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Doing Business Online: U.S. and Canada

Speaking notes for an address by Raymond Pierce
Acting Deputy Commissioner of Competition
Fair Business Practices Branch
Competition Bureau

Conference in Vancouver, British Columbia

May 24-25, 2001

Compliance initiatives

a) Internet sweeps

b) Enforcement Proceedings

c) Electronic evidence gathering and on-line investigations

Consumer and Business Education

Introduction

To open, I want to thank the organizing committee for the opportunity to speak today. Emerging issues in the field of electronic commerce are occupying considerably more time in the Competition Bureau these days including the Fair Business Practices Branch which is responsible for assuring compliance with a host of criminal and civil provisions under the Competition Act and three labelling statutes that prohibit misleading and deceptive marketing practices. Like other enforcement agencies around the world, policing the Internet to assure consumers are not the victims of unfair and deceptive practices has become more important at the Bureau.

It is clear that the Internet affords consumers and firms substantial benefits. It reduces information costs for businesses and consumers and it improves access to markets. Location is no longer a barrier, thus allowing smaller firms to compete on an equal footing with larger firms. Consumers are empowered by having access to a wealth of product information, and by being able to easily compare products and prices on-line. As comparison shopping electronically becomes easier, vendors are required to compete directly with rival products from around the world, creating a more integrated international economy.

While business-to-business electronic commerce has boomed exponentially, business-to-consumer electronic commerce is still falling short of expectations. Although Canadian businesses received $7.2 billion in customer orders over the Internet in 2000, up 73% from 1999, only 20% of these sales were to consumers.

Where are the on-line buyers? A major factor appears to be a lack of consumer trust. Surveys show that in 1999, only 6.9% of Canadian households actually placed orders on the Internet. Consumers continue to express concerns about issues of privacy, the protection of personal information, and the security of financial information. Until consumers' fears are allayed, the movement of the Internet from an information medium to a transaction medium will be difficult, and electronic commerce may not realize its full potential.

The Competition Bureau is taking consumer concerns about electronic commerce seriously, and has made building consumer trust in the digital economy a priority. In this regard the vigorous application of framework laws enforced by the Bureau are important to assure consumers that they will enjoy the benefits of a fair and competitive marketplace when using the Internet. Let me highlight some of the Bureau's activities in this area that employ a variety of tools in what the Bureau calls its Conformity Continuum.

Compliance initiatives

a) Internet sweeps

The Bureau regularly participates in domestic and international Internet sweeps. Our first domestic sweep, carried out in December 1999, targeted a modest 30 multilevel marketing plans and related Web sites and found problems with approximately 20 of them under the provisions of the Competition Act. Information contacts were sent out to these companies by the Bureau.

In February 2000, the Bureau participated in an international Internet sweep to address misleading representations on the Internet. The project targeted phony "get-rich-quick" schemes, such as deceptive work-at-home offers, business opportunity scams and illegal lotteries. The Bureau identified 50 national and international problem Web sites, and sent warning e-mails to targeted sites with suspected misleading practices.

In order to promote the OECD Guidelines for Consumer Protection in the Context of Electronic Commerce, as well as the Principles of Consumer Protection for Electronic Commerce - A Canadian Framework, the Bureau conducted a domestic Internet sweep to see if the requirements of these Guidelines were being met. During the month of August 2000, the Bureau examined 292 Canadian web sites which were assessed on the basis of what information was easily accessible before entering into a transaction. Various categories of e-commerce web sites were examined such as sport and fitness, books, CD's, clothing and health and beauty products, and a checklist of 18 questions was completed regarding web site information, contract information, transaction information and the privacy policy. In February 2001, the Competition Bureau also participated in a sweep on this topic coordinated by the International Marketing Supervision Network. As the Guidelines are not law, but rather prescribe best practices, follow up action in this instance was educational in nature.

