Competition Law for the 21st Century "Developments in Marketing Law For a Borderless World"

Rachel Larabie-LeSieur

1997 Annual Canadian Bar Association
Competition Law Conference
Aylmer, Quebec

September 19,1997

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Introduction

Good morning ladies and gentlemen. It is a pleasure for me to participate in this session entitled "Developments in Marketing Law For a Borderless World".

Let me first say that sophisticated communications technology such as the INTERNET is something that would have been considered science fiction just a few short years ago.

This morning I intend to make general comments on the Canadian legislative framework which currently governs marketing in a borderless world. I will then discuss the global marketplace environment and the characteristics associated with this new marketplace. I will address the issue of enforcement challenges in this context and review some of the mechanisms being examined in various jurisdictions and international fora to come to grip with the issues presented by the "virtual" marketplace.

Legislative Framework

It is important to initially look at the legislative framework currently in place. The Act, as marketplace framework legislation, lays out the boundaries between what Parliament defines as acceptable business practices and conduct which it deems to be unlawful. Within these boundaries, firms and individuals are free to seek out market opportunities and carry on business in the manner that best suits their interests.

The effectiveness of a market economy largely depends on the free flow of information about products and services offered to consumers. Advertising and labelling are the principal means by which firms convey product information to the market. Advertising normally enhances market performance. When truthful and accurate, advertising transfers useful information to consumers and enables firms to compete more vigorously through product and service promotion.

The existence of fair, free and competitive international and domestic markets is a fundamental good, a good that benefits all consumers by providing better products and better prices. A level playing field for firms results in efficiencies, innovation and higher quality standards.

The Act is the only federal statute which has general application to all forms of advertising in Canada. It applies to all means of making representations to the public, including print, broadcast, oral, audio-visual and electronic.

It should also be noted that the Consumer Products Directorate ("CPD") was integrated into the Bureau in April of this year. CPD enforces the following three pieces of legislation: Textile Labeling Act, Consumer Packaging and Labeling Act and Precious Metals Marking Act.

With integration, it makes for a more effective process when dealing with the accuracy of marketplace information. The statutory provisions and compliance guidelines for which these two organizations are responsible have the common purpose of limiting business practices that are unfair to consumers and competitors.

The New Global Environment

Contemporary markets, in addition to becoming more and more borderless and anonymous, are constantly evolving. Open markets brought on by elimination of barriers, reduced transportation costs and the communications revolution have helped to globalize markets.

Technology has also helped to define this new global economy. Corel Corporation chief executive Michael Cowpland has predicted that retail sales on the powerful and highly interactive INTERNET will grow over the next four years from $300 million to $8 billion. In total, business on the INTERNET has been forecast to reach $200 billion by the year 2000 as compared to $15 billion in 1996.

Cyber world commercial representations and market transactions have generated a considerable amount of discussion and we now have a better understanding of what the new challenges with enforcement and compliance of marketing laws in this environment will be.

Consumer confidence about this new environment will ultimately determine its future. Unless consumers are confident that the cyber marketplace offers honest representations, security of transactions, privacy, disseminates accurate information and offers redress mechanisms when necessary, it will not be utilized to its maximum potential. The threat of lawlessness could undermine all technological advances. Unfortunately, the same technologies that give the INTERNET its potential as a marketplace also tend to facilitate fraud and deception. In essence, the INTERNET offers two very different streams - one for conventional and legitimate business advertising and one for deceptive cyber scams.

Characteristics of this New Marketplace

In some respects, the problem of deceptive marketing practices and misleading advertising on the INTERNET is not really new or different. As yet, we have simply witnessed a migration to another medium. For example, deceptive multi-level marketing and pyramid sales schemes are becoming 'business opportunities" on the INTERNET.

However, certain characteristics of commercial activities conducted on the INTERNET makes it much more challenging in terms of enforcement:

1. The communication costs are low and not dependent on geographical location, which is likely to result in a substantial increase in cross-border transactions;
   
   
2. The nature of the medium allows for portability and anonymity. Senders can move operations quickly from one jurisdiction to another and can easily disguise their identity;
   
   
3. Because of the modest costs associated with the promotion of commercial activities via the INTERNET, it opens the door to a flood of new cyber entrepreneurs some of whom will engage in disreputable conduct;
   
   
4. In most cases, it is impossible for the sender of a communication to identify the geographical location of the recipients or to limit the availability of a communication to a geographical location (in the case of E-mail, there is active solicitation such as with the telephone or the mail).

