Canada: Commissioner Of Competition's Case Against Rogers Communications Fails

Last Updated: September 13 2013
Article by Daniel G. Edmondstone

After more than 40 hearing days over three years, the Commissioner of Competition's misleading advertising case against Chatr Wireless Inc. and its parent, Rogers Communications Inc. (herein, "Rogers", collectively) has been (mostly) decided. The decision represents an almost complete victory for Rogers.

The case dates from 2010. Rogers set up Chatr Wireless in order to better directly compete against new wireless entrants such as WIND Mobile, Mobilicity and others. As part of that competitive strategy, Chatr launched an advertising campaign featuring the phrase "fewer dropped calls than new wireless carriers" and then "no worries about dropped calls". The Commissioner of Competition brought this case a few months later, alleging these statements were false and misleading.

This litigation can be placed within a context of broader regulatory and enforcement turmoil. WIND Mobile and Mobilicity complained to the CRTC regarding their roaming arrangement with Rogers; they were unsuccessful. Mobilicity made a complaint against Rogers under the abuse of dominance provisions of the Competition Act: Rogers was using Chatr on a temporary basis to substantially lessen or prevent competition from Mobilicity. Public Mobile also complained to the Competition Bureau that Chatr's actions in the marketplace were an abuse of Rogers' dominant market position. Particulars of the Public Mobile complaint included that it experienced difficulty in obtaining retail space in major malls because the space had been taken by Rogers and other incumbent carriers. Some weeks later, WIND Mobile made a complaint of false advertising against Rogers. The Commissioner of Competition decided not to pursue the abuse of dominance complaints but rather to bring a proceeding under the civil reviewable misleading advertising provisions.

Justice (now Associate Chief Justice) Marrocco of the Superior Court of Justice (Ontario) issued a decision on August 19, 2013 that dismissed most of the Commissioner's case. The Court found that the advertising in question was neither false nor misleading and that it was substantiated by a proper and adequate test. In certain regional markets, a number of days after the Chatr advertising campaign launched, the Court found that Rogers failed to have proper and adequate testing in hand at the time the campaign launched. This arose because the testing in the various wireless networks was not complete in certain cities at the time that the advertising was first disseminated. This provision of the Competition Act was the subject of a Charter of Rights challenge by Rogers that was unsuccessful.

The hearing will continue at a date to be set, to allow the Commissioner and the respondents to make submissions with respect to the issue of any appropriate remedy that should be imposed on the respondents for this relatively narrow violation.

The decision is 77 pages long but reads very well and has a number of interesting and potentially important findings for advertisers, which are summarized below.

1. The Notional Consumer.

The Court dealt with the issue of the appropriate characterization of the "consumer" to whom the advertising is directed. The 2012 Supreme Court of Canada decision in Richard v Time Inc. (see our bulletin regarding that case) proceeded under Quebec's Consumer Protection Act. The Supreme Court found that, when analyzing an advertisement using the statutorily mandated "general impression" test, the Court should use the perspective of the average customer who is described by the Supreme Court as "credulous and inexperienced and takes no more than the ordinary care to observe that which is staring him or her in the face upon first entering into contact with an entire advertisement". There has been a fear that the analysis used by the Supreme Court under the Quebec Consumer Protection Act might be extended to also apply to cases under the Competition Act. The Ontario court in Chatr pointed out that

"[t]here is a difference between the purpose of Quebec's Consumer Protection Act and the purpose of the Competition Act. The Quebec legislation is intended to protect a vulnerable person from the dangers of certain advertising techniques....The Competition Act is intended to maintain and encourage competition in Canada in order to 'provide consumers with competitive prices and product choices': see s. 1.1 of the Competition Act.

The difference in purpose between Quebec's Consumer Protection Act and the Competition Act is a relevant consideration in determining the proper consumer perspective to be applied to the contentious representations.

