Critical Claims Concerns - Truth in Advertising under the ... · Critical Claims Concerns - Truth in Advertising under the Competition Act Bill Hearn, Partner, Fogler Rubinoff LLP

Critical Claims Concerns -

Truth in Advertising under the Competition Act

Bill Hearn, Partner, Fogler Rubinoff LLP

Advertising and Marketing Law: Social, Digital, Online Compliance

CPD Program Ontario Bar Association

Toronto, October 21, 2016

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INTRODUCTION

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• “Critical claim concerns”?

Legal and regulatory compliance

− Focus on Canada’s federal competition law

» Deceptive advertising practices

− Mitigating risks of

» Lawsuits from consumers or competitors

» Enforcement actions by the regulator – i.e., the

federal Competition Bureau

» Reputational damage arising from non-

compliance

My Focus

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• Informed largely by the mandate of the Competition Bureau

under the deceptive advertising provisions of the Competition

Act and the views of the Competition Bureau in its published

guidance on the subject which include:

• The Deceptive Marketing Practices Digest, June 2015

• “Online Advertising in Canada”

• “Disclaimers Demystified”

• The Deceptive Marketing Practices Digest, March 2016

• “Substantiating Performance Claims”

My Focus

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• Canadians have embraced the online world

• Online advertising occupies an increasingly significant

percentage of Canadian advertising

• Online advertising is ever more prevalent and sophisticated

Bureau’s View

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• From the Bureau’s perspective, innovation in this area must

respect the rights of consumers not to be misled by advertisers

• This perspective is widely shared by the many of the Bureau’s

counterparts around the world including those in the US, UK

and Australia

Bureau’s View

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• Online trends appear and mature quickly

• Bureau’s main concern with these trends is how they impact

on the quality of consumer information

• Bureau cites examples of behavioural advertising, geolocation

and mobile technology (and there are others – e.g., Big Data

and the Internet of Things) to conclude that advertisers now

have access to huge amounts of information about consumers

• This presents unprecedented marketing opportunities and

compliance challenges

Bureau’s View

8

• While marketing trends tend to come and go, the Bureau sees

common problems when it comes to online marketing and the

potential for consumer deception

• Even if these problems are not unique to online marketing,

they require extra care given the complexities of the Internet

as a medium and its role in the digital economy

Bureau’s View

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• Bureau identifies four examples of advertisements that often

mislead consumers online

• Common element of each is that the advertiser has not

adequately disclosed information necessary for consumers to

make informed choices

• The “truth”, if revealed at all, is often buried in fine print

disclaimers or obscured by placement in the context of the

overall advertisement

Bureau’s View

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• The four problematical examples are:

Where key terms are inadequately disclosed

Where the true cost is hidden

Where the online review does not disclose the connection

between the reviewer and the advertiser – “astroturfing”

When what looks like unbiased information is actually

advertising - deceptive native advertising

I will focus on “key terms” and “true costs”

Bureau’s View

OVERVIEW

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• Deceptive advertising under Competition Act

− General Rules

− Sanctions

− Scope of provisions

− Sophistication of average consumer

− Literal meaning and general impression

− Disclaimers

What I’ll Cover

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• Deceptive advertising under Competition Act

− Substantiating performance/comparative claims

» ASC Guidelines

− Consumer surveys and preference/perception claims

» ASC Guidelines

− Takeaways

− Some Native Ads

− Q&A

What I’ll Cover

TRUTH IN ADVERTISING -

GENERAL RULES

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Civil

− Administrative monetary penalties of up to $10

million (first occurrence) and up to $15 million (for

each subsequent occurrence)

− Paid restitution to purchasers

− Freeze assets

Criminal

− Upon indictment, a fine without upper limit at the

discretion of the Court, imprisonment of up to 14

years, or both

15

Sanctions

Deceptive Representations

• Can’t make representation to public that is deceptive in

material respect and promotes a good/service/business interest

• All representations are caught

• If representation could influence a person to purchase, it is

material

• But following the CASL amendments to the Competition Act

… the representation need not be material if it is made in

certain areas of an electronic message – i.e., the electronic

message’s locator (e.g., URL and metadata), sender

information or subject matter line

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• Criminal provision requires “intent” (that the advertiser

