Our File R416447
2005-09-22
Dear Mr. Elford:
Thank you for the information you provided to the Competition Bureau.
The Bureau administers and enforces the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act. Information brought to our attention about possible contraventions under any of the four statutes is critical to helping us ensure that our Canadian marketplace is fair and competitive. We do not, however, have the authority to obtain reimbursement or to settle any contractual dispute between two or more parties on behalf of a complainant.
We have a wide range of education, compliance and enforcement tools we can use to deal with false or misleading representations and deceptive marketing practices, as well as labelling, packaging and marking contraventions.
The Bureau resolves issues brought to its attention by using a variety of means such as issuing public alerts to educate consumers about certain marketing practices. It also contacts parties directly to encourage voluntary compliance with its laws. The Bureau may also seek legal action. It refers criminal matters under any of the four statutes to the Attorney General of Canada for possible prosecution. Non-criminal matters under the Competition Act may be referred to the Competition Tribunal or other civil courts for decision
It is important to note that the Bureau conducts its investigations in private. As a consequence, complainants will be contacted if there is a need for additional information but cannot be provided with reports on the status of their complaint. Doing so would involve shifting resources away from ongoing investigative work. We would, however, invite you to visit our Web site, to access public case developments and general information about our programs and activities.
Thank you again for taking the time to bring this matter to our attention. Your assistance is very much appreciated.
Regards,
Information Officer
Centre des renseignements et de l'enregistrement des plaintes / Information and Complaint Centre.
THE APPLICATION OF THE COMPETITION ACT TO
MISLEADING REPRESENTATIONS AND
DECEPTIVE MARKETING PRACTICES
INFORMATION TO COMPLAINANTS
There is no legislation that provides for comprehensive regulation of all aspects of advertising in Canada. Some federal statutes provide a degree of regulation of the content and style of an advertisement either in relation to certain classes or types of products, as in the case of the Consumer Packaging and Labelling Act, the Textile Labelling Act, the Precious Metals Marking Act or the Food and Drugs Act, or in relation to specific situations, as in the case of the Broadcasting Act. In addition, some provincial legislation regulates certain marketing practices within the provinces, particularly those affecting consumer transactions. The Competition Act, however, is the only statute which has general application to misleading representations and deceptive marketing practices.
How is the law enforced?
Investigations are undertaken, pursuant to the authority vested in the Commissioner of Competition by the Competition Act (the "Act"), both as a result of complaints from the public and studies by the Commissioner's staff. It is the Commissioner's duty to commence an inquiry whenever he has reason to believe that a person has contravened a court order, grounds exist for the making such an order, or a criminal violation has been or is about to be committed.
The Act provides two adjudicative regimes to address misleading representations and deceptive marketing practices. Under the criminal regime, certain practices are brought before the criminal courts, requiring proof of each element of the offence "beyond a reasonable doubt." If the results of an investigation disclose evidence that, in the opinion of the Commissioner, provides the basis for a criminal prosecution, the matter is then referred to the Attorney General of Canada, who determines whether a prosecution should be undertaken. Under the civil regime, certain practices may be brought before the Competition Tribunal, the Federal Court - Trial Division or the superior court of a province and require that each element of the conduct be proven on a "balance of probabilities."
Not all complaints result in a prosecution or in an application to the court. The Commissioner's staff may employ a variety of instruments to promote and maintain conformity with the law. Depending on the circumstances, a temporary or permanent court order may be sought prohibiting a party from committing an offence or engaging in reviewable conduct. Alternatively, an undertaking - in essence a written promise - which will establish future conduct in respect of a particular practice, may be voluntarily given by a party under investigation. Further, a warning letter might be issued in appropriate circumstances as a last resort prior to the commencement of an inquiry. Finally, an information letter may be provided in cases where the facts demonstrate a possible contravention of the Act and the alleged wrongdoer is unaware of the relevant statutory provisions.
Due to the large volume of complaints received each year, the Commissioner has established a system for the selection of cases that best meet the objectives of the legislation. In prioritizing enforcement activity, the Commissioner reviews matters in relation to the following criteria: economic impact, the Bureau's enforcement policies and priorities, and the financial and human resources required to pursue a specific matter. These criteria have been developed to ensure that the Commissioner's discretion over enforcement matters under the Act is exercised in an objective and consistent manner.
