Traditional methods of marketing – advertisements, give-aways, promotions and contests – can still be an effective way to sell a product or service. However, newer online advertising tactics and technologies have now created opportunities to cast a wider net and build a truly global customer base. They have also created legal and business risks. Depending on the nature of the marketing activity adopted, many areas of law may apply, including anti-spam (CASL), competition, consumer protection, criminal, intellectual property, packaging and labelling, language and privacy laws.
For example, consider the following scenario:
The marketing team of a U.S. beverage company has created a website to launch a new brand of beverage with the intention of targeting both the U.S. and Canadian market. The marketing plan includes a sweepstakes open to both U.S. and Canadian residents; providing coupons to those who subscribe to the company's email list so they can receive discounts on buying the beverage at their local retailers; requesting the public to submit pictures so people can vote on which should appear on the company's beverage bottles; and an online video advertising the beverage while making nutritional claims. They have signed an agreement with a third party to assist with handling their email list, distribution of coupons and general handling of communications pertaining to the email list.
There are a number of Canadian legal issues in the scenario above and some of them may be hard to spot. This publication is designed to provide you with helpful general information including some of the issues raised in the example above. It will be of interest to organizations who are currently marketing, or looking to market, their goods and/or services in Canada.
While we hope that you will find this publication useful, the information in it is of a general nature, and should not be regarded as exhaustive in nature or as legal advice. The laws in this area are often complex and they must be considered in the circumstances in which they arise. We urge you to obtain legal advice at an early stage.
2. MISLEADING ADVERTISING AND DECEPTIVE MARKETING PRACTICES
In Canada, false or misleading advertising is prohibited by a number of federal and provincial statutes and regulations. The primary federal legislation that prohibits false or misleading advertising is the Competition Act (Canada), which also has a number of provisions prohibiting particular deceptive marketing practices. The main provincial statutes are consumer protection and business practices statutes.
2.1 Competition Act
Engaging in misleading advertising or deceptive marketing practices can carry significant criminal or civil consequences under the Competition Act. The Competition Act's provisions apply to any person promoting, either directly or indirectly, the supply or use of a product or service or any business interest, by any means, including printed or broadcast advertisements, Internet advertisements, oral representations, and illustrations.
False or Misleading Representations
The Competition Act prohibits representations to the public that are materially false or misleading, that are not based on adequate and proper tests, that contain false testimonials or misstatements as to price, or contain representations in the form of warranties, guarantees or promises to replace, maintain or repair an article, where the warranty, guarantee or promise is materially misleading or there is no reasonable prospect that it will be carried out.
A false or misleading representation must be "false or misleading in a material respect" to contravene the Competition Act. "Material" does not refer to the value of the product to the purchaser but, rather, the degree to which the purchaser maybe influenced by the representation in deciding whether to purchase the product. The general impression conveyed by a representation, as well as its literal meaning, will be considered when determining whether the representation is false or misleading in a material respect.
Disclaimers will not necessarily save a representation from being false or misleading. A disclaimer cannot contradict the main message of the representation. When using disclaimers, factors to consider include the disclaimer content, placement, format and font size.
As a result of the Supreme Court of Canada's 2012 decision in Richard v. Time, misleading advertising claims brought under the Competition Act will generally be judged from the perspective of the "credulous and inexperienced consumer" and will be based on the general impression first created by the text and layout of an advertisement. As described by the Supreme Court, the credulous and inexperienced consumer is not particularly experienced at detecting the falsehoods or subtleties found in commercial representations, has less than average intelligence, skepticism and curiosity and is not particularly prudent, nor diligent, nor well-informed. The Commissioner of Competition has expressed the view that Richard v. Time is directly relevant to the application of the Competition Act, with the result that companies looking to avoid a run-in with the Competition Bureau should exercise additional caution when preparing marketing material. This is especially the case given the Competition Bureau's aggressive approach to enforcement; an approach that continues to include the pursuit of administrative monetary penalties of up to $10 million. The risk of these penalties is real. In 2012, the Commissioner successfully obtained the highest administrative monetary penalty awarded to date in a contested misleading advertising proceeding, being an award of over $9 million. The Competition Bureau has communicated its intent to continue to actively monitor and enforce the misleading advertising provisions of the Competition Act, with particular focus on e-commerce, as well as performance and pricing claims.