“knowingly or recklessly” engaged in deceptive advertising)

• The civil provision does not require intent

• In either case, no need to show that:

any person was actually deceived

any member of the public to whom the representation was

made was within Canada

the representation was made in a place to which the

public had access

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Criminal vs. Civil

Basic Rule for Ad Interpretation

• The general impression conveyed by a representation, as well

as its literal meaning, will be taken into account when

determining whether or not the representation is deceptive in

a material respect (Remember: “materiality” is not an element

of a deceptive electronic message)

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The Average Consumer

Standard for Ad Interpretation

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Appropriate level of sophistication to be attributed to

average consumer when interpreting general impression

of advertisement for deception has been in flux over past

couple of years

Whether average consumer, for advertising interpretation

purposes, can be taken to be a “reasonable” person or

merely a “credulous” one

– Richard v. Time, SCC, 2012

– Commissioner of Competition v. Chatr, ONSC, 2013

• Reasonable person – the “average purchaser” … someone

who possesses ordinary reason, intelligence and common

sense but lacks any special expertise respecting the subject

matter of the ad

• Credulous person – the “trusting and inexperienced

purchaser” … someone who takes no more than ordinary care

to observe that which is staring them in the face upon first

entering into contact with the entire ad

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Standard for Ad Interpretation

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Richard v. Time• Supreme Court of Canada, 2012

► Held that the “general impression” test for deceptive advertising under Quebec’s

Consumer Protection Act is as follows:

“… that of the first impression … the one a person has after an initial contact

with the entire advertisement, and it relates to both the layout of the advertisement and

the meaning of the words used.”

► Ignored the disclaimers that were “inconspicuous” and “buried in a sea of text” and,

with respect to the average consumer for determining the general impression of an ad,

expressly rejected the standards of:

• the consumer with an average level of intelligence, skepticism and curiosity, and

• the careful and diligent consumer

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• Supreme Court of Canada, 2012

► Instead, applied the “credulous person” standard describing it as the standard of:

“… ordinary hurried purchasers, that is, consumers who take no more than

ordinary care to observe that which is staring them in the face upon their first

contact with an advertisement...”, and

“… the credulous and inexperienced consumer - i.e., not “a well-informed

person” … but “someone who is not particularly experienced at detecting

falsehoods and subtleties found in commercial representations”.

Richard v. Time

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Richard v. Time• Supreme Court of Canada, 2012

► Elaborated on this standard stating:

“The words “credulous and inexperienced” therefore describe the average consumer for the

purposes of the [Quebec Consumer Protection Act]. This description is consistent with the

Legislature’s intention to protect vulnerable persons from the dangers of certain advertising

techniques. The word “credulous” reflects the fact that the average consumer is prepared

to trust merchants on the basis of the general impression conveyed to him or her by their

advertisements. However, it does not suggest that the average consumer is incapable of

understanding the literal meaning of the words used in an advertisement if the general

layout of the advertisement does not render those words unintelligible.”

► Note that the ordinary meaning of “credulous” includes an element of “gullibility”.

For instance, from the Canadian Oxford Dictionary:

• credulous: adjective 1. too ready to believe; gullible. 2. (of behaviour) showing

such gullibility … [Latin credulous from credere believe]

• gullible: adjective: easily persuaded or deceived; credulous

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• Ontario Superior Court, 2013

► Arguably, applied the “credulous person” standard for interpreting ads under the

deceptive advertising provisions of the Competition Act

Commissioner of Competition vs. Chatr

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DISCLAIMERS

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• A disclaimer that expands on, or clarifies possible ambiguities

in the main body of an advertisement is unlikely to mislead

consumers … assuming that the general impression of the

advertisement is not otherwise misleading

Given space constraints and to avoid aesthetic clutter in

the main body of an ad, fine print can be perfectly

legitimate if it adds useful information to a truthful ad

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Bureau’s First Basic Principle

• A disclaimer that is used to restrict, contradict or somehow

negate the message to which it relates likely confuses

consumers and so is deceptive

If the main body of the ad creates a deceptive general

impression in itself, the fine print disclaimer may not do

much to alter that deception

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Bureau’s Second Basic Principle

