Canada: Customer Rebates Paid To Resolve Competition Bureau Concerns About Regular Price

On June 14, 2006, the Competition Bureau announced that it had entered into a settlement agreement to resolve its concerns that the marketing practices of Media Syndication Global ("MSG") contravened the Competition Act's ordinary selling price provisions. In addition to MSG, the other parties to the settlement include Interactive Marketing Group ULC ("IMG") and Havas S.A. ("Havas").

MSG was at all relevant times a multi-channel consumer products direct marketing company based in New York. IMG is an Ontario-based media and marketing company that provides various marketing-related services to its clients. Havas is a global media and advertising company based in France and indirectly the parent company of both MSG and IMG.

Under the Competition Act's ordinary selling price provisions, the Competition Tribunal may issue an order against a person who makes a representation as to the ordinary or "regular" selling price of a product in the market (usually compared to its own lower or "sale" price) where either that person or suppliers in the market generally have not either (1) sold a substantial volume of the product at that price or a higher price within a reasonable period of time before or after the making of the representation (the "volume test"), or (2) offered the product at that price or a higher price in good faith for a substantial period of time recently before or immediately after the making of the representation (the "time test").

The Competition Bureau has issued guidelines stating that, in its view, (1) regular price sales of more than 50 percent of the total sales during the last 12 months are generally required to satisfy the volume test, and (2) offering a regular price for more than half of the time during the preceding six months is generally required to satisfy the time test.

According to a Consent Agreement registered with the Tribunal, MSG inserted promotional offers for certain binoculars and blood pressure monitors in the monthly statements mailed to CIBC VISA cardholders between August 2002 and November 2004. These inserts included representations concerning the prices at which the binoculars and blood pressure monitors were ordinarily supplied in the market. The Bureau alleged that the regular prices as represented in the inserts were overstated and did not meet either the volume test or the time test referred to above. The Bureau also alleged that MSG did not exercise sufficient due diligence to ensure compliance with the Competition Act.

The Consent Agreement, which is to remain in effect for 10 years and has the same effect as an order of the Tribunal, requires that MSG and Havas provide a $30 refund to each cardholder who purchased the binoculars and a $50 refund to each cardholder who purchased a blood pressure monitor, plus applicable sales taxes. These partial refunds are calculated as the difference between the overstated regular prices claimed in the promotional offers and the amounts actually paid by the customers. CIBC has undertaken separately to assist in the refunds to customers.

The Consent Agreement also requires that:

• MSG and Havas insert a Restitution Notice in the August 2006 monthly billing statements sent to all CIBC VISA cardholders who received the initial mailings, informing them of the refund they will automatically receive;
• MSG and Havas publish a Corrective Notice in Canadian national newspapers and relevant Canadian advertising trade magazines;
• MSG, IMG and Havas comply with the ordinary selling price provisions in respect of all representations made or caused to be made in the Canadian marketplace; and
• MSG and IMG develop and implement a comprehensive Corporate Compliance Program which will promote compliance with the Competition Act, including the ordinary selling price provisions.

In return for fulfilling their obligations under the Consent Agreement, the Commissioner of Competition agreed that she would not refer the matter to the Attorney General of Canada for criminal prosecution or seek administrative monetary penalties against the parties.

The MSG case demonstrates the Bureau's continued enforcement emphasis on ordinary price claims. As the Deputy Commissioner of Competition responsible for misleading advertising matters stated in the news release announcing the settlement, "[t]he Bureau is committed to ensuring that consumers are not deceived by companies using inflated reference prices for the sale and promotion of their products". Previous enforcement actions under the ordinary price provisions have resulted in significant penalties being imposed, including a $1.2 million penalty against Forzani Group Ltd., a $1 million penalty against Suzy Shier Inc. and a $500,000 penalty against Sears Canada. Although fines were not imposed in this instance, it is not possible from the public record to determine the total cost of the rebates to customers. Other noteworthy features of the settlement include the 10-year duration of the Consent Agreement and the fact that the Consent Agreement imposes obligations on affiliated companies located outside of Canada, as well as on both affiliated and non-affiliated companies not directly involved in the deceptive practices.

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.