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A Snapshot of the Past Year In the Fair Business Practices Branch

Johanne D'Auray
Deputy Commissioner
Fair Business Practices Branch

September 22, 2000

Introduction

The goal of this presentation is to provide a quick overview of the activities and priorities of the Fair Business Practices Branch over the past year, and to provide some insights into where the Branch is heading in the future.

The Fair Business Practices Branch promotes fair competition in the marketplace by discouraging deceptive business practices and by encouraging the provision of sufficient information to enable informed consumer choice. This goal is achieved through application of the Competition Act, the Consumer Packaging and Labelling Act, theTextile Labelling Actand thePrecious Metals Marking Act.

The Branch is the only part of the Bureau to operate on a de-centralized basis. Regional offices located in six major centers carry out investigative and enforcement activities relating to all four statutes. They also provide us with a better understanding of regional perspectives and issues, and help us to maintain links with municipal and provincial law enforcement counterparts.

The Branch is the largest organizational entity in the Bureau, with over 128 employees. However we also deal with the largest amount of activity. The Bureau as a whole received 13,340 complaints between September 1, 1999 and August 31, 2000, and of those, 12,276 related to the activities of the Fair Business Practices Branch. In view of our statutory responsibility for four statutes, we must keep on top of a wide range of enforcement policy and regulatory issues. We also strive to focus on matters having the greatest economic impact, while maintaining a national presence and a balance of activities in relation to all the programs we administer.

Our Activities Under the Conformity Continuum

Last June the Bureau published an Information Bulletin on the Conformity Continuum. It outlines the Bureau's general approach to promoting conformity to our legislation and the instruments we use to achieve that goal. Since the Fair Business Practices Branch applies both civil and criminal provisions, our activities are especially diverse.

A large part of our resources have been committed to enforcing criminal provisions in areas such as deceptive telemarketing, deceptive mail solicitations and lotteries, and pyramid selling and multilevel marketing. These matters continue to serve as the main source of consumer complaints. However, we believe the new provisions in the Act with respect to telemarketing are already having an impact, and we are now seeing what appears to be a shift in complaints received from telemarketing to deceptive mail. In the last fiscal year, we laid over 150 charges in five cases, and we have obtained various convictions in relation to five matters. Numerous other matters were resolved through less adversarial responses, such as information contacts.

On the civil side, the Branch has also been active. As you know, the last year has been our first full year of activity under the new civil regime, which includes revised rules of the game for making ordinary selling price claims. Again, numerous matters were resolved through information contacts, six files were resolved by some form of negotiated undertaking, two consent orders were registered with the Competition Tribunal, and numerous other matters are still in progress. Let me speak about a few of the specific areas where we are currently active under the civil provisions:

Ordinary selling price claims were identified as a Branch priority following the passage of the amendments. A team of officers across the country was assembled to deal with these kinds of cases, and there are now a number of significant matters at various stages of development. These examinations can be resource- intensive, and our work in this area will continue for the balance of our fiscal year.

Part of our efforts in relation to ordinary selling price claims have been focussed on the jewellery industry. This year a national working group mailed close to 3000 personalized letters to jewellers across the country, outlining the responsibilities of retailers under the misleading price advertising provisions of the Competition Act as well as the Precious Metals Marking Act. Bureau staff followed up with close to 700 visits to retail establishments to respond to questions and to identify instances of continued non-compliance. To date, written commitments to comply with the law have been received from nine corporations, representing in excess of 350 retail jewellery outlets. Examinations are now being commenced with respect to retailers who have failed to comply despite this initiative.

A proportion of our resources in the regions continues to be applied to enforcement activities under the Consumer Packaging and Labelling Act, the Textile Labelling Act, and the Precious Metals Marking Act.Branch staff followed up on numerous complaints from the public under these statutes, and achieved over 1,995,500 product corrections.

Priorities For This Year

A major priority for the Branch this year is to boost our presence in the marketplace on a national basis. While we will continue our emphasis on conduct with a national or international dimension and significant economic impact, we also want to work with the conformity continuum to increase the number of matters that we can address through our network of regional offices. Last year was a transition year for the Branch and this year our work should begin to bear fruit in terms of an even larger volume of case resolutions and consent orders.

Other means to establishing this national presence include: broadening the Branch's reach and impact through partnerships with other agencies and government, private sector and voluntary organizations; participating in intergovernmental committees and working groups; and utilizing a variety of communication tools.