With millions of web sites currently in existence and more appearing every day, we believe that our Internet sweeps have only scratched the surface. In response the Bureau intends to be much more proactive in this area in the coming year. The Bureau will be significantly increasing its enforcement activities on the Internet this year by visiting many more websites and vigorously pursuing those that do not comply with the law.

b) Enforcement Proceedings

The Bureau will not hesitate to pursue litigation involving misleading practices over the Internet although to date the number of cases is limited.

In December 1997, the Integrity Group, a Canadian multi-level marketing company, became the first business convicted under the misleading advertising and deceptive marketing provisions of the Competition Act for a representation made over the Internet. The company was convicted under the Competition Act for making representations relating to income and not disclosing the amount of income received or likely to be received by a typical participant in its multi-level marketing plan. The judge had no difficulty applying the multilevel marketing provisions of the Act to the representation made on the company's web site, and imposed a fine of $75,000 for the charge relating to the Internet representation.

On May 18th of this year, Lifestyles Canada, another multilevel marketing company, pleaded guilty to similar charges. The representations were made verbally at recruitment meetings, as well as in printed promotional materials and on two different web sites. Two of the charges related specifically to representations made on web sites, and a fine of $25,000 was imposed for each of those charges.

On March 1^st of this year, the Bureau filed an application before the Competition Tribunal against Platinum Vapour Injector (PVI) Inc., alleging that the company made false or misleading representations regarding its product, a gas saving device, in print ads and radio commercials, as well as on the company's web site. The Bureau alleges that the company made performance claims regarding the product which were not based on adequate and proper tests. The Bureau also alleges that the company made false or misleading representations regarding the capacity of the device to save fuel and reduce emissions.

c) Electronic evidence gathering and on-line investigations

Another area where the Bureau has increased its efforts is in the area of electronic evidence gathering and on-line investigations.

As technology continues to advance, so does the sophistication of those involved in deceptive marketing. Keeping up with the latest Internet scams is a priority for the Bureau. The advent of the Internet has not necessarily created new offences, but rather has provided a new venue in which to carry out existing crimes. Technology allows crimes to be committed rapidly, makes evidence difficult to uncover and easy to destroy.

The Bureau has a dedicated unit of trained electronic evidence officers who assist case officers in obtaining and preserving evidence found in digital form. The evidence may be obtained through search and seizure, court ordered subpoenas, or retrieved directly from the Internet. In the case of the Internet, web sites and e-mail bearing misleading representations are captured, preserved and traced to their source.

The Bureau recently hosted an international workshop on electronic evidence and on-line investigations. The workshop, attended by various Canadian and U.S. law enforcement agencies, was designed to educate decision makers. It highlighted current and upcoming electronic evidence enforcement issues; explored investigative techniques for online investigations; and emphasized the need for international and inter-agency cooperation. The Bureau will continue to work closely with international law enforcement agencies on these issues.

Consumer and Business Education

The Competition Bureau has also made educating businesses about their responsibilities when advertising on the Internet a priority. Our belief is that most businesses will comply voluntarily with the law if they understand what is required. In this regard the Bureau will soon be releasing its Internet advertising guidelines. The guidelines set out how the Bureau will enforce the misleading advertising and deceptive marketing practices provisions of the Competition Act to on-line representations. The Bureau is also developing a series of interactive web presentations and CD ROMs for small and medium-sized businesses on the rules of conducting business on the web and in the 'bricks and mortar' marketplace. It is hoped that these tools will assist businesses in assuring that their web sites comply with the Competition Act.

As I mentioned earlier, in 1999 the OECD released its guidelines for consumer protection in the context of electronic commerce. As a member of the OECD, the Bureau has undertaken to disseminate these guidelines and to encourage businesses, consumers and their representatives to take an active role in promoting their implementation at the international, national and local levels.

