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.

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

William Wu and Vanessa Leung - 

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

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

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

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

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

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

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

Vanessa Leung and Ashley Piotrowski

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

Background

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

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

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

Competition Tribunal renders a decision in the Toronto Real Estate Board case

Ashley Piotrowski

After five years of back and forth at various levels of court, the Competition Tribunal has rendered a decision in the Toronto Real Estate Board case, partially granting the application brought by the Commissioner of Competition pursuant the abuse of dominance provision (section 79) of the Competition Act.    

As mentioned in our earlier blog posts, the Commissioner’s application involves a challenge by the Commissioner against TREB for allegedly abusing its dominance under section 79 of the Competition Act in relation to membership rules governing the use by members of certain of the board’s multiple listing service® (MLS®) listing data. In particular, the Commissioner alleged that TREB’s rules restricted the manner in which real estate brokers and salespersons may display and use certain MLS® data.

 While the decision has yet to be made public, the Tribunal has released a short summary of its decision that offers some insight into how the Tribunal concluded that TREB’s conduct, on a balance of probabilities, satisfied all three elements of the abuse of dominance provision:

  • The Tribunal determined that TREB substantially or completely controls the supply of MLS®-based residential real estate brokerage services in the GTA.
  • The Tribunal found that TREB has engaged in, and continues to engage in, a practice of anti-competitive acts through the enactment and maintenance of certain restrictive aspects of the rules and policy that TREB has adopted regarding the virtual office websites (VOW) of its real estate brokers and salespersons.
  • The Tribunal concluded that these VOW restrictions have had, are having and are likely to have the effect of preventing competition substantially in a market. 

The Tribunal reached this conclusion after finding that the VOW restrictions have substantially reduced the degree of non-price competition in the supply of MLS®-based residential real estate brokerage services in the GTA, including a considerable adverse impact on innovation, quality and the range of residential real estate brokerage services that likely would be offered in the GTA absent the VOW restrictions. 

The next step will be for the parties to provide written submissions and have an opportunity to make oral submissions to the Tribunal on the issue of remedies, after which the Tribunal will make its final order.    

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

Jeff Brown and Margaret Kim - 

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

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

 Background

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

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

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

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

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

Overview of the Settlement

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

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

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

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

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

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

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

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

Jennifer Rad -

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

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

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

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

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

Canada's Competition Tribunal dismisses RPM case against Visa and MasterCard - no "resale"

Susan M. Hutton and D. Jeffrey Brown -

On July 23, 2013, the Competition Tribunal dismissed the Commissioner of Competition’s resale price maintenance (RPM) case against Visa Canada Corporation and MasterCard International Incorporated (CT-2010-010).  In a summary of its decision (which will be made available in full once confidential information is identified and redacted), the Tribunal said that section 76 of the Competition Act requires a resale and that, in this case, the Commissioner of Competition had not established that Visa and MasterCard’s customers resell Visa and MasterCard’s products. Furthermore, the Tribunal held that the Commissioner’s proposed interpretation of section 76 of the Act was not supported by the legislative history of the provision or other decisions.

In the event that the Tribunal’s interpretation of section 76 of the Act was incorrect, the Tribunal conducted an alternative analysis that assumed that Visa and MasterCard engaged in RPM, as defined by the Commissioner, by implementing the no-surcharge rule. The no-surcharge rule prohibits merchants from applying a surcharge for customers paying with credit cards. Under these circumstances, the Tribunal found there had been an adverse effect on competition. However, even under this alternative analysis, the Tribunal said that it would not have issued an order and stated that a regulatory, rather than competition, response would be better suited to address the concerns raised by the Commissioner. The Tribunal further noted that the experience in other jurisdictions showed consumer concerns related to surcharging would arise and regulatory intervention would then take place.

As discussed in an earlier post, in December 2010, the Competition Bureau filed an application with the Tribunal against Visa and MasterCard under section 76 of the Act. Section 76 is a civil provision that enables the Tribunal to prohibit anti-competitive resale price maintenance. The Bureau alleged that Visa and MasterCard lessened competition between and among credit card networks by requiring banks to impose restrictive rules on merchants that prevent merchants from encouraging the use of cards with lower transaction fees. The Bureau argued that these rules hurt consumers because merchants recover the higher fees by increasing prices generally, and consumers using low-cost cards or cash effectively subsidize consumers who use high-cost cards. Visa and MasterCard disputed these allegations and argued that the rules were in compliance with the Act and that they help ensure consumer choice is protected at checkout.

In response to the Tribunal’s decision, the Commissioner of Competition, John Pecman, released a statement stating that he was, “disappointed that the Tribunal had dismissed the Bureau’s application,” and indicated that the Bureau will be reviewing the Tribunal’s decision to determine its next steps.

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.

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.

