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.

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

William Wu and Vanessa Leung - 

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

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

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

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

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

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

Lights! Camera! No-action! Canada's Competition Bureau clears merger of Canadian film distributors

Susan M. Hutton and Robert Mysicka -

On January 3, 2013 the Competition Bureau issued a No-Action Letter in respect of the acquisition by Canadian film distributor Entertainment One Ltd. (eOne) of its competitor, Alliance Films Holdings Inc. (Alliance), indicating that the Commissioner does not, at this time, intend to challenge the proposed acquisition pursuant to section 92 of the Competition Act.

In its statement concerning the proposed acquisition of Alliance by eOne, the Bureau indicated that the parties are significant competitors for film distribution in Canada but that the distribution of Canadian films constitutes a distinct product market due to various government cultural initiatives and funding programs.  In particular, in order to qualify for government funding available for Canadian productions (a significant source of total funding), the producer must use a Canadian distributor, and government funding requirements limit the ability of the distributor to lower minimum guarantees or increase distribution fees. Notwithstanding the substantial share of the combined companies in that market, therefore, the Bureau concluded that the government policies in place would render a substantial lessening or prevention of competition unlikely and that in any event, there was effective remaining competition for the distribution of non-Canadian films.

The Bureau’s decision not to challenge the merger is all the more interesting in light of its finding that the Canadian films distributed by eOne and Alliance account for the vast majority of the revenues generated by Canadian films. With respect to high budget Canadian films, the Bureau found that eOne and Alliance faced limited competition as there are few competitors able to offer the minimum guarantee required to secure government funding for these films. Accordingly, the Bureau was initially concerned that the merged entity would be capable of implementing more restrictive distribution terms to producers by increasing distribution fees and/or reducing the minimum guarantee.

Following its review, however, the Bureau concluded that government funding programs would prevent the implementation of more restrictive terms on producers by the merged entity. In particular, in order to trigger funding, distributors are typically required to commit a minimum guarantee to the producer as evidence that they are committed to the film’s success. Furthermore, distribution fees tend to be standardized and capped by funding requirements.

Finally, in its review, the Bureau expressed concern that the merged entity might distribute fewer Canadian films. It concluded, however, that certain smaller Canadian distributors see the proposed acquisition as an opportunity to expand and distribute more films, and are poised to expand should the combined entity pull back. Furthermore, due to the very low volume of sales associated with some films, the Bureau concluded that the anti-competitive effects of the proposed transaction (if any) would likely be very small relative to the efficiency gains.

The Bureau’s conclusions in this case appear to indicate a willingness to recognize the practical implications for many businesses of a relatively thin and regulated Canadian market, and the efficiencies that can sometimes be gained from consolidation.

Competition Policy Council calls for clarification of Regulated Conduct Doctrine

Robert Mysicka and Edwin Mok -

On November 20, 2012, the C.D. Howe Institute’s Competition Policy Council—a group comprised of top-ranked academics and practitioners active in competition policy—published a report calling for the Competition Bureau to clarify the scope of the Regulated Conduct Doctrine (“RCD”) and characterizing it as a “back door route to cartels”. The RCD is a legal doctrine enshrined in section 45(7) of the Competition Act which immunizes regulated entities from prosecution in circumstances where their conduct would otherwise be illegal under the Act. It was described by Grange J.A. in R. v. Independent Order of Foresters:

“The doctrine simply means that a person obeying a valid provincial statute may, in certain circumstances, be exempted from the provisions of a valid federal statute. But there can be no exemption unless there is a direction or at least an authorization to perform the prohibited act.”

The Council met on November 8, 2012 to discuss the soundness and policy implications of the RCD, with its roundtable discussions culminating in the November 20 report. The Council concluded that the Bureau’s published bulletin on the doctrine was vague, and recommended that the Bureau refine its view of Competition Act enforcement in regulated sectors.

The Council further voiced concern that, in the merger review context, firms pursuing pro-competitive mergers may be required to seek the approval of two regulatory agencies - first the regulator, and then the Bureau - adding costs and uncertainty to the entire process. Nevertheless, the Council recommended that the Bureau opine on the economic effects of mergers within regulated industries by explicitly identifying the economic costs and inefficiencies of anti-competitive behaviour that is protected by provincial and federal legislation.

Ontario court clarifies application of Regulated Conduct Defence on a pre-trial motion.

Susan M. Hutton and Robert Mysicka

A recent decision by Justice K.M. van Rensburg of the Ontario Superior Court of Justice has affirmed the applicability of the Regulated Conduct Doctrine (RCD) as a possible defence to conduct prohibited by the Competition Act while also clarifying the extent to which evidence is necessary in order to assert the defence.  

In Fournier Leasing Company Ltd. v. Mercedes-Benz Canada Inc. the plaintiffs, a group of automobile dealers who import BMW, Mercedes Benz, and Mini vehicles into Canada, brought a motion to certify a class proceeding against BMW and Mercedes Canada for conduct that they alleged breaches Part VI of the Competition Act and also constitutes a tort. In regards to the Competition Act claims, the plaintiffs in their pleading alleged the existence of a conspiracy between the two car manufacturers and their dealers.

The plaintiffs’ business of importing vehicles from the United States is subject to a regulatory regime known as the RIV program, jointly administered by Transport Canada and the Canada Border Services Agency (CBSA). Under this regime, all vehicles imported into Canada must be inspected and certified under the Motor Vehicle Safety Act in order to ensure that they comply with Canadian motor vehicle safety standards. Central to this regulatory regime is the existence of an admissibility list maintained by Transport Canada which provides a list of vehicles that are admissible, and therefore importable, into Canada from the United States.

The plaintiffs have alleged that between 2006 and 2007 Mercedes and BMW demanded that Transport Canada remove all of their vehicles from the admissibility list in an effort to prevent Canadians from importing vehicles from the U.S., where the cars were priced significantly lower. The allegation, therefore, is that Mercedes and BMW conspired to limit the supply of vehicles, contrary to subsection 45(1) of the Competition Act.

In their defence, Mercedes and BMW brought a motion to strike the plaintiffs’ pleadings for failure to disclose a cause of action. In this motion, BMW and Mercedes raised the RCD in support of the view that the claims relating to the alleged breach of Part VI of the Competition Act had no hope of success since the impugned conduct was authorized by the federal government under a comprehensive regulatory scheme.

Justice van Rensburg rejected Mercedes and BMW’s claim that, under the circumstances, it was plain and obvious that simply invoking the RCD would suffice to exclude any action taken by them from the application of Part VI of the Competition Act. In this regard, Justice van Rensburg relied on the Federal Court’s decision in Mansoor Electronics Ltd. v. BCE Mobile Communications Inc. where Richard J. refused to strike a claim under the Competition Act on the basis that the RCD must be pleaded in the Statement of Defence so that a court may give due consideration to its application on such facts as are adduced at trial.

Besides establishing that the RCD must be pleaded as part of a defence and facts adduced in support, Justice van Rensburg affirmed the applicability of the RCD as a defence that may be relied on by parties that engage in conduct authorized under valid provincial or federal legislation. In this respect, she found that:

The authorities are clear. In order for the regulated conduct exception or defence to apply, the actions in question must have been directed or authorized by the statute or regulation. The fact that the importation program is administered by Transport Canada and the CBSA under a legislative scheme is not sufficient.

In the result, Justice van Rensburg refused to strike the pleadings relating to the allegations of conduct contrary to Part VI of the Competition Act. The motion was allowed, however, in part, in respect of the aspects of the pleadings that related to the claims made in tort.