Apple’s Get a Mac - “Legal Copy” Ad

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• Disclaimers

Should be prominent, clear and close to main claim being

clarified

Main claim in ad, apart from the disclaimer, should be

capable of standing alone

Must be likely to be read and likely to alter the general

impression of the ad

Print must be large enough to be clearly visible and

readable without resort to unusual means – don’t go

below 7 point font

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Other Rules of Thumb

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Disclaimers-Below is 7 point font

See The Pit.org - Standard Disclaimer

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Disclaimers in Action

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Ads Where Key Terms HiddenCommissioner’s Premium Text Messaging Case, May 2016

• In September 2012, following a five-month Bureau

investigation, the Commissioner began legal proceedings in

the Ontario Superior Court of Justice against Bell, Rogers,

Telus and the Canadian Wireless Telecommunications

Association (CWTA) alleging deceptive advertising relating

to premium text message and rich content services (such as

trivia questions and ringtones) for mobile phones

• The Bureau’s investigation determined that the three telcom

companies, in conjunction with the CWTA, facilitated the sale

to their own customers of premium-rate digital content

provided by third parties – in this way, the Bureau tackled the

“point of diffusion” for the allegedly deceptive advertising

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• The Commissioner alleged that customers were led by third

party advertisers into believing this content was free, when it

was not

• In fact, the premium-rate digital content could cost up to $10

per transaction and up to $40 for a monthly subscription –

these costs were over and above standard text messaging

plans

• Furthermore, the Commissioner alleged that the telecom

companies led their customers to believe that measures were

in place to prevent unauthorized charges on their mobile

phone bills

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• In September 2012, the Commissioner was initially seeking

full customer refunds and administrative monetary penalties

totalling $31 million – that is, $10 million each from Bell,

Rogers and Telus and $1 million from the CWTA

• In March 2015, the Bureau announced that, in settlement,

Rogers had agreed to pay up to $5.42 million in refunds to its

customers in connection with premium charges that were

allegedly “unauthorized” and “crammed” onto their mobile

phone bills

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• Similarly, in December 2015, the Bureau announced that, in

settlement, Telus had agreed to pay up to $7.34 million in

customer refunds and to donate $250,000 to consumer

advocacy and research groups whose work advances the

public interest in areas related to the digital economy

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• Likewise, on May 27, 2016, the Bureau announced that, in

settlement,

Bell had agreed to pay up to $11.82 million in customer

rebates and to donate roughly $800,000 to public interest

advocacy groups to support digital media research and

awareness

the CWTA had agreed to develop a consumer awareness

campaign and implement a corporate compliance program

focusing on “billing on behalf of” practices

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• Rogers, Telus and Bell also each agreed to issue a public

notice to affected customers, implement an enhanced

corporate compliance program, and develop a consumer

awareness campaign to educate consumers about how charges

can be incurred on wireless devices and how to avoid

unwanted charges

• Bureau’s May 27th press release states that “the resolution of

this matter brings total refunds to consumers to over $24

million while over $1 million in donations will go to leading

consumer advocacy and research groups dedicated to

supporting public interest in the digital economy.”

42

Ads Where True Cost HiddenAvis and Budget, June 2016

• In March 2015, the Commissioner of Competition filed an

application with the Competition Tribunal against Aviscar,

Budgetcar and their parent Avis Budget Group Inc. alleging

deceptive vehicle rental price advertising

• Commissioner initially sought a total of $30 million in

administrative monetary penalties and $35 million in refunds

for consumers

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• Following the Bureau’s investigation, the Commissioner

alleged that:

Avis and Budget advertised prices for vehicle rentals that

were not attainable due to additional fees imposed during

the rental process

These fees were characterized as taxes, surcharges and

fees that governments and agencies required Avis and

Budget to collect from consumers when, in fact, Avis and

Budget imposed these fees to recoup their costs of doing

business

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• The litigation was the first proceeding under new provisions