So more specifically, the enforcement challenges then will be associated with the anonymity and portability of these representations and the cross-border nature of these practices.

Meeting the Challenges in Canada

Given that the Competition Act is of general application, there is no suggestion in it that it would not apply to the electronic marketplace. The extent to which such a misrepresentation actually impacts on the Canadian marketplace would of course be taken into consideration (Basis for intervention).

Generally speaking, businesses must be cautious to avoid breaching laws when making or distributing representations on behalf of another, less scrupulous, party outside of Canada. This becomes complex in an electronic environment. For example, could an INTERNET service provider be liable? Would the importer be solely liable? There are no easy answers to these questions, but these issues must be resolved if electronic commerce is to offer consumers and businesses a viable and safe alternative to more traditional-based commercial transactions. To help clarify the issues, the Bureau is convening a roundtable discussion later this fall with industry association members, government officials, various business and industry groups – and hopefully the legal community – to consider these questions.

Enforcement

It goes without saying that enforcement of the Competition Act to misleading or deceptive representations made on the Internet reaching the Canadian public and originating from outside Canada will require international cooperation. These concerns were noted only this week by the Honourable Justice Sopinka of the S.C.C. in his comments to the Council on Governmental Ethics Laws, in Edmonton.

Mutual law assistance treaties will be increasingly relied upon to gather evidence, to serve proceedings and enforce judgments as well as extradition treaties, and this when dealing with cases which actually warrant prosecution. The challenges and lessons learned in dealing with cross-border illegal telemarketing will undoubtedly be useful experience. The creation of a joint task force with the FTC to address cross-border deceptive marketing practices could also provide a framework for action.

Sharing of information with foreign law enforcement agencies within the limits of each country's respective legislation will also be a major component of international cooperative enforcement.

Education

I cannot overstate the importance for consumers to educate themselves in this new environment. Consumers will have to make efforts to protect themselves, as well as business and the new "Cyber" entrepreneurs will have to be educated as to the legal requirements applying to on-line commercial activities. Targeted education programs for consumers and businesses should be developed by both the government and the private sector working together. The same technology should also be used to increase awareness in addition to more conventional means. There is something in it for business too since consumer's confidence is dependent on awareness.

Compliance Activities

Joint compliance activities also offer tremendous opportunities for agencies to work together in innovative ways.

In March of this year, the Bureau, the U.S. Federal Trade Commission and members of provincial, territorial and state law enforcement organizations joined forces to sweep through INTERNET Web sites and user groups to identify "business opportunities" which could raise issues under the two countries' respective legislation. This was a unique example of not only international co-operation, but also law enforcement agencies utilizing cyber technology in their enforcement operations.

During the sweep, information was recorded in varying degrees of detail on approximately 950 sites. Of these, 166 had some clear indication that they originated from a Canadian address, or were specifically aimed at Canadians, while 37 sites were clearly outside Canada. An estimated 80 to 85 percent of advertised business opportunities involved multi-level marketing activities.

As a result, E-mail compliance notices were sent by the Bureau, effectively using the same electronic technology as was used to promote these questionable activities.

The sweep was also designed to make promoters of business opportunities on the INTERNET aware of relevant Canadian and American laws. It is expected another sweep of this nature will follow and on a larger international scale.

So, from a Canadian perspective, I'm confident that the Bureau's Conformity strategy offers an effective range of tools to deal with the issue, from education to prosecution.

Promoting a Fair Global Marketplace Through International Co-operation

As daunting as some of these enforcement issues may seem, the search to find even more solutions is underway. At a Conference in Bonn, Germany, Canada's Minister of Industry, John Manley, announced that Canada will hold a meeting on electronic commerce in the fall of 1998. This symposium will consider the development of an international policy structure for electronic commerce.

Canada's federal government departments, under the leadership of Industry Canada, are currently studying cryptography issues. While still at the information gathering stage, there is a recognition that privacy of communications has to be balanced with enforcement of the law in this new reality as consumers turn to the INTERNET to complete business transactions. Recommendations for a Canadian cryptography policy should be released by late fall or early next year. This is obviously a complex issue with the views of law enforcement agencies often at odds with advocates of the right to privacy.

Other Possible Approaches

On line registers for businesses engaged in commercial activities on the INTERNET could be maintained for consultation by consumers.

There could be use of disclaimers to restrict the scope of the representation such as "this offer is void in countries other than... The challenge is how to establish the validity of such claims, transactions should not be completed with consumer in any such jurisdiction, if product is tangible, can be verified, if not, may be impossible.

