Canada: Rogers Misleading Advertising Case Gets More Interesting All The Time

Bottom Line: When Rogers Communications Inc. ("Rogers") said it was going to "vigorously" defend itself against allegations of misleading advertising by the Competition Bureau, it wasn't kidding. As proceedings in the Ontario Superior Court of Justice continue, Rogers has unleashed a major challenge to the constitutional validity of both the civil penalties (administrative monetary penalties or "AMPs") provided for under the Competition Act ("Act"), and the long-established principle that an advertiser needs to have 'adequate and proper tests' of its performance claims before making them to the public. If successful, this case could have significant ramifications for enforcement of misleading advertising under the Act, although it will likely be a while (and a few appeals later) until we have a final outcome.

THE BUREAU'S CHALLENGE

So, what is this all about? As a quick reminder, in November 2010, the Commissioner of Competition ("Commissioner") commenced proceedings against Rogers and its subsidiary, Chatr Wireless Inc. ("Chatr"). The allegations? That Chatr's advertising claim that it had "fewer dropped calls" than the competition was reviewable under two paragraphs of the Act: 74.01(1)(a) and (b). In brief, the first provision is the general prohibition against false or misleading advertising. The second – the one being challenged here – requires that performance claims be supported by "adequate and proper tests" prior to making the claim (For the nitty-gritty, see "The Legalese" sidebar). The Commissioner is seeking an Order against Rogers and Chatr for a $10 million AMP, $20 in restitution per customer per month that each was subscribed to the Chatr service, as well as corrective advertising.

It is worth noting that the AMPs in question came into force in 2009, upping what had been a mere $100,000 maximum for corporations to a maximum of $10 million for a first Order and $15 million for any subsequent Order. As reported in our 2012 Canadian Marketing, Advertising & Regulatory Law Update, Bell acceded through a consent agreement to pay a $10 million AMP in relation to its alleged misleading advertising, which was the first time we saw the maximum in play. So, this run by Rogers will be the first test of this new, more significant amount.

PULLING OUT THE CONSTITUTIONALITY GUNS

Rogers has been claiming the following:

a. AMPS So High They're Criminal?

Rogers has argued that the proceedings are criminal by nature and the quantum of the AMP is a true penal consequence, yet Rogers is denied the safeguards given otherwise by Section 11 of the Canadian Charter of Rights and Freedoms ("Charter"). Specifically, Rogers argues that it is denied the presumption of innocence, the right to a fair trial and to make a full defense (including receipt of all information in the Commissioner's possession that might be relevant), and the right against self-incrimination (since, under the Act, Rogers is obligated to disclose all relevant documents to the Commissioner, can be compelled to testify and can't 'plead the 5th' – here in Canada, we suppose, the 11th...).

b. Is the Requirement for Pre-Claim Tests Justifiable?

Further, Rogers argues that the 'adequate and proper tests' requirement under the Act is unconstitutional and infringes on freedom of speech as guaranteed by the Charter. This is not the first such challenge. Most recently, it had been tested by the Competition Tribunal and not the courts, although such findings are not binding in this case. In one such challenge (Gestion Lebski, CT-2005-007) the provision was found to violate the freedom of expression granted in the Charter, although no argument had been submitted by the Commissioner and that finding was revisited and reversed in a later case, which upheld the provision as constitutional (Imperial Brush, CT-2006-010).

In this case, Rogers submits that the provision is an unnecessary restriction on freedom of speech. In light of the general prohibition against false or misleading advertising in both Section 74.01(1)(a) and the criminal prohibition in Section 52, tools are already in place to regulate such conduct. Market forces and the reputational risk if a company is caught in a misrepresentation further make the provision unnecessary, it says, as do consumers' ability in this day and age to research and report over the Internet and social media. It also notes the inherent ambiguity in what is 'adequate and proper', anyway. Rogers submits that the provision has the unintended consequence of harming competition and denying consumers information about products, chilling performance claims which could be entirely truthful, "made with a reasonable basis to believe that such a claim is entirely accurate, but ... not subject to adequate and proper tests" prior to making the claim. In other words, Rogers questions the constitutionality of a provision which could impose a $10 million AMP against a claim that is neither false nor misleading, but which is simply found after-the-fact not to have been sufficiently substantiated prior to publication .

c. Commissioner: It is so Justifiable – and s.11 of the Charter Doesn't Apply to Corporations

For its part, the Commissioner responds that consumers do not have the ability to assess the accuracy of performance claims of the nature contemplated by the provision, and so it is justified to put the onus on the advertiser to ensure its testing is adequate and proper. This, in her view, is a justifiable limit on commercial speech. The Commissioner contends that the proceedings are not, in fact, criminal, but civil and that the penalty, although potentially substantial, is necessary so as not to be seen as merely a "license fee" or "cost of doing business." She notes, in this instance, that Rogers has an operating revenue of almost $7 billion, and that the allegedly penal nature of the AMP must be considered in that context. Further, the Commissioner submits that Section 11 of the Charter simply doesn't apply in the case of corporations.

So, from these initial positions, we wait to see where the parties and the Court will land, what the implications will be on advertising performance claims and the amount of AMPs that may be imposed in the future. Stay tuned...

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