for “deceptive electronic messages” under the Competition

Act that came into force in July 1, 2014 as part of CASL

That is, the Commissioner alleged, among other things,

that Avis and Budget had used electronic messages to

disseminate the allegedly deceptive advertisements

45


• Under consent agreement, Avis and Budget paid a $3 million

administrative monetary penalty and $250,000 towards the

Bureau’s investigative costs; also agreed to implement a

corporate compliance program

• Bureau’s investigation found that certain prices and discounts

initially advertised were not attainable because consumers

were charged additional mandatory fees (ranging from 5% to

20% of the originally advertised price) that were only

disclosed later when making a reservation

• Bureau concluded ads were deceptive even though an

estimate of the fees was disclosed before consumer completed

their reservation

46

Ads Where True Cost HiddenComwave, September 2016

• Under a consent agreement, Comwave agreed to pay an

administrative monetary penalty of $300,000 and $60,000

towards the costs of the Bureau’s investigation

• Bureau concluded Comwave advertisements regarding its

charges and the level of service for Internet and home phone

connections were deceptive

Ads misrepresented charges and advertised prices were

unattainable because of additional mandatory fees

Ads also misrepresented services as “unlimited” when in

fact there were monthly caps on usage

• Comwave’s fine print disclaimers were not sufficient

47

• Online advertising appears in many digital formats

• Advertising created in any one format may appear across

interconnected platforms

• Consumers, often on the go, encounter online advertising

throughout their day and assess this information on mobile

devices (with space constraints)

• If the format only allows the advertising to unfold through a

series of pages or steps, consumers may be misled if

important information is relegated to a disclaimer – especially

if the disclaimer appears after the consumer has somehow

committed to the advertisement

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Disclaimers’ Digital Dilemma

• The same advertisement, viewed on one platform or mobile

device, may present important information (including the

disclaimer) in a way that is not obviously accessible to the

consumer

• When online advertising is shared (as is often the case), there

is a risk that fine print disclaimers get lost or left behind

depending on the formatting or technical constraints of the

secondary platforms or mobile devices

• These and other challenges associated with digital formats

significantly limit the likelihood that fine print disclaimers

will be effective in online advertising

49

Disclaimers’ Digital Dilemma

• Application of the Competition Act to Representations on the

Internet, Enforcement Guidelines, October 16, 2009

Disclaimers

− where possible, a disclaimer should appear on the

same screen and close to the representation to which

it relates

− hyperlinks can be an effective means of providing

disclaimers

− if information is critical to ensuring ad is not

deceptive, it may not be appropriate to use linking to

navigate to a disclaimer appearing on a separate page

50

Bureau Guidelines for Web Reps

• Application of the Competition Act to Representations on the

Internet, Enforcement Guidelines, October 16, 2009

Disclaimers

− for all “required disclosures” (such as contest mini-

rules), they must be displayed in such a way that they

are likely to be read

» e.g., notice of contest should not require readers

to take an “active step” (like sending an email or

making a phone call) to get the required

information; Bureau does not consider clicking

on a clearly labelled hyperlink as an “active step”

– thus “bit.ly” links may be acceptable

51

Bureau Guidelines for Web Reps

• In March 2013, the US Federal Trade Commission published

.com Disclosures – How to Make Effective Disclosures in

Digital Advertising

• While not law in Canada and not binding on the Competition

Bureau, this document contains practical guidance for

Canadian advertisers illustrated by examples of advertising in

the digital marketplace

• FTC guidance says advertisers should relegate disclosures to

a hyperlink only if impossible to make the disclosures

otherwise

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US FTC .com Disclosures

• FTC recommends that advertisers hyperlink disclosures as

specifically as possible and right next to the claim requiring

disclosure

For Twitter, the FTC recommends that advertisers avoid

placing disclosures after a bit.ly link (on the assumption

that, at best, consumer don’t necessarily understand the

nature and relevance of the information obtained when

clicking on it or, at worst, consumers stop reading a tweet

once they arrive at the link)

− This guidance is more specific and arguably stricter

than the Bureau’s guidance

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US FTC .com Disclosures

Scrolling

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Pinching and Zooming

55

• FTC recently held one-day public workshop “Putting

Disclosures to the Test”

