Three years ago, the Conservative government increased – by a factor of 100 – the administrative monetary penalties (AMPs) payable for deceptive marketing practices in Canada. This was a significant increase from the prior regime and caused practitioners and their clients to take notice. But until March 2, 2012, those new powers had yet to be tested in a contested proceeding.
In what is now the leading decision on AMPs in Canada, Commissioner of Competition v. Yellow Page Marketing B.V., the Ontario Superior Court of Justice found that the respondents violated the deceptive marketing provisions in the Competition Act. In addition to awarding restitution against the offending parties, the Court also awarded $8 million in AMPs against the corporations and $500,000 each against the two ringleaders personally.
This was the first decision in a contested proceeding where the new penalty regime was tested, and the court gave the regime full effect in its decision. Perhaps as significant as the judgment was the speed with which it was obtained: the Commissioner of Competition obtained this judgment within seven months of commencing the proceeding.
If in-house counsel and practitioners have not yet noticed this new legal regime, now is the time to pay attention.
Background
In 2009, the Conservative government passed amendments to the Competition Act, which increased the maximum AMPs payable for deceptive marketing practices to $10 million for corporations and $750,000 for individuals. This was a hundredfold increase from the prior regime, which capped AMPs at $100,000 for corporations. The AMPs payable for deceptive marketing were in addition to a number of other new remedies available, including a requirement to pay restitution to the victims.
The new regime applies to the false and deceptive marketing practices provisions of the Act. Those provisions prohibit persons from making representations to the public that are false or misleading in a material respect in connection with the promotion of a product or business interests. The Commissioner of Competition can commence proceedings against such persons in provincial superior courts, the Federal Court, or the Competition Tribunal.
Until recently, the new remedy provisions had largely been untested in Canada. In 2011, the Commissioner obtained a $10-million AMP against Bell Canada – but that was on consent. Also in 2011, the Commissioner obtained a $300,000 AMP against Nivea's Canadian distributor and a $130,000 AMP against certain spa retailers, but again those were on consent. The question left unanswered was: how would a court deal with those new powers in a contested proceeding?
The Yellow Page Case
On July 28, 2011, the Commissioner commenced an application in the Ontario Superior Court of Justice against Yellow Page Marketing, B.V. (YPMBV) and a number of affiliates, along with YPMBV's ringleaders and their Canadian representative. The application was commenced after the Competition Bureau had received almost a thousand complaints from Canadians who alleged that they had been deceived by YPMBV's practices.
YPMBV has a name that looks a lot like the provider of Yellow Pages in Canada since 1908, which is the Yellow Pages Group (YPG). And, YPMBV's website looked a lot like Yellow Pages' website – at times going so far as using the iconic "Walking Fingers" design on the website. After setting up the website, YPMBV then obtained a fax phone list on the market, and proceeded to spam fax persons on the list. The fax, bearing the Walking Fingers and dominant Yellow Page (singular) name, stated that the service was "now with free submission to www.google.com". The personal information obtained from the fax list was reproduced on the fax. The recipient was asked to update their personal information from their "record" (along with adding search terms for the Google advertising "now" being offered), and then return it to YPMBV. Many Canadians did just that, thinking that they were just updating their information with Yellow Pages.
But what they did not see was the fine print at the bottom of the fax, which indicated that in fact, by sending the fax back, the person was really entering into a new two-year contract with YPMBV, at a price of $1,428 per year. Upon sending the fax back, YPMBV would send an invoice, and if that was not paid, would hound the person by threatening collection action and legal proceedings.
All told, until the Commissioner got involved, the scheme netted YPMBV at least $7 million and growing.
Early Injunctions
The 2009 amendments to the Act also contained new interlocutory injunction powers, which the Commissioner made use of at the first return date at the Ontario Superior Court. In an ex parte hearing held on July 28, 2011, Justice Eva Frank found that the Commissioner had a strong prima facie case against the respondents and issued injunctive relief to prevent any further cheques from being delivered to YPMBV and to prevent the assets then in Canada from leaving the country.
With that injunction in hand, the Commissioner then negotiated a further injunction with the YPMBV respondents, issued by Justice Hainey, which required YPMBV to cease certain practices and to provide financial disclosure. That injunction was continued by a further injunction on October 31, 2011.
The Final Order Hearing
On January 10, 2012, roughly five months after commencing the proceeding, the Commissioner's case was heard by Justice S. Lederman of the Ontario Superior Court of Justice. Relying largely on evidence filed in a separate trademark expungement proceeding with YPG in the Federal Courts, YPMBV argued that its business was not a scam, and that 50 percent of Canadians no longer identified the term Yellow Pages with its owner. It argued that the term Yellow Pages is in the public domain in the U.S. Finally, it argued that the fax made it clear that it was not the Canadian entity, YPG. On remedies, YPMBV argued that the individual respondents should not be subjected to AMPs in the amount claimed, if at all.
Justice Lederman found that YPMBV and the other respondents had made material misrepresentations, in that the representations were of "much consequence or [is] important or pertinent or germane or essential to the matter." He found that the faxes "were designed to appear to have been sent from YPG". The fact that the terms of the contract were disclosed in the fine print was "insufficiently prominent" and "does not reduce its false or misleading nature."
The Court further stated that misrepresentations made during collection efforts constituted the promotion of a business interest, and that term is not limited to just sales. The Court also found the fact of ongoing Federal Court expungement proceedings was irrelevant: "the respondents have traded on the reputation of YPG and have falsely represented that they had a pre-existing relationship with the consumers... who believed were merely updating information."
The court issued declaratory relief and issued a prohibition order for 10 years. It also ordered YPMBV to post corrective notices on their websites. The Court also granted restitutionary relief, requiring the respondents to refund by means of certified cheque any amounts paid by Canadians. The Court declared any such contracts to be null and void.
And, the Court issued significant AMPs. The Court disagreed with the individual respondents' claim that they had exercised due diligence and had a genuine belief that the marks were generic, finding that "the due diligence must go to prevention and that is not the case here". In other words, to have an AMP reduced for an individual based on due diligence, the individual must lead evidence to show that they exercised due diligence to prevent such conduct from occurring.
The Court awarded AMPs in the amount of $8 million payable jointly and severally by the corporate respondents, $500,000 for Jan Marks, $500,000 for Steve Green, and $35,000 for the Canadian representative. Weighing heavily in favour of these AMPs was the fact that the YPMBVs were found to have been in breach of Justice Hainey's earlier injunction order, and that the respondents had engaged in similar conduct in other countries.
Commentary
It was once thought that administrative remedies for breaches of the deceptive marketing provisions of the Competition Act were largely slaps on the wrist, and most of the time they were. With a maximum AMP of $100,000 payable, the courts were largely incapable of remedying major frauds using this provision of the Competition Act. Moreover, contested proceedings either in the Federal Court or the Competition Tribunal could get significantly bogged down with significant delays, making it even less worthwhile to commence proceedings in the first place.
That is no longer the case today. The Commissioner has now obtained one AMP for $10 million on consent, and further AMPs in the Yellow Page case totalling more than $9 million – the highest award ever awarded in contested deceptive marketing proceedings in Canada. And, the Commissioner obtained that AMP and got to a final hearing in roughly seven months, and that included three interlocutory injunction hearings.
Significant penalties obtained in a very short period of time. Hold the phone, it is time to take deceptive marketing provisions in the Competition Act seriously.
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