns and of the importance of providing accurate information to consumers, Suzy Shier and the Bureau had agreed to file a civil consent agreement with the Competition Tribunal to resolve the matter.

According to the consent agreement, only 12.5% of Suzy Shier sales of the products at issue were made at the "regular" price during the evaluation period and the products were offered for sale at the "regular" price" for only approximately 11% of the time.

The $1 million administrative monetary penalty is the first under the Competition Act's civil "ordinary selling price" provisions, which came into force in 1999. The consent agreement also required Suzy Shier to publish corrective notices in newspapers across Canada and to implement a corporate compliance program to ensure that it meets the requirements of the Competition Act.

The announcement of the settlement was released just a few hours before La Senza Corp. announced that it was selling Suzy Shier to a division of YM Inc. The sale was completed on July 28, 2003. Neither La Senza Corp., nor YM Inc., is bound by the terms of the consent agreement, which applies only to Suzy Shier.