Lexpert Conference

LexpertConference Canadian Anti-Spam Legislation – The Competition Act Oliver BorgersMcCarthy Tétrault LLP oborgers@mccarthy.ca416-601-7654 April 30, 2014 13392663

Agenda • General overview of Competition Act • General review of Competition Act Marketing & Advertising Laws • Specific CASL amendments to Competition Act marketing laws

Overview of the Competition Act • A single federal statute • Purpose: to promote competition in order to improve productivity, ensure that small and medium-sized enterprises have an equal opportunity to participate in the Canadian economy, and provide consumers with competitive prices and product choices • Contains criminal and civil provisions on false and misleading advertising and deceptive marketing practices

Administration of the Competition Act • Administered by the Commissioner of Competition, who heads the Competition Bureau • Fair Business Practices Branch administers misleading advertising and deceptive marketing • Inquiries initiated further to Bureau’s own initiative or complaints • Collaboration with antitrust authorities in other jurisdictions, most notably the U.S., provincial consumer protection agencies and consumer groups

Enforcement of the Competition Act • Aggressive enforcement on all aspects of competition law, including misleading advertising • High profile industries/companies • Commissioner recently brought a number of matters before the courts • Leon’s/The Brick – “buy now, pay later” • Bell/Rogers/Telus/CWTA – premium text messaging • Rogers/Chatr Wireless – “fewer dropped calls” • Steep penalties in recent civil cases • Bell Canada – $10 million (Consent Agreement) • Business directory scam (Yellow Pages) – $9 million, including $1 million for individuals • Beiersdorf/Nivea - $300,000 and restitution (Consent Agreement)

Enforcement of the Competition Act • Extensive investigative powers • Search warrants (to seize documents, including electronic records) – criminal provisions only • Document production orders • Examinations under oath • Civil provisions (sections 74.01 to 74.19) • By the Commissioner of Competition • Before the Superior Court or the Competition Tribunal • Criminal provisions (sections 52 to 62) • By the Director of Public Prosecution • Before the Superior Court

Private litigation • Has also recently intensified • Private actions for misleading advertising • S. 36 of the Competition Actallows for recovery of damages for violation of the criminal misleading advertising provisions in Part VI (which will include new CASL prohibition) • Damages awarded in Maritime Travel v. Go Travel Direct • “Offers vacations for less”, where disclaimer indicated that price comparison was for on very limited time and one specific destination • Class actions • Follow-on class actions to Bureau enforcement • Copy-cat actions from U.S.

Civil provisions - consequences • Order to discontinue the impugned practice • Publication of corrective notice • “Administrative monetary penalty” (AMP) • Company: up to $10 million ($15 million if recidivist) • Individual: up to $750,000 ($1 million if recidivist) • Constitutional validity of AMPs upheld by the Ontario Superior Court in the recent Chatr case • Restitution to consumers – new since 2009 and only for the general representation provision (does not apply to new CASL regulations) • AMPs and restitution not available where respondent establishes exercise of due diligence • Underscores importance of diligence in ensuring that advertising, promotional materials are accurate and supported

Representation that is false or misleading in a material respect (s. 74.01(1)(a)) • General prohibition that applies to any representation made to the public, by any means (print, oral, internet, social media), for the purpose of supplying any product or service • Reviewable if: • The representation is false or misleading • In a material aspect • Could the representation influence a consumer to buy a product or service? • Test is objective – no need to establish that any person was actually deceived (s. 74.03(4)) • Omitting relevant information can be material • To determine whether false and misleading, must consider both • The literal meaning, and • The general impression conveyed by the representation (s. 74.03(5))

General impression test • The Supreme Court of Canada recently held in a Quebec Consumer Protection Act matter that courts must assess the general impression that the representation is likely to convey to the “average consumer, who is credulous and inexperienced” (Richard v. Time Inc., 2012 SCC 8) • Lower test than the U.S. “reasonable consumer standard” • A single reading of the entire text should provide the general impression • Must consider entire context, including layout, pictures and font size • Competition Bureau has argued that the “credulous and inexperienced” standard applies under the Competition Act • In Chatr, the Ontario Superior Court accepted the credulous standard, but assessed the representation from the perspective of the consumer interested in purchasing the specific product • Ad related to the technical performance of the wireless telephone network • Court applied standard of the “credulous and technically inexperienced consumer of wireless services”

Bureau enforcement and priorities – price advertising • Bell Consent Agreement - $10 million in AMPs • Bundle for home phone, internet and television services “starting as low as $69.90 per month” • Publicly available information indicates that • The advertised price was not available to any consumers at all • Additional mandatory fees were hidden in fine-print disclaimers • Lowest possible price was 15% higher than advertised