Some of the economic considerations used in assessing the priority to be given to a complaint include: the nature and scope of the practice, its impact on consumers and competition, and the need for government intervention to restore balance in the market. The enforcement considerations include: the number and source of complaints, the potential value of a case in developing jurisprudence on particular issues, whether the practice was intentional or inadvertent, whether the matter is a national issue and the impact successful court proceedings would have on the marketplace. Finally, resource considerations include: the availability of human resources to effectively examine the complaint, availability and location of the evidence and the financial costs of gathering evidence.
Complainants should be aware that a proceeding initiated under the Act is not brought specifically to help aggrieved individuals as the Commissioner has no authority to intervene on their behalf. Rather, the activity in question is brought forward under the judicial process in order to properly address the issues it presents. An investigation in which the question of a misleading representation or a deceptive marketing practice has been raised proceeds independently of any action that may be taken by the complainant or by someone else on his/her behalf. Section 36 of the Act provides, however, that any person who has suffered loss or damage as a result of conduct contrary to the criminal provisions described below may sue for and recover an amount from the defendant equal to the loss or damage suffered. The complainant should consider carefully the costs and time involved in doing so in relation to the loss or damage suffered.
Since the Act provides that inquiries are to be conducted in private, the Commissioner cannot generally provide complainants with "progress reports" during the investigation of a particular matter. The exception is where an inquiry was begun as the result of a formal complaint by six Canadian residents pursuant to section 9, as the Act provides that such complainants, upon written request, must be informed as to the progress of the inquiry. Information on recent enforcement activities is, however, available on the Competition Bureau's web site. If you do not have access to the Internet, this information may be obtained through the Competition Bureau's Information Centre or from your local library.
Proceedings in the courts and other publicity have already brought to the attention of the business community the need for improved marketing practices. As a result, and in order to assist businesses in complying with the legislation, the Commissioner may, upon request, provide advertisers with advisory opinions applicable to proposed specific fact scenarios, advertisements or promotions.
What does the law say?
The Act contains provisions prohibiting misleading representations and deceptive marketing practices in promoting the supply or use of a product or any business interest. A description of these provisions is provided below for information purposes only and should not be taken to be a complete statement of the law.
Criminal Provisions
False or misleading representations [Subsection 52(1)]: All representations, made or permitted to be made knowingly or recklessly in any form whatever, that are false or misleading in a material respect are prohibited. This general provision prohibits all misleading representations made knowingly or recklessly, not specifically prohibited elsewhere. Proof that any person was deceived or misled is not necessary in order to establish a breach of this provision.
Deceptive telemarketing [Section 52.1]: All person- to-person telephone calls used to make false or misleading representations in promoting the supply of a product or a business interest are prohibited. Telemarketers must disclose at the beginning of each call the name of the company or person they are working for, the type of product or business interest they are promoting and the purpose of the call. Telemarketers are also required to disclose, during the call, in a fair and timely manner, the price of any product being sold and any restrictions or conditions that must be met before the product will be delivered. Telemarketers are prohibited from certain practices, including, making payment in advance a condition for receiving a prize that has been, or supposedly has been, won in a contest or game, failing to provide adequate and fair disclosure of the value of the "prizes", offering a "gift" as an inducement to buy another product, without fairly disclosing the value of the gift and offering a product at a grossly inflated price and requiring payment in advance.
Deceptive Notice of Winning a Prize [Section 53]: This provision prohibits the sending of a notice that gives the recipient the general impression he or she has won a "prize" or other benefit and asks or gives the option to pay money or incur a cost in order to obtain the prize or benefit. The provision applies to notices sent by any means, including but not limited to regular or electronic mail. No offence would arise if the recipient actually receives the prize or benefit and the person who sent the notice provides fair and adequate disclosure of the number and approximate value of prizes or benefits, the area or areas to which they have been allocated, and any fact that materially affects the chances of winning. Section 53 also requires that the person who sent the notice distribute prizes without unreasonable delay, and select participants or distribute prizes randomly or on the basis of participants' skill, in any area to which the prizes or benefits have been allocated.