Ordinary Selling Price
The Competition Act specifically prohibits those engaged in the supply of products from making any false representation as to the ordinary selling price of a product. A supplier's advertised ordinary selling price must satisfy at least one of two tests in order to avoid contravening the Competition Act:
- a substantial volume of the product must have been sold at that price or a higher price, within a reasonable time before or after the making of the representation (referred to as the volume test); or
- the product in question must have been offered for sale, in good faith, for a substantial period of time at that price or a higher price before or after the making of the representation (referred to as the time test).
For example, before making a price representation of "Our Regular Price $100, Sale Price $50", a supplier should ensure that it can establish that either:
- more than 50% of its recent volume of sales were made at $100 or higher; or
- the product had recently been offered for sale in good faith at a price of $100 and either genuine sales had been made at $100 or, if no sales had been made at $100, such price was nevertheless a reasonable price in light of prevailing market conditions.
While the relevant timeframe for review varies depending on a number of factors (such as the seasonal nature of the product), 6-12 months is generally considered a reasonable rule of thumb.
Where false representations are made deliberately or recklessly, competition authorities can pursue the matter as a criminal offence.
The Competition Act sets out certain specific criminal offences dealing with misleading advertising, including double ticketing of prices, multi-level marketing, deceptive telemarketing and pyramid selling. It is also a criminal offence to make a representation which suggests that the recipient has won or will win a prize or benefit and that seeks payment from or requires the recipient to incur any cost, unless the recipient actually wins the contest and prescribed disclosure requirements are met. These are strict liability offences for which the Crown does not have to prove the intention to mislead or defraud. However, a due diligence defence is available to the accused.
In addition to these specific criminal offences, deliberate misleading conduct can be prosecuted under the general criminal prohibition against misleading advertising. A person convicted of criminal false or misleading advertising could be liable to a fine and/or jail time.
If it is found that an individual or company has violated one of the civil misleading advertising provisions, the Competition Act provides for sanctions, including orders prohibiting the continuation of the anti-competitive practice, requiring the party to publish a corrective notice and/or pay a significant administrative monetary penalty.
The key criminal offence under the Competition Act is conspiracy, which involves any agreement or arrangement (formal or informal) between competitors or potential competitors to:
- fix, maintain, increase or control prices;
- allocate sales, territories, customers or markets; or
- fix, maintain, control, prevent, lessen or eliminate production or supply of a product.
Such agreements or arrangements are per se illegal, which means that there is no defence, circumstance or explanation for the conduct recognised by law. The penalties for a breach of the conspiracy provisions are severe. The maximum fine upon conviction is $25 million while the maximum term of imprisonment is 14 years. Further, the Competition Act permits anyone who has suffered a loss as a result of a conspiracy to seek damages through a civil action.
2.2 Consumer Protection Legislation
Canadian provincial consumer protection or business practices legislation also prohibits false or misleading advertising. Like Canada's Competition Act, this legislation applies to advertising in a broad range of media, including print, television broadcast, and the Internet. The "deceptive" or "unfair" acts or practices include, without limitation, making representations about price advantages that are not true, or making representations that goods or services:
- have ingredients, benefits or qualities that they do not have;
- are of a particular standard, quality, grade, style or model if they are not; or
- are sponsored or approved by a particular person or organization when they are not.
2.3 Other Considerations
Other relevant federal legislation includes, without limitation, the Trade-marks Act (Canada), the Consumer Packaging and Labelling Act (Canada) and the Canada Consumer Product Safety Act (Canada).
In addition, Advertising Standards Canada ("ASC"), Canada's advertising self-regulatory body, administers the Canadian Code of Advertising Standards ("Code"). The Code sets out criteria for acceptable advertising, and has provisions either prohibiting or restricting the use of, among other things:
- inaccurate, deceptive or otherwise misleading claims, statements, illustrations or representations;
- price claims;
- comparative advertising;
- testimonials; and
- professional or scientific claims.
A consumer or a person in the trade industry may file a complaint with the ASC. The complaint will be reviewed against the Code. Since a complaint may be commenced against both members and non-members of the ASC, the Code should be kept in mind when developing advertisements and marketing campaigns.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.