Richard v Time Inc. defines the person considering the advertisement in three ways: credulous, inexperienced and a consumer"

The Court in this matter held that in the Richard v Time Inc. case the matter involved a representation made to the public at large. In this proceeding, a consideration of the mass media advertising leads to the conclusion that:

"the consumer is a person wanting unlimited talking and texting wireless services, as well as cost certainty."

The Court further stated that

"accepting that the consumer is credulous in the context of this Application means that the consumer is willing to believe the fewer dropped calls claim because it is contained in public representations to that effect.

The requirement that the consumer be inexperienced is more difficult to apply. The consumer by definition resides in the segment of the wireless services market that wants unlimited talking and texting wireless services. Such consumer cannot be viewed as inexperienced with wireless talking and texting, otherwise the consumer would not reside in the segment of the wireless services market. For example, the consumer might know that he or she wants certainty in their wireless monthly bill due to a previous bad experience with unexpected cell phone fees. In addition, the consumer knows that he or she wants talking and texting wireless services and he or she wants those services in an unlimited way. Accordingly, I am satisfied that the lack of experience relates to the technical information contained in the advertisements. For example, the advertisements claim that Chatr will drop fewer calls because of its cell site density. It is this aspect of the claim with which the consumer lacks experience.

I am satisfied therefore that the consumer's perspective in this case is that of a credulous and technically inexperienced consumer of wireless services."

While the Court in this matter does not explicitly analyze the case law under the relevant Competition Act provisions, the analysis is fully within the logic set out in the Ontario Court of Appeal decisions in R v Viceroy Construction Co. (1975), 29 CCC (2d) 299 (Ont CA) and R v R. M. Lowe Real Estate Ltd (1978), 40 CCC (2d) 529 (Ont CA) that provide a coherent articulation of the standard of the "average purchaser". One might sum up this test as the average purchaser being a purchaser who is interested in making the purchase in question, not a purchaser who by reason of special training, education, experience or skepticism, is especially aware of advertisements and studies them with great care, nor a purchaser who may lack such training, education, experience or skepticism, or who may be especially naïve, non-thinking, or credulous and therefore careless in considering all advertisements.1

This decision may provide significant comfort to advertisers that their advertisements will not be held to an unreasonable standard of review in the determination of the appropriate meaning to be ascribed to them.

2. Testing: What is required?

The Commissioner's case hinged on the allegation that the testing carried out by Rogers2 was inadequate. These tests were, by their nature, a form of sampling. The Commissioner, through the use of her enforcement powers, was able to obtain information with respect to dropped calls that came from the central switch of each of the relevant wireless networks. That data, the Commissioner alleged, showed that, contrary to the results of the Rogers drive tests, the number of dropped calls was not as found by the drive tests. This line of reasoning held the dangerous potential to make comparative testing based on sampling inappropriate or, in the words of the statute, not "proper and adequate". No wireless network would willingly give access to the data stored in its central switch computer system to a competitor. Thus, if such data is the appropriate measure of the comparison, then such comparisons would never be possible under Canadian law.

As it happened, the Court rejected the Commissioner's position on the basis that the switch data was too complex to allow for the comparison to be made between systems on the evidentiary record available. Thus, the Court did not need to consider the issue of whether such data, if it were available, would be preferred over that produced by sampling.

The Court, it should be noted, did endorse as appropriate the drive tests themselves as universally used by wireless service providers. They were found by the Court to be fit for purpose and one hopes that this will discourage future arguments that would undermine the ability of businesses to use well-established industry recognized testing methodologies to satisfy the requirements of the Competition Act's provisions. While not cited by the Court, its decision might be well summarized by reference to Advertising Standards Canada's Code of Conduct. Clause 1(e) states:

"...test or survey data...must be reasonably competent and reliable, reflecting accepted principles of research design and execution that characterize the current state of the art."

