Performance claims can be an effective way of advertising a
product and comparing it to competitors. But the Competition Act
prohibits making performance claims not based on an adequate and
proper test. Two recent cases highlight the dangers inherent in
this provision for advertisers.
The first involved Rogers Communcations Inc. Rogers' claims that customers of its Chatr brand experienced fewer dropped calls than those of the new entrants were not false or misleading, the Ontario Superior Court held recently in dismissing, in large part, an application by the commissioner of competition.
The court did find, however, that Rogers had breached the performance claims provision of the Competition Act, because it did not conduct adequate and proper tests before making certain representations in Calgary, Edmonton, and Montreal.
Advertisers should draw three important lessons in this case.
First, they cannot base a performance claim even on proven technical advantages.
Rogers defended its comparative claims based on superior technical characteristics of its network, as compared with the new entrants, and drive tests to determine dropped-call rates.
Justice Frank Marrocco agreed that Rogers' network had the technical advantages it claimed but found they did not relieve the company of the requirement to test its comparative dropped-calls claim.
Second, they must conduct the tests before making the performance claims. The truth of the claim is no defence: a test conducted after making the claim will not be adequate or proper even if it confirms the truth of it.
Third, they must consider the level of confidence in test results.
Rogers' experts claimed a 95-per-cent confidence rate in their testing. Marrocco commented on this issue. "I am not persuaded that, in deciding whether the respondents have discharged the burden of proving that their fewer dropped calls claim was based upon an adequate and proper testing, a 95 per cent confidence level is consistent with a balance of probabilities standard of proof. The level of confidence required in the result of the test before it can be considered adequate and proper must be consistent with that standard of proof."
It is not clear what Marrocco meant by this. It would make little sense to take his comments to suggest that advertisers need to prove performance claims with a confidence of only 51 per cent since a test at that accuracy level is no better than the flip of a coin.
In the absence of clear guidance from the court, advertisers should ensure they conduct tests to a level of confidence that is consistent with proper scientific practice for the test in question.
The second case involves Hyundai Motor Co. and Kia Motors Co. It illustrates the advantages and disadvantages of voluntarily disclosing an error in a performance claim.
Hyundai and Kia advertised fuel-consumption figures based on tests conducted in Korea. They later discovered procedural errors in the testing that invalidated the results.
The two carmakers chose to go public with the error and compensate consumers. They offered consumers prepaid credit cards for the extra fuel they used over and above the advertised consumption rating plus 15 per cent.
They also reported themselves to the Competition Bureau. The move led to a consent agreement that formalized the compensation program they had already announced. The bureau agreed that further restitution or notice were not necessary nor were administrative monetary penalties appropriate.
The bureau trumpeted this result in a press release. While the press release commended Hyundai and Kia for "reaching out to consumers," it failed to make it clear that Hyundai and Kia discovered the problem and remedied it before reporting themselves.
Hyundai and Kia also faced class action claims in both Canada and the United States. They offered a lump-sum alternative to consumers to settle the U.S. class action. It structured the lump-sum alternative as a credit for service or a new car so as to bring customers into the dealerships.
Most people would agree Hyundai and Kia did the right thing. The advantages of self-reporting and voluntary compensation include lenient treatment from authorities; more control over compensation for consumers, including the ability to fashion a plan that promotes loyalty; and greater ability to manage the public perception and influence how the media will treat the story.
But the disadvantages include the bureau's desire to formalize the arrangement into a consent agreement that creates a record it might use against the company if it experiences another inaccurate performance claim and class action liability.
The bottom line for advertisers is this: performance claims can be highly effective, but if they don't take care before making such claims in advertisements, liability and bad publicity can be the result.
Originally published in Law Times, 7 October 2013
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