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
1
3
• “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
4
• 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
5
• 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
6
• 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
7
• 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
9
• 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
10
• 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
12
• 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
13
• 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
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
16
• 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
17
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)
18
Standard for Ad Interpretation
20
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
21
Standard for Ad Interpretation
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
24
• 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
25
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
26
• 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
27
• 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
29
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
30
Bureau’s Second Basic Principle
• 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
32
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Disclaimers-Below is 7 point font
See The Pit.org - Standard Disclaimer
33
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
37
Ads Where Key Terms HiddenCommissioner’s Premium Text Messaging Case, May 2016
• 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
38
Ads Where Key Terms HiddenCommissioner’s Premium Text Messaging Case, May 2016
• 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
39
Ads Where Key Terms HiddenCommissioner’s Premium Text Messaging Case, May 2016
• 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
40
Ads Where Key Terms HiddenCommissioner’s Premium Text Messaging Case, May 2016
• 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
41
Ads Where Key Terms HiddenCommissioner’s Premium Text Messaging Case, May 2016
• 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
43
Ads Where True Cost HiddenAvis and Budget, June 2016
• 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
44
Ads Where True Cost HiddenAvis and Budget, June 2016
• 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
Ads Where True Cost HiddenAvis and Budget, June 2016
• 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
48
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
52
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
53
US FTC .com Disclosures
• 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
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
• Sport Maska Inc. (c.o.b. Reebok – CCM), December 2015
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
• Sport Maska Inc. (c.o.b. Reebok – CCM), December 2015
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
“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
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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