3. Small Differences

The Commissioner alleged that the differences between the number or rate of dropped calls as between the various new networks and Rogers was small enough to not be discernible to consumers and thus not to be an appropriate difference to advertise. The Court rejected this position. The Court found that many claims about products are not discernible, giving as examples food safety and nutritional claims. The Court quoted WIND Mobile's submission to the CRTC which stated "put simply, every dropped call matters". The Court found that several of the new entrants clearly thought that "the public was concerned with the risk of dropped calls rather than their relative frequency." The Court concluded that it was satisfied that the notional consumer in this matter "would be more inclined to be a customer of a network that offers fewer dropped calls. Where price is not a factor, [the Court finds] it difficult to believe that a consumer would choose a network that offered only a few more dropped calls. Even if one network only had a few more dropped calls, one of those calls could be extremely important." The Court declared that it was not satisfied that "the notional consumer viewing the Chatr ads expected the dropped call experience to be discernibly different.

4. What is a "test"?

Because the advertising campaign for Chatr launched in the absence of the final test results for certain cities covering the first number of days of the campaign, Rogers argued in this Application that an adequate test within the meaning of the Competition Act could be satisfied by an analysis of facts including that the Rogers network had denser cell sites; a frequency spectrum that has better propagation qualities, as well as other factors. An engineer or other technician skilled in network technology could examine these facts and conclude that one network will produce more or fewer dropped calls than another. Based on these factors, Rogers' engineers could make such a conclusion.

The Court rejected this argument stating that "the law permits a flexible and contextual analysis when assessing whether a claim has been adequately and properly tested, but there must be a test." (emphasis added). The Court stated that the test does not necessarily need to be one that has been conducted by or for the advertiser. In this regard, it cited the better propagation qualities of lower frequency spectrum that was described in the Friis transmission formula first published in 1945. If the Commissioner were to allege that a particular claim that is false or misleading required this fact to prove it to be true, then it would seem that the advertiser will have an obligation to provide such "testing". The Court was "satisfied that Rogers' network had the technical advantages that the respondents claimed that it had in the fewer dropped calls claim." These advantages, however, do not relieve the advertiser of testing the fewer dropped calls claim. The technological advantages are, however, capable of confirming the adequacy and the propriety of a test that appears to substantiate the fewer dropped calls claim.

The decision may make prudent advertisers consider whether some of their advertising claims of the "performance efficacy or length of life of a product" are justified on something that has the outward appearance of a "test".

Conclusions

As stated above, this proceeding is not yet finalized given that there is the need for a further hearing to determine what remedy, if any, is appropriate in the circumstances of Rogers not having certain test results in hand at the time that the first public mention of the advertising claim was released. The decision is interesting and important for a few reasons. There is a lack of jurisprudence in recent years involving advertising by legitimate businesses. Cases against fake business directories and imitators of yellow pages, developers of almost magical devices to improve fuel efficiency do not necessarily make for the best or most useful jurisprudence to give guidance to legitimate businesses in their everyday planning.

Here are four important conclusions:

Advertisers should know that a test must be a test and not just a logical conclusion or inference.

This decision confirms that industry standard testing is a good basis on which to conduct tests. The Commissioner's attempt to undermine a methodology used internationally by telecommunications service providers was perhaps, in retrospect, a tall order.

However, the fact that consumers may not be able to discern the difference between two products or services does not necessarily mean that those differences are inappropriate as the basis for comparative advertising.

Finally, from a jurisprudential perspective, this decision limits the application of the Supreme Court of Canada's decision in Richard v Time to its Quebec Consumer Protection Act context. The Court rightly points out the purpose of the Competition Act is different and broader. The Court's analysis follows the logic of the line of cases developed over decades under the Competition Act.

Footnotes

1. From R v Simpson Sears Ltd. (1976), 28 CPR (2d) 255 (Ontario County Court).

2. Described as "drive tests" in which motor vehicles equipped with sophisticated equipment would drive in a pre-arranged grid pattern throughout an urban/suburban area and make simultaneous calls to competing wireless networks, measuring various aspects of those calls to the networks, including the number of calls that were "dropped".

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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