Double ticketing [Section 54]: Where two or more prices are clearly shown on a product, its container or wrapper, the product must be supplied at the lower price. This provision does not actually prohibit the existence of two or more prices, but requires that the product be offered for sale at the lowest price depicted.
Multi-level marketing and pyramid selling [Sections 55 and 55.1]: An operator or participant in a multi-level marketing plan cannot make representations relating to compensation unless the representations include disclosure of compensation received by a typical participant. Further, a multi-level marketing plan which features recruitment bonuses, required purchases as a condition of entry into the plan, inventory loading or the lack of a buy-back guarantee on reasonable commercial terms constitutes a prohibited "scheme of pyramid selling".
Anyone violating the above provisions may be subject to fines of up to $200,000 and/or one year imprisonment on summary conviction, or to fines in the discretion of the court and/or imprisonment for five years on conviction upon indictment.
Civil Provisions
False or misleading representations [Paragraph 74.01(1)(a)]: All representations, in any form whatever, that are false or misleading in a material respect are prohibited. This general provision prohibits all misleading representations not specifically prohibited elsewhere.
Representations not based on adequate and proper test [Paragraph 74.01(1)(b)]: Any representation in the form of a statement, warranty or guarantee of the performance, efficacy or length of life of a product, not based on an adequate and proper test, is prohibited. The onus is on the one making the claim to prove that it is based on an adequate and proper test.
Misleading warranties and guarantees [Paragraph 74.01(1)(c)]: This provision covers any representation that purports to be a warranty or guarantee of a product, or a promise to replace, maintain or repair an article, or any part of an article. Such representations are prohibited where their form is materially misleading or where there is no reasonable prospect that the warranty, guarantee or promise will be carried out.
Misleading price representations [Subsections 74.01(2) and 74.01(3)]: These provisions prohibit any representation as to the price at which a product is ordinarily sold, unless a substantial volume of the product was sold at that price, or the product was offered for sale, in good faith, for a substantial period of time, at that price.
Untrue, misleading or unauthorized use of tests and testimonials [Section 74.02]: This provision prohibits the unauthorized use of tests and testimonials or the distortion of the results of otherwise authorized tests and testimonials.
Non-availability of advertised specials [Section 74.04]: Advertising a product at a bargain price that the advertiser does not have available for sale in reasonable quantities is prohibited. Liability will be avoided where the advertiser can establish that the non-availability of the product was due to circumstances beyond its control, the quantity of the product obtained was reasonable, or the customer was offered a rain check when supplies were exhausted.
Sale above advertised price [Section 74.05]: The supply of any product at a price higher than the price currently being advertised is prohibited. This section does not apply where the price advertised was erroneous and immediately corrected, or where the seller is not a person engaged in the business of dealing in that product.
Promotional contests [Section 74.06]: Any contest that does not disclose the number and approximate value of prizes or important information relating to the chances of winning in the contest, that does not select participants or distribute prizes on the basis of skill or on a random basis, or in which the distribution of prizes is unduly delayed, is prohibited.
Anyone who breaches the above provisions may be subject to an order prohibiting the conduct for up to ten years, requiring the issuance of a correction notice and/or imposing an administrative monetary penalty of up to $50,000 in the case of a first time occurrence by an individual and $100,000 in the case of a first time occurrence by a corporation. For subsequent orders, the penalties increase to a maximum of $100,000 in the case of an individual and $200,000 in the case of a corporation.
How to contact the Competition Bureau?
Anyone wishing to obtain additional information about the Competition Act or file a complaint under the provisions of the Act should contact the Competition Bureau's Information Centre at:
Telephone
Toll free: 1-800-348-5358
National Capital Region: (819) 997-4282
TDD (for hearing impaired): 1-800-642-3844
Facsimile (819) 997-0324
Address
Information Centre
Competition Bureau
50 Victoria Street
Gatineau, Quebec
K1A 0C9
Web site
www.cb-bc.gc.ca
E-mail
compbureau@ic.gc.ca
2002-11-12