False or misleading representations
In addition to prohibiting specific practices, the Competition Act also has general civil and criminal provisions. These provisions prohibit anyone from promoting a product, service or business interest through any claims that are false or misleading in any “material” respect. Material information is information that could influence consumer behaviour, such as influencing them to buy or use the advertised products or services.
Under these provisions, it is unnecessary to show that:
- someone was deceived or misled
- that anyone to whom the representation was made was in Canada
- that the representation was made in a place to which the public had access
Attributes of a supplier
Promotional information should not claim the business is associated with, authorized by, or has a relationship with a third party unless it is true.
Advertisements that use words such as “free,” “half-price,” “2 for 1,” or include refund or coupon offers must clearly disclose all conditions associated with the offer.
Further, when item A is advertised as free with the purchase of item B, but the price of item B is lower when you decline item A, then item A is not, in fact, free. Nor is it “free” in a “two-for-one” situation where the price of one item is inflated to cover the second.
Businesses need to ensure they do not mislead consumers to gain access to their data. This is especially important in online transactions, where sellers must be transparent about data collection and usage.
Drip pricing involves offering a product at a price that is unattainable because consumers must also pay additional charges or fees to buy the product. Drip pricing is considered to be false or misleading under the law, unless the additional fixed charges or fees are imposed by the government, such as sales tax.
Employment or business opportunities
Examples of deceptive practices include:
- representing or implying that a business or employment opportunity exists, when it does not
- promoting a business opportunity that is little more than a get-rich-quick scheme that is unlikely to succeed
When advertising a business opportunity, do not use words such as “earn,” which could leave the impression that employment is being offered.
Some “work from home” and similar schemes may also violate the sections of the Act regarding multi-level marketing and pyramid selling.
When an ad or promotion uses an illustration, it must accurately reflect the accompanying text or script and should not make an erroneous impression.
The term “image advertising,” sometimes called brand advertising, refers to any non-product advertising. Any brand advertisement that materially misrepresents or falsely portrays information is prohibited if it promotes, directly or indirectly, a business interest.
Information created by manufacturers
Under the Competition Act, the liability rests solely with the originator of the misleading information. For example, in a supply chain with manufacturers, distributors and retailers, if the product manufacturer produces the information on labels and other point-of-sale material, the retailers who display products on their shelves are not potentially liable for representations on labels and other point-of-sale material designed and produced by the manufacturer of the product unless the representations were made at the retailer’s specific request. However, if the retailer or distributor takes the false or misleading information provided by a manufacturer and use it to create their own advertisement, then they would be liable.
Influencer marketing can be a powerful marketing tool as consumers follow online personalities who share their interests and opinions. When influencers are compensated to promote specific products, services or brands, they must disclose their relationship with the company. A lack of transparency would be misleading to consumers and raise concerns under the law.
Information on labels must not be misleading and must also conform with other relevant legislation enforced by the Competition Bureau, such as the Consumer Packaging and Labelling Act, the Textile Labelling Act, and the Precious Metals Marking Act.
Nature, size and market position of the business
This category of information includes using terms such as “manufacturer,” “wholesaler” or “factory outlet” that imply that a retail business is not, in fact, in retail. This is prohibited even if it is accompanied by a registered trademark or the registered name of the company unless it is also clearly indicated that the business is a retail operation.
In addition, businesses should not use words such as “only” or similar claims promoting the exclusivity or superiority of a supplier if the claim is deceptive or misleading.
Reasons for sale
Businesses should not state, directly or indirectly, that a specific event, such as a bankruptcy or end of lease, is causing the supplier to sell off all existing stock or all the stock purchased from a third party unless this is true.
When deciding whether marketing information raises concerns under the Competition Act, the court consider both the literal meaning of the information and the general impression it makes. This is known as the “general impression test.”
Penalties and remedies for non-compliance
The consequences associated with being found to have engaged in deceptive marketing practices depend on whether the conduct falls under the civil or criminal provisions of the Competition Act.
Civil provision: Making false or misleading representations (paragraph 74.01(1)(a) of the Competition Act).
The court may order the person to stop engaging in such conduct, to publish a corrective notice, and/or pay an administrative monetary penalty.
For individuals, the penalty for first-time violations is up to the greater of:
- $750,000 ($1 million for each subsequent violation); and
- three times the value of the benefit derived from the deceptive conduct, if that amount can be reasonably determined.
For corporations, the penalty for a first-time violation is up to the greater of:
- $10 million ($15 million for each subsequent violation); and
- three times the value of the benefit derived from the deceptive conduct, or, if that amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenue.
The court may also make an order for restitution that requires the person to compensate consumers who bought such products and, in certain cases, may issue an interim injunction to freeze assets.
Criminal provision: Knowingly or recklessly making a false or misleading representation contrary to section 52 of the Competition Act.
- Summary conviction: Fine of up to $200,000 and/or imprisonment for up to one year.
- Conviction on indictment: Fines are at the discretion of the court and imprisonment can be for up to 14 years.
Potential for immunity
If you have engaged in a deceptive marketing practice prohibited under the criminal provisions of the Competition Act, you are encouraged to come forward, share what you know, and fully cooperate with our investigation and any subsequent prosecution. If you meet the requirements of the Immunity program, we will recommend that the Director of Public Prosecutions of Canada provide you with immunity from prosecution.
Having a credible and effective compliance program can provide benefits in dealing with the Competition Bureau to resolve a violation of one of the legislation it enforces. A compliance program can also help:
- reduce the risk of potentially illegal conduct
- protect your brand and reputation
- detect instances of potentially illegal conduct at an early stage
- identify when others might put you at risk
To find out more information on written opinions under section 124.1 of the Competition Act, contact the Bureau’s Information Centre toll-free at 1-800-348-5358 or online. If a written opinion is provided by the Commissioner, a fee will apply based upon the section of the Act the proposed conduct or practice applies to. A written opinion is binding on the Commissioner as long as the facts submitted are accurate, and it remains binding if the facts on which the opinion is based remain substantially unchanged and your conduct or practice is carried out, as proposed. All fees and service standards for written opinions are set out in the Competition Bureau Fee and Service Standards Policy.
- Written opinions
- False and misleading representation
- Advertising dos and don’ts
- Compliance Bootcamp: Avoiding Deceptive Marketing
- Immunity and Leniency Programs under the Competition Act
- Deceptive Marketing Practices Digest:
- Volume 1: Online advertising, disclaimers, online reviews
- Volume 2: Performance claims, consent agreements, precious metal marking, Canadian Anti-Fraud Centre
- Volume 3: E-commerce, cross-border enforcement, mobile phone accounts, “unlimited” claims (telecommunications services)
- Volume 4: Influencer marketing, “Made in Canada” claims, saving claims
- Volume 5: Marketing issues that resonate with consumers of the online marketplace
- Consumer and business alerts
- Influencer marketing and the Competition Act
- Scanner price accuracy
- Terms and conditions: Best practices for businesses
- Labelling requirements for textiles, pre-packaged consumer products and precious metals marking
- Deceptive marketing practices: Choice of criminal or civil track
- How we foster competition and ensure compliance with the law
- Competition Act:
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