In Canada, the Working Group on Electronic Commerce and Consumers, comprised of representatives from Canadian businesses, consumer associations and governments, developed guidelines entitled Principles of Consumer Protection for Electronic Commerce - A Canadian Framework which were approved by the Working Group in August of 1999. The principles are intended to guide the actions of businesses, consumers and governments within Canada in the development of a consumer protection framework for electronic commerce. The working group, of which the Bureau is a member, has agreed to review the principles regularly to ensure their continued relevance in the rapidly changing electronic marketplace.

International Cooperation

The Internet poses unique challenges to law enforcement. It is relatively easy and inexpensive to set up a virtual storefront, and just as easy for a web site to disappear. The vendor may not have a physical presence at all, and may be located in another jurisdiction, unbeknownst to the consumer.

Communication and cooperation among law enforcement agencies on a global scale is essential to deal with inter-jurisdictional problems. The Bureau enjoys close working relationships with a number of enforcement agencies around the world. For example, the Bureau is a member of the International Marketing Supervision Network, which comprises various international enforcement agencies. The Network's main objective is to facilitate practical action to prevent and redress deceptive marketing practices with an international component. The Network fosters cooperative efforts to tackle consumer problems connected with cross border transactions in both goods and services.

On April 24, 2001, Canada, along with twelve other countries, participated in the launch of www.econsumer.gov. The result of joint efforts by IMSN members and the Consumer Sentinel Network maintained by the Federal Trade Commission, econsumer.gov will allow consumers to file complaints against foreign companies concerning transactions on the Internet. Users will also be able to obtain information on consumer protection in IMSN member countries, find contact information and get practical advice on making on-line purchases safely. Complaints filed with the database, which is hosted by the Federal Trade Commission, are available to consumer protection authorities in all participating countries, who have signed confidentiality agreements relating to data accessed through the site. It is anticipated that this system will greatly improve the ability of agencies around the world to address cross-border Internet fraud and deception, by helping direct complaints to the right agency quickly and efficiently.

The Bureau has also signed international cooperation agreements with the United States, Australia and New Zealand regarding the enforcement of deceptive marketing laws. Finally, the Bureau is also an active member of several cross border task forces, including Project Colt, the Strategic partnership in Toronto, and Project Emptor in Vancouver. Although these task forces were initially set up to deal with cross border telemarketing and mail fraud, we are confident that they will prove extremely useful in combatting cross border Internet-based deceptive practices as well.

The Bureau and its domestic and international partners share a common resolve to seek out and quickly act against those that would engage in deceptive and fraudulent marketing practices over the Internet.

Legislative Amendments

Finally, I would like to mention the amendments to the Competition Act that are currently before the House of Commons. Two of the proposed amendments are directly relevant to the issues being discussed today.

Businesses increasingly operate across national borders, particularly in the integrated North American market. At times, a foreign jurisdiction will be in a position to gather evidence about a firm that would assist the Bureau in its investigations and vice versa. Certain of the amendments would permit Canada to enter into mutual assistance treaties that would allow foreign agencies to gather evidence on our behalf and vice versa in respect of the civil provisions of the law. The amendments are particularly important to the Fair Business Practices Branch, since many of the provisions we enforce are civil in nature.

The amendments would also see the creation of a new offence relating to deceptive contests. The section would prohibit sending notices or other documents that give the general impression that a recipient has won a prize if the recipient is required to send money to collect the prize. The proposal will cover both traditional mail and electronic mail so that marketers using the Internet will also be covered by the new provision.

Conclusion

The same technologies that give the Internet its potential as a marketplace also extend the reach of those who would engage in fraud and deception. Ease of entry and low initial cost means that the Internet is fertile ground for deceptive practices and scam artists. The interactive quality of Internet marketing also allows entire transactions, from first contact to final sale, to take place within a few minutes.

The Internet is still evolving and it is difficult to know what shape online marketing will take in future years. Whatever path that evolution takes, the current efforts to enhance international cooperation along with the vigorous application of those laws enforced by the Competition Bureau will play a significant role in assuring Canadian consumers that they will continue to enjoy the benefits of a fair and competitive marketplace whatever method of transacting they choose.