Bureau enforcement and priorities – price advertising • Leon’s/The Brick • deferred payment options • “Plus! You can pay nothing for 18 months!” (print ad) • Alleges consumers were required to pay various fees and surcharges for deferred payments - as high as 33% of purchase price • Also alleges “drip pricing” • Addition of various price-parts during buying process, once consumers “anchor” to the initial advertised price • Commissioner asks for publication of notice, restitution and AMPs

Bureau enforcement and priorities – price advertising • Avis/Budget production Order • Various “non-optional fees” added to the initial advertised rental price – as high as 34% of initial price • Description of various fees gives impression that fees are imposed by a third party, e.g. a governmental authority • E.g. “car tax” and “Ontario Environmental Fee” • Price representations on websites and mobile applications • 4 “clicks” to get to total price

Bureau enforcement and priorities – price advertising • Implications • “Clear and conspicuous” disclosure of material terms and applicable conditions • How to disclose applicable charges, financing terms, etc.? • Mandatory vs. optional fees? • “Drip pricing” - online and apps • Recent Speech from the Throne • “Canadians are tired of hidden fees”

Bureau enforcement and priorities – others • E-commerce • Premium text messages – contested • Proceedings against Bell, TELUS, Rogers and the Canadian Wireless Telecommunications Association • Commissioner alleges that representations gave impression that services were available for free, when in fact charges apply • Seeking $31 million in AMPs • False online testimonials/reviews (“astroturfing”) • No specific guidelines similar to FTC’s

Disclaimers - content • Representations on the Internet Guidelines (2009) • Cannot contradict or materially limit the literal meaning and general impression conveyed by the ad • Main body of the ad must stand alone • May only qualify general impression of the representation • Add information, clarify ambiguities or provide “reasonable qualifications” • Determine whether the disclaimer “significantly restricts or contradicts” the main claim

Disclaimers – appearance • Representations on the Internet Guidelines • Generally, disclaimer should appear on same screen • Hyperlinks not appropriate when information is critical • Hyperlink to disclaimer must be clearly labelled and displayed in format consistent with other links • Design should encourage consumers to read them • Should not be hidden or buried • Attention-grabbing tools on page should not distract attention away from disclaimer • Text prompt should be explicit and convey importance of information • DON’T “see below for details” • DO “see below for restrictions on eligibility”

Disclaimers – recent enforcement • Leon’s/The Brick • “Deferred payment” ads accompanied by disclaimers that reveal various fees • Content • Commissioner alleges that disclaimers are inconsistent with and directly contradict the literal meaning and general impression conveyed • Appearance • Commissioner alleges that disclaimers are • Lengthy • In fine-print • Situated far-away from associated representations

Performance claims not based on adequate and proper test (74.01(1)(b)) • Any claim on the performance or efficacy of a product must be based on “adequate and proper” test • Burden of proof on person making the representation • Test must be completed prior to performance claim being made • Test results must actually support the specific claim • “Adequate and proper” • Flexible and contextual - varies on the nature of the claim as understood by the common person • Subjectivity should be eliminated as much as possible – but no requirement to validate by a third-party • Test must establish that result is not a mere chance; but does not amount to testing required for publication in a scholarly journal

Bureau enforcement – performance claims • Contested “fewer dropped calls” case against Rogers/Chatr • Expert evidence on adequate testing • Bureau alleged claim was misleading because differences in dropped call rates were not discernible to consumers • Court held claim was valid even if not discernible • Misleading claims limited to ads made prior to testing • Bureau asked for maximum $10 million AMPs and restitution • $500K AMP ordered for representations made prior to testing

Bureau enforcement – performance claims • Consent Agreement with Beiersdorf re Nivea slimming cream • Followed U.S. FTC settlement • Remove products, corrective notice, $300,000 AMP and restitution • Consent Agreements with Hyundai and Kia on inaccurate fuel consumption ratings • Following parties’ acknowledgement of incorrect fuel consumption representations • Restitution programs volunteered by the parties

Other Civil Provisions • Misleading warranties and guarantees (s. 74.01(1)(c)) • Promotional Contests (s. 74.06) • Misleading ordinary selling price representations (s. 74.01(2) and (3)) • Volume test: substantial volume of the product (50%) was sold at reference price within a reasonable period of time (12 last months); OR • Time test: the product was offered for sale for a substantial period of time at the reference price (more than 50% of the time during last six months) • Sale of a product above advertised price (s. 74.05) • No case since 1999 • However, alleged by the Commission in Leon’s/The Brick and Avis/Budget

Criminal vs. Civil – choice of track • Civil regime in most cases • Criminal provisions for most egregious conduct • No duplication of proceedings • Bureau Guidelines • Clear and compelling evidence that accused knowingly or recklessly made misleading representations • E.g. continued after consumer complaints • Criminal prosecution is in public interest • Targeting vulnerable groups (e.g., children, seniors) • Continued after corporate officials became aware • Recidivist

Criminal provisions • Consequences include • Fines at the discretion of the Court • Up to 14 years in jail • Restitution • S. 36 - damages

