Canada: Canada's Anti-Spam Legislation: Considering CASL In Business Transactions

Last Updated: February 11 2016
Article by Anne-Marie Naud, Kirsten Thompson and Nicolas Bertrand

Most Read Contributor in Canada, September 2018

Since coming into force on July 1st, 2014, Canada's Anti-Spam Legislation ("CASL") has created new concerns and risks that must be addressed in business transactions. This post reviews those concerns in the context of asset acquisitions, specifically the risks associated with the transfer of CASL consents for the purposes of sending marketing messages to business customers. Given the volume of marketing and customer contact conducted by retailers and consumer products distributors, this may be of particular concern in acquisitions of consumer facing businesses or businesses that manufacture consumer products. A retailer or distributor that fails to address these issues at the time it obtains CASL consents, or prior to the transaction, could find a significant portion of the transaction value eroded by its inability to transfer customer contact lists.

Commercial Electronic Messages

CASL deals primarily with "commercial electronic messages" or "CEMs".1 A CEM is an electronic message that has, as one of its purposes, the encouragement of participation in a "commercial activity". This encompasses e-mails sent to the electronic addresses of customers for promotions, contests and advertisements, as well as instant message alerts or some types of social media messages used to market to and communicate with existing and/or potential customers. Importantly, the commercial aspect does not have to be the sole, or even dominant, purpose of the message – the context matters and links, footers and logos may be sufficient to turn an otherwise non-commercial message into a commercial one.

Many businesses send CEMs using customer distribution lists. The transfer of these valuable marketing tools in the context of an asset acquisition presents certain risks to purchasers, as it is subject to strict consent requirements, both privacy consent requirements (i.e. to collect, use and disclose personal information such as an email address) and CASL consents (i.e. to send CEMs to the email address that has been collected) . If customer distribution lists, or any form of personal information used to send CEMs, are transferred in violation of CASL or privacy legislation, a purchaser could expose itself to significant penalties after closing.

Transferring Consents

Pursuant to CASL, all businesses are required to obtain the consent of recipients in order to send them CEMs. Consents may be express (e.g. check here to receive CEMs) or implied on the basis of there being a qualifying relationship. One of these types of relationships  which grounds implied consent is an "existing business relationship". An existing business relationship arises, for instance, where a person has purchased a product or service from the sender within two preceding years of receiving the CEM, or has made an inquiry to the business within the preceding six months, and in either case has not unsubscribed from receiving CEMs.

CASL further stipulates that if a business has an "existing business relationship" with another person, and the business is sold, the purchaser of said business is considered to have assumed the same "existing business relationship", allowing the purchaser to continue sending CEMs to individuals until they expressly opt-out or the relationship reaches the time limit specified in CASL.

While CASL provides for the existing business relationship to be transferred following the sale of a business to a purchaser, it does not specifically state the consents that flow from that relationship and held by the business may be transferred as well. Therefore, a significant CASL issue to be addressed when dealing in an asset acquisition involves obtaining and maintaining the consents of customers to receiving CEMs on this basis. When purchasing private information used to distribute CEMs, the purchaser must ensure that the consents being purchased from the seller are validly held and transferrable under CASL (and privacy laws).

Industry Canada's Regulatory Impact Analysis Statement ("RIAS") states that (emphasis added) "express consents will transfer upon the sale of a business, should the contract of sale include a provision transferring these as a business asset." It must be noted, however, that the RIAS only represents Industry Canada's interpretation of CASL and is not the law. In addition, the RIAS only provides guidance on the transfer of express consents; the direct transfer of implied consents (such as those arising from an existing business relationship) is not addressed.

The Canadian Radio-television and Telecommunications Commission's ("CRTC") Guidance on Implied Consent (the "Guidance") adds a further layer of interpretation (emphasis added):

"When a business is sold, the purchaser can rely upon express consents obtained by the seller if the contract of sale of the business includes a provision transferring the list of email addresses for which consents have been obtained as part of all its assets. Therefore, the new owner will be able to continue sending CEMs to the recipients that gave express consent, as long as the other requirements of CASL are met.  CASL also specifically indicates, at section 10(12) that, with the sale of a business, any existing business relationships (EBR) are considered to now be with the new owner of the business."

The foregoing, however, still does not explicitly address the transfer of implied consents.

An example given by the CRTC in the Guidance seems to suggest implied consents do not transfer per se, but rather the exemption from consent created by a valid existing business relationship may be relied upon by an acquiring business. However, the onus is on the purchaser to ensure such underlying business relationships are, in fact, valid.

An important consideration here will also be which entity gets the benefit of the existing business relationship – the Guidance states that "with the sale of a business, any existing business relationships (EBR) are considered to now be with the new owner of the business". In other words, Guidance suggests that such relationships are not divisible, creating an all-or-none situation.

Validity of Consents: Keeping Track of Them All

Assuming that consents to receive CEMs are transferable, issues may arise with respect to the way that such consents are documented. A purchaser should conduct proper enquiries to ensure that the seller has kept detailed records of how, when, and for what purpose the consents were obtained and whether it has sufficient tools to keep track and identify them all. If the consents have not been validly obtained in the first place, no transfer of consent in fact occurs.

There are also particular issues that may arise when purchasing the assets comprising a division of a company. Where consent has not specifically been given to the division, but rather to the company operating said division, express consent will likely need to be obtained by the purchaser in order to continue distributing to and benefiting from the customer distribution list of the business. If both the division and the overall operating company have been relying on different types of consents arising from different types of transactions (e.g. online transactions are with the operating company, but in-store transactions are with the division) and such consents are not separated out on a customer list, distinguishing between the two can become virtually impossible.

One possible solution to this issue is for the vendor to send an e-mail on behalf of the purchaser asking customers to explicitly accept that as of the date of closing, they agree to receive CEMs from the purchaser. The e-mail must offer the option to the customer to unsubscribe at any time. Consent may even be obtained in conjunction with a contest or discount offer, provided that consent is not a condition of receiving the discount or entering the contest and the language is clear and understandable in terms of what is being consented to.

Prevention: Avoiding Exposure to Liability

As mentioned previously, Industry Canada and the CRTC both tend to suggest in their respective guidelines that express consents may be validly transferred if the purchase agreement includes specific language to that effect. Purchasers should therefore include a provision that express consents are transferred upon closing of the transaction, and carefully consider how they will validate and transfer implied consents.

Purchasers should also conduct proper due diligence to identify potential CASL liabilities that may arise. This should include an examination of how and for what purpose consent was obtained by the business, as well if proper consent management tools are in place. The potential liability of a purchaser may be further limited by including specific representations and warranties with respect to CASL in the purchase agreement, specifically regarding the validity of the consents held.

Lastly, risk may be limited by including CASL related indemnity provisions in the purchase agreement.

Footnotes

1. Other provisions deal with types of consent required to install software.

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