Goal to improve the evaluation and testing of disclaimers

How to evaluate whether disclosures are effective

Needed disclosures should grab a consumer’s attention or

be difficult to miss

− “SNL’s Happy Fun Ball – Think Like Comedian” BH

FTC has long history of encouraging effective disclaimers

If consumers are overwhelmed disclaimers do little good

See FTC website for workshop materials

56

FTC Workshop, Sept 15, 2016

PROVING CERTAIN CLAIMS

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Performance Claims

• Puffery (which does not require support) is only permissible

where the statement is so boastful an opinion, so vague a

statement, or so hyperbolic or outrageous that no reasonable

consumer would rely on it

• But where the claim relates to performance, efficacy or length

of life of a product, the claim must be substantiated by an

adequate and proper test before the claim is made

• Adequate and proper” test is not defined in the Competition

Act to preserve a flexible and contextual analysis

58

Performance Claims• The Competition Tribunal’s 2008 Commissioner of

Competition v. Imperial Manufacturing Group decision

summarizes the following non-exhaustive list of factors for

determining whether a test is “adequate and proper”:

depends on the claim made as understood by the common

person

must be reflective of the risk or harm which the product is

designed to prevent or assist in preventing

must be done under controlled circumstances or in

conditions which exclude external variables or take such

variables into account in a measurable way

59

Performance Claims• Imperial Manufacturing Group decision - factors for

determining whether a test is “adequate and proper”

(continued):

must be conducted on more than one independent sample

wherever possible (destruction testing may be an

exception)

must have results that, while not measured against a test

of certainty, are reasonable given the nature of the harm at

issue and establish that it is the product itself which

causes the desired effect in a material manner

must be performed regardless of the size of the seller's

organization or the anticipated volume of sales

60

Performance Claims• In the Ontario Superior Court of Justice’s 2013 Commissioner

of Competition v. Chatr decision (“fewer dropped calls”), an

“adequate and proper test” was determined to mean:

at least a test – that is, the advertiser must have actually

conducted some sort of test and not just reached a logical

conclusion or inference based on certain technological

facts

a test that at least meets industry standards

• In Chatr, Rogers paid an AMP of $500,000 for not having

completed adequate and proper tests to support its

performance claims before making them

61

Performance Claims

• Sport Maska Inc. (c.o.b. Reebok – CCM), December 2015

Competition Bureau alleged advertiser made unsupported

performance claims related to CCM resistance hockey

helmet

Bureau alleged that ads created “general impression” that

helmet would protect players from concussions

Although Reebok-CCM had, prior to making the claims,

conducted testing on the helmet according to current

industry standards, the Bureau concluded the testing was

not adequate and proper to support the claim

62

Performance Claims


Current hockey helmet testing standards are aimed at

protecting players from catastrophic brain injuries, such

as skull fractures, not concussions

The science behind concussions in sports is still in its

infancy and the role that any hockey helmet can play in

protecting players from concussions remains unclear

There are a multitude of factors such as age, weight,

strength of the player, location of impact, and whether the

hit was or was not anticipated when assessing concussion

injury risk in sports

63

Performance Claims


Under a consent agreement with the Bureau, Reebok–

CCM agreed to:

− stop making certain performance claims related to the

CCM Resistance hockey helmet and similar products

− implement an enhanced corporate compliance

program

− make a $475,000 donation of sports equipment to a

Canadian youth sports charity

− pay $30,000 towards costs of Bureau’s investigation

64

Performance Claims

• Bauer RE-AKT Hockey Helmet Claims, November 2014

Predated Reebok-CCM case; same issue – Bureau

alleged unsupported concussion protection claims

Under consent agreement with the Bureau, Bauer agreed

to:

− stop making certain claims related to the Bauer RE-

AKT hockey helmet

− implement an enhanced corporate compliance

program

− make a donation of $500,000 of sports equipment to a

Canadian youth sports charity

− pay $40,000 towards costs of Bureau’s investigation

65

Performance Claims

• Bureau’s Deceptive Advertising Practices Digest, Vol 2,

March 2016

“Substantiating Performance Claims – Standing the Test

of Time for Over 75 Years”