General criminal provision • False or misleading representations (s. 52(1)) • Knowingly or recklessly making, or permitting the making of a representation to the public, in any form, that is • False or misleading • In a material respect • Must also consider literal meaning and general impression

Criminal provisions - others • Deceptive telemarketing (s. 52.1) • Multi-level marketing plan (s. 55) • Accurate disclosure of • Compensation actually received by typical participants • Compensation likely to be received by typical participants

Amendments to the Competition Act regarding CASL Amendments to the Competition Actprohibiting false or misleading representations in • electronic messages, • sender information in electronic messages, • subject matter information in electronic messages, • locators

“sender information” means the part of an electronic message — including the data relating to source, routing, addressing or signalling — that identifies or purports to identify the sender or the origin of the message “subject matter information” means the part of an electronic message that purports to summarize the contents of the message or to give an indication of them “locator” means a name or information used to identify a source of data on a computer system, and includes a URL (uniform resource locator …. web address). “electronic message” is widely defined, same as in CASL New Definitions (s. 70(2))

New Section 52.01 False or misleading representation — sender or subject matter information 52.01 (1) No person shall, for the purpose of promoting, directly or indirectly, any business interest or the supply or use of a product, knowingly or recklessly send or cause to be sent a false or misleading representation in the sender information or subject matter information of an electronic message. False or misleading representation — electronic message (2) No person shall, for the purpose of promoting, directly or indirectly, any business interest or the supply or use of a product, knowingly or recklessly send or cause to be sent in an electronic message a representation that is false or misleading in a material respect. False or misleading representation — locator (3) No person shall, for the purpose of promoting, directly or indirectly, any business interest or the supply or use of a product, knowingly or recklessly make or cause to be made a false or misleading representation in a locator. 13341939

New Section 52.01 Proof of deception not required (4) For greater certainty, in establishing that any of subsections (1) to (3) was contravened, it is not necessary to prove that any person was deceived or misled. General impression to be considered (5) In a prosecution for a contravention of any of subsections (1) to (3), the general impression conveyed by a representation as well as its literal meaning are to be taken into account. Offence and punishment (6) Any person who contravenes any of subsections (1) to (3) is guilty of an offence and (a) liable on conviction on indictment to a fine in the discretion of the court or to imprisonment for a term not exceeding 14 years, or to both; or (b) liable on summary conviction to a fine not exceeding $200,000 or to imprisonment for a term not exceeding one year, or to both. 13341939

New Section 52.01 Reviewable conduct (7) Nothing in Part VII.1 is to be read as excluding the application of this section to the making of a representation that constitutes reviewable conduct within the meaning of that Part. Where application made under Part VII.1 (8) No proceedings may be commenced under this section against a person on the basis of facts that are the same or substantially the same as the facts on the basis of which an order against that person is sought under Part VII.1. Interpretation (9) For the purposes of this section, (a) an electronic message is considered to have been sent once its transmission has been initiated; and (b) it is immaterial whether the electronic address to which an electronic message is sent exists or whether an electronic message reaches its intended destination. 13341939

New Section 74.011 False or misleading representation — sender or subject matter information 74.011 (1) A person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly, any business interest or the supply or use of a product, sends or causes to be sent a false or misleading representation in the sender information or subject matter information of an electronic message. False or misleading representation — electronic message (2) A person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly, any business interest or the supply or use of a product, sends or causes to be sent in an electronic message a representation that is false or misleading in a material respect. False or misleading representation — locator (3) A person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly, any business interest or the supply or use of a product, makes or causes to be made a false or misleading representation in a locator. 13341939

New Section 74.011 General impression to be considered (4) In proceedings under this section, the general impression conveyed by a representation as well as its literal meaning shall be taken into account in determining whether or not the person who made the representation engaged in the reviewable conduct. Interpretation (5) For the purposes of this section, (a) an electronic message is considered to have been sent once its transmission has been initiated; and (b) it is immaterial whether the electronic address to which an electronic message is sent exists or whether an electronic message reaches its intended destination. 13341939

prohibits representation that is false or misleading in a material respect in electronic message prohibits false or misleading representation (not in a material respect) in sender information in electronic message subject matter information in electronic message locator CRIMINAL (14 years jail, unlimited fine) if “knowingly or recklessly” made SUMMARY of new section 52.01 & 74.011

No need to prove there has been actual deception look at general impression and literal meaning only first prohibition states “in a material respect” no “to the public” concept no concept of exception for consent or existing business relationship SUMMARY of new section 52.01 & 74.011

Sender Information Advisor@DoubleYourMoney.com Locator www.lose20poundsin5days.com Subject Matter Information Fly Ottawa to Calgary for $299 return Lose 20 Pounds in 5 days Our best sale of the year Exclusive Upgrade Offer Aggressive e-mail subject matter language poses substantial risk to senders CASL discussion examples

Questions & Discussion 13341939

13341939

Lexpert Conference