CRTC's vertical integration decision in broadcasting proposes controls on vertically-integrated broadcasters

Michael Laskey -

On February 1, 2011, the Competition Bureau issued a statement in respect of the proposed acquisition of CTVglobemedia Inc. by BCE Inc. The statement noted that the Bureau was “cognizant of the growing trend toward vertical integration in the broadcasting industry” and that it was reviewing issues of vertical foreclosure. The statement also noted that the Commissioner of Competition would “closely monitor” the CRTC’s vertical integration hearings and subsequent regulatory developments in that same regard.

On September 21, 2011, the CRTC released its decision, Broadcasting Regulatory Policy CRTC 2011-601, setting out a regulatory framework for vertical integration among broadcasting and programming companies. In its decision, the CRTC imposes a number of restrictions on the activities of “vertically integrated” companies, which for the purposes of the decision it defines as companies that control both programming services (such as conventional television stations) and distribution services (such as cable or satellite systems). More specifically, some of the restrictions imposed by the decision include:

  • Restriction on Exclusivity: In proposed amendments to the Exemption order for new media broadcasting undertakings1,  to be published later this year, no person operating under that order will be allowed to offer programming designed primarily for conventional television on an exclusive (or otherwise preferential) basis in a manner that is dependent on a consumer’s subscription to a specific mobile or retail internet service. However, to encourage innovation in programming, exclusivity may be offered for programs created specifically for new media platforms (e.g., content designed specifically for mobile phones). A notice of consultation will be published, calling for comments on the draft regulations.
     
  • Programming Services Must Be Independently Available: Before the end of 2011, the CRTC will issue a notice of consultation containing draft regulatory amendments that will include a provision that all programming services must be made available to independent broadcasting distribution undertakings (BDUs) on a stand-alone basis. Therefore, vertically integrated firms will not be allowed to use their most popular programming services to encourage sales of less valuable programming.
     
  • ”No Head Start” Rule: Before the end of 2011, the CRTC will issue a notice of consultation containing draft regulatory amendments stating that, whenever a programming undertaking is ready to launch a new pay or specialty service, it will be obligated to make that service available to all BDUs. If a commercial agreement between the parties cannot be reached, the CRTC will be able to manage the dispute and impose rates. The “no head start” rule will also apply to television programming distributed on new media distribution platforms (including mobile phones and retail internet).
     
  • “Code of Conduct” for Commercial Interactions: The CRTC concluded that there was a potential for abuse of market power by vertically integrated entities, and imposed a code of conduct to ensure no party “uses its market power to engage in anti-competitive behaviour”. The code of conduct, which establishes the guidelines for commercial arrangements between BDUs, programming undertakings and new media exempt undertakings, is attached as Appendix 1 to the CRTC’s decision. The CRTC noted that it would refer to the principles in the Code of Conduct when making determinations on complaints or other applications.
     
  • Penalties for Non-Compliance: In “appropriate case[s]”, the CRTC said that it would impose financial remedies on non-compliant entities in the form of orders to pay amounts into a fund for the “benefit of the Canadian broadcasting system”.

As noted above, several of the new restrictions will be implemented though regulatory amendments, and will be subject to further consultation before they are set out in their final form. The Competition Bureau has not commented on the CRTC’s decision.


1. This order applies to, among others, Bell, Rogers, Shaw, and Quebecor Media.

Competition Bureau challenges credit card rules

D. Jeffrey Brown -

The Competition Bureau of Canada announced on December 15, 2010 that it had filed an application with the Competition Tribunal to strike down certain rules that Visa and MasterCard impose on merchants who accept their credit cards. The Bureau is challenging Visa and MasterCard's rules under the price maintenance provisions of the Competition Act. The Bureau launched its investigation in response to complaints by merchants and their associations and initiated a formal inquiry in April 2009. It marks the second civil case launched by the Commissioner in the past year challenging unilateral conduct - a significant increase in the pace of enforcement of the reviewable practice provisions of the Competition Act, if it persists, although the case has taken almost two years to come to fruition.

Google Inc. terminates services agreement with Yahoo! Inc.

On November 5, 2008, Google Inc. (Google) announced that it had terminated a non-exclusive advertising services agreement (the Agreement) with Yahoo! Inc. (Yahoo!) entered into by the parties in June. 

Under the Agreement, Yahoo! would have enjoyed the option of displaying Google's "sponsored search" ads in place of, or in addition to, its own sponsored search ads in the United States and Canada.

While the parties announced the Agreement in June, they voluntarily delayed implementation to permit antitrust/competition authorities in the United States and Canada to review the Agreement. Notwithstanding changes proposed by the parties to alleviate potential concerns raised by antitrust authorities, the U.S. Department of Justice's Antitrust Division (US DOJ) informed the parties on November 5 of its intention to file an antitrust lawsuit to block its implementation. Google thereafter announced that it had terminated the Agreement, prompting the US DOJ and the Canadian Competition Bureau to discontinue their respective investigations.

Stikeman Elliott represented Yahoo!, with a team comprising Paul Collins, Jeffrey Brown, Michael Kilby and Jennifer MacArthur.