− Constitutionality of testing requirement upheld in

Imperial Brush (2008) and Chatr Wireless (2013) in

that the requirement does not infringe advertisers

right to freedom of expression under the Charter

» Objective is to prevent certain unsubstantiated

claims … seeks to address the imbalance of

knowledge between consumer and seller

− “Adequate and proper = a flexible standard for

modern times

66

Comparative Claims

• Rules for comparisons with competitors are derived from

statutes, common law and industry codes

• Use of competitor’s name, product, slogan or other

intellectual property in advertising, even in a fair and accurate

comparison, may raise legal risks under Copyright Act, Trade-

marks Act or at common law for tort of passing-off

67

Comparative Claims

• Basic rules:

No deceptive advertising

No copyright infringement (although there is a defence of

fair dealing for the purpose of parody or satire – but

unclear to what extent this defence applies to comparative

advertising)

No trade-mark infringement or depreciation of goodwill

(relevant statutory provisions and case law interpreting

them are complex and nuanced)

No passing-off

ASC guidelines (must not unfairly disparage other’s

products)

68

Comparative Claims

– The risks of unauthorized use of a competitor’s

trade-mark in advertising are:

» increased when competitor’s trade-mark

is registered for services as opposed to

only wares or the advertisement is on the

product package or at the point-of-sale

» decreased when advertisement focuses on

the differences between the two products

as opposed to their similarities

69

Comparative Claims

No passing off

– Owners of unregistered trade-marks may rely on common

law of passing-off or Trade-mark Act’s unfair competition

provisions to prevent competitors from using their trade-

mark in advertising

70

Comparative Claims

Advertising Standards Canada (ASC) Guidelines for

Use of Comparative Advertising, April 2012

– The ASC Code (which underpins a self-regulatory regime)

provides that advertisements must not unfairly discredit,

disparage or attack other products, services,

advertisements or companies, or exaggerate the nature or

importance of competitive differences

– Comparison must be fair and factual

– Can’t cherry pick comparators

– i71

Preference/Perception Claims

ASC Guidelines for Use of Research and Survey

Data to Support Comparative Advertising Claims,

April 2012

– Survey data required to substantiate preference/perception

claims

– Research must be of reasonable quality, reflect accepted

and current principles of design and execution, be

economically and technically feasible

– i72

Preference/Perception Claims

ASC Guidelines for Use of Research and Survey

Data to Support Comparative Advertising Claims,

April 2012

– Survey data must be:

– valid (follow published standards of market research industry –

e.g., see standards of Marketing Research and Intelligence

Association (MRIA))

– reliable (reproducible) in terms of choosing pertinent population,

obtaining a representative sample (with a random element),

geographic dispersion … “right things being measured in right

way”

– relevant (the research and data must be connected to the claim;

“common sense”)

73

WRAP UP

74

“Critical Claim Concerns” Takeaways

75

• Advertising law can often be reduced to simple “rules of

thumb” - e.g., tell the truth, be clear, play fair …

• But in highly competitive and innovative markets where

technology changes rapidly there are important details and

nuances – e.g., how far can the truth be stretched

• Regulators are actively enforcing advertising laws

• Costs of non-compliance are significant – big penalties

(possibly jail time), class action damages for restitution,

reputational harm (name and shame)

• By comparison, costs of compliance are generally not

significant – that is, corporate compliance programs and due

diligence are prudent and cost-effective

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ADVERTYISEMENT Check out my “Canada” chapter the in International

Comparative Legal Guide to Advertising & Marketing, 2016 published by UK-based Law Business Research

If you would like a pdf copy, please contact me at [email protected] or 416.941.8805

Fogler, Rubinoff LLP’s Advertising & Marketing Practice Group

http://foglers.com/expertise-and-industry/see-practice-areas/advertising-and-marketing

mailto:[email protected]

http://foglers.com/expertise-and-industry/see-practice-areas/advertising-and-marketing

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“If I hear the word ‘digital’ one more time, I’m going to stick a fork in my head.”Bruce Philip, Brand Strategy Consultant and Columnist,

There Is No Such Thing as “Digital Marketing”, Canadian Business Magazine, June 2016

Thank You

DISCLAIMER: This presentation contains general information only and does not constitute legal

advice. Qualified legal counsel should be consulted to assess the application of laws to specific facts.

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Documents

Critical Claims Concerns - Truth in Advertising under the ... · Critical Claims Concerns - Truth in Advertising under the Competition Act Bill Hearn, Partner, Fogler Rubinoff LLP