Canada: Further Misleading Advertising Enforcement Activity

The Commissioner of Competition's willingness to commence proceedings continues. On July 9, 2013, the Commissioner commenced proceedings in the Superior Court of Justice (Ontario) against Leon's Furniture Limited and The Brick Ltd. (The Brick is now controlled by Leon's). Leon's and The Brick operate large chains of furniture stores across Canada.

The Statement of Claim alleges that Leon's/The Brick made false or misleading representations in their advertisements when they made statements such as "don't pay a cent! Not even the taxes! For [...] months!*" The Commissioner alleges that the representations are false or misleading in that they convey the impression that consumers can purchase a product and take it home without having to pay anything until a later point in time. In addition, the Commissioner alleges that such representations convey the general impression that consumers can take advantage of the deferred payment option without paying more than if they paid for the product in full at the time of the purchase. It is alleged that there are various upfront charges not properly disclosed, including administrative, processing, delivery, electronic disposal or recycling fees as well as a membership fee in certain circumstances. In line with the prior Commissioner's focus on the ineffectiveness of certain disclaimers, it is alleged in this proceeding that disclaimers presented were "lengthy, in fine print, typically situated far away from the associated representations". It is also alleged that the disclaimers were inconsistent and indirectly contradicted the representations' literal meaning as well as the general impression conveyed.

Perhaps the most curious aspect of the Statement of Claim is the pleading with respect to "drip" pricing. The Federal Trade Commission in the United States has described "drip" pricing as a pricing technique in which firms advertise only a portion of a price and reveal other charges to the customer as he or she goes through the purchasing process. The Commissioner pleads in his Statement of Claim that "drip pricing triggers a number of common behavioural biases, including:

(a)    Price anchoring – consumers "anchor" to the piece of information they think is most important (i.e., the advertised price). They then fail to adjust their perception of the value of the offer sufficiently as more costs are revealed;

(b)    Loss aversion – consumers see a low price and make the decision to buy the good, which shifts their reference point because they imagine already possessing the good. Later, when they realize that there are additional costs and charges, it is more difficult for them to give up the good that they already view as theirs; and

(c)    Commitment and consistency – consumers have a desire to be consistent with their previous actions so once they've started the purchasing process they are less likely to walk away."

The Commissioner then pleads that the advertiser's reviewable conduct exploited these behaviours, and immediately asks for the defendants to be ordered to pay restitution in an amount to be determined. This will raise an interesting question as to whether and what amount of restitution is appropriate for misleading advertising that lures a customer into a transaction but where, during the process of the transaction itself, that consumer is given full disclosure of all the charges and payments required. If we assume that Leon's/The Brick complied with their obligations under provincial consumer statutes with respect to disclosure of credit and other terms, then the consumer will have received exactly what he/she agreed to, at a price that was known to them. The fact that a consumer might not have considered entering into such a transaction with that retailer absent the attractiveness of the advertising does not give rise to a need for restitution in the same manner as cases involving goods that are sold that do not perform the functions advertised (e.g. fraudulent weight-loss products), or goods that are not as valuable as advertised (e.g. a ring advertised as 18 carat gold that is actually only 14 carat gold).

Under section 74.03(4) of the Competition Act, it is not necessary to establish "any person was deceived or misled" to establish liability. Also, it is long settled in Canadian misleading advertising law that the determination of the meaning of an advertisement is a question of law. Thus, the Commissioner's reliance on consumer psychology can only be pleaded to support an argument that restitution is acquired because consumers effectively lose their ability to choose freely in the face of this advertising. The determination by the Superior Court of Justice as to the validity of the Commissioner's psychological theories will be interesting to follow.

Also, this case, if it proceeds to trial, may allow for some determination of the extent to which compliance with provincial consumer laws that mandate contractual and credit disclosure in great detail could be seen as due diligence for the purposes of the Competition Act.

The defendants had not filed any formal response to the allegations at the time of the writing of this bulletin.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2013 McMillan LLP

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