Certification Process, Self-Regulation and Voluntary Codes

A possible avenue widely discussed to ensure that false and misleading advertising does not find its way onto the INTERNET (or elsewhere) is through an accreditation or certification process. Such a process could pre-clear advertising so that it would not raise possible misleading issues. Then advertisers could indicate through the use of stamps of approval that their advertising has been pre-cleared, thereby raising consumer confidence that the product or service advertised is legitimate. Still in its preliminary discussion stage, it has not yet been determined if, how or when this process could be implemented. But I think it is safe to say that the private sector should take the lead and that models already in place could be examined and adapted.

Self-regulation and voluntary codes of conduct are other potentially effective tools to deal with misrepresentation on the Internet. Earlier this year, the Canadian Direct Marketing Association announced that it had moved to establish standards for its members' use of the INTERNET and other forms of online marketing in Canada. This was prompted because of concern over the protection of personal information, marketing to children and unsolicited mail.

U.S. Perspective

The U.S. released an electronic commerce strategy paper in July 1997, entitled A Framework for Global Electronic Commerce, that outlines principles and recommendations for U.S. domestic policy. This report also offers an agenda for international discussions and agreements to facilitate the growth of electronic commerce.

Some of the key principles include the private sector taking the lead on INTERNET development and governments avoiding undue restrictions on electronic commerce. Global consensus on issues raised in the report is hoped to be achieved by December 31, 1999.

European Approach

Last year, the European Union ("EU") released a green paper in 1996 on "Content of Commercial Communications" which proposed the application of "home country rule", whereby businesses in the EU are governed by their domestic laws and home authorities, no matter where customers are located. It relies on a reasonable and uniform enforcement of minimum standards. These proposals were not released to deal with electronic commerce but rather more conventional cross-border transactions but could conceivably find application in an electronic environment.

An interesting development in this area is a recent decision by the European Court which is not in line with the proposal. This case dealt with a satellite television broadcast to Sweden from the United Kingdom - in Swedish - containing advertising directed to children. Sweden bans all advertisements to children and brought the case before the European Court in Luxembourg. Defence held the view that it was governed by the broadcasting rules that were in force in the United Kingdom which did not contain such provisions. The Court decided that the Swedish marketing and advertising laws found application and that the television broadcaster was in fact breaching Swedish laws. Would the decision have been different had the broadcast been in another language than Swedish?

The Bureau is actively involved with the Organization for Economic Co-Operation and Development ("OECD") Committee on Consumer Policy. This Committee is currently examining issues of electronic commerce touching on enforcement and the situation of consumers in the global marketplace with a view to define guidelines that can be used in member countries to increase consumer confidence.

The Bureau is also a major participant in the International Marketing Supervision Network ("IMSN"), which has been chaired by Canada for the past year. The Bureau is a conduit to other Canadian agencies. The IMSN, an informal alliance created in 1992, involves 29 6ECD Member countries. Members regularly exchange information, with a view to promoting international co-operation in detecting and fighting unfair and deceptive marketing practices. At a meeting held in Canada last fall, the IMSN dealt at length with on-line fraud and deceptive marketing practices.

The IMSN has begun to examine the potential of an INTERNET-based information network to support its work, thereby facilitating the rapid exchange of law enforcement information within the limits of each country's jurisdiction. The IMSN is also currently in the process of constructing a Web site to help explain its work to INTERNET users.

Conclusion

So, in conclusion ladies and gentlemen, where does that leave the Bureau on the complex issue of applying marketing law in a borderless world? How can a market-oriented approach to electronic commerce based on global, transparent and predictable laws be established to support business and commerce?

I would like to leave you with the following observation. The borderless world and the global economy are realities. They offer great potential for competition, efficiencies and convenience. Unfortunately, they also provide a new window to exploit unsuspecting consumers and businesses.

But the challenges of the new technology in a borderless world can be met. The Bureau as well as the government, are working to meet these challenges along with foreign law enforcement agencies and international forces, such as the OECD and the IMSN. The new technology that is being used for illegal purposes can also be used to solve the problem. I've talked about that already.

The Bureau's lines of communication are always open to help ensure that advertising complies with both the letter and the spirit of the misleading advertising and deceptive marketing practices provisions of the Act. The Bureau is no further away than your computer if you are on the INTERNET. In partnership with the private and public sector, the Bureau is optimistic about meeting the challenges of marketing law for a borderless world in the 21st century.

I hope this presentation has been beneficial and I thank you again for this opportunity to discuss these matters with you today.