A strong communications effort is essential in ensuring businesses know the rules of the marketplace and the consequences for non-compliance. Deterring misleading representations and deceptive marketing practices by making both businesses and consumers aware of the Competition Act, the Precious Metals Marking Act, the Textile Labelling Act and the Consumer Packaging and Labelling Act is therefore a priority of the Branch. These efforts include extending the reach of consumer and business education with new information products, and topical and seasonal alerts on the Bureau web site. As well, the Branch is using technology to its advantage by 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. These will focus on multi-level marketing, deceptive mail, labelling and misleading advertising, with the first of this series being on multi-level marketing. We will also be issuing a draft document outlining our enforcement approach to advertising on the Internet later this year.

A second major priority for the Branch is to develop and strengthen our international relationships. Businesses increasingly operate across borders and international scams are figuring more and more prominently in the volume of calls and complaints directed to our office. The Internet also represents a growing challenge to all members of the law enforcement community. Cost-effective ways to address cross-border issues, such as those arising from deceptive telemarketing, deceptive mail and Internet advertising need to be identified and implemented. It is important that the Branch leverage its resources on all fronts through partnerships with law enforcement agencies at home and abroad.

In that vein, pursuant to the agreement between the Government of Canada and the Government of the United States of America regarding the application of their competition and deceptive marketing practices law and the Joint Canada-US Task Force on Deceptive Marketing Practices, the Branch signed a joint venture this year with the Federal Trade Commission's Bureau of Consumer Protection, the Toronto Police Service, and the Ontario Ministry of Consumer and Commercial Relations. The primary purpose of this initiative is to coordinate law enforcement activities among the parties, to identify fraudulent, deceptive and misleading marketing practices, to facilitate information sharing among the parties and to support each other's law enforcement actions against persons and entities that engage in various types of deceptive marketing practices.

The Branch also continues to be an active member of the International Marketing Supervision Network (IMSN), a group composed of different international enforcement agencies. The Branch will continue to work with the IMSN to promote better cooperation and improved information sharing on cross-border issues such as deceptive telemarketing, deceptive mail and Internet advertising. The Branch will also continue its participation in IMSN international Internet sweeps targeting advertising practices. This year we were involved in sweeps that looked for misleading business opportunities, multi-level marketing and pyramid selling violations. Additionally, the branch worked towards the implementation of the OECD Guidelines for Consumer Protection in Electronic Commerce. This latter activity was undertaken as part of the Branch's activities in the OECD's Committee on Consumer Protection.

At a more micro level, let me briefly mention the priority areas for enforcement work that have been identified for 2000-2001, some of which have been priorities for several years. For example, we will continue our efforts in the areas of deceptive telemarketing, deceptive mail solicitations, and multi-level marketing and pyramid selling. We will also be devoting resources to the enforcement of the ordinary selling price provisions and follow-up activities in the retail jewellery industry. This year we will also continue to proactively monitor representations on the Internet by means of Internet sweeps. Any issues identified will be assessed in view of the Competition Bureau's conformity continuum, which provides for options ranging from information and education to monitoring and more formal legal recourse, depending on the severity of the issue. Inspections and complaint follow-up under the Precious Metals Marking Act, the Textile Labelling Act and the Consumer Packaging and Labelling Act will also continue throughout the country.

Policy Activities

The Fair Business Practices Branch has been working on a number of policy initiatives that should be of interest to those who practice in the area of advertising and marketing law.

The globalization of business and the liberalization of trade have created increasing pressures to ensure that regulation reflects international best practices and does not present a barrier to trade. There are a number of areas where we have been working to ensure that enforcement policies or regulatory standards that we rely upon in our day to day work reflect international developments. For example, the Branch has launched a review of the Canadian Care Labelling Standard, which describes the symbols used to convey cleaning care instructions to consumers and dry cleaners. While these standards are not currently mandatory under the Textile Labelling Act, we believe consumers and the marketplace would benefit from a move to a symbol system compatible with our NAFTA partners and with the direction being taken by other jurisdictions through the work of the International Standards Organization.

We have also recently completed consultations related to a voluntary code on pet food labelling, that was developed by a cross-section of stakeholders with federal government participation. We are currently reviewing the comments received and expect that this code will be published in its final form later this fall. We are in the midst of a consultation exercise to obtain public feedback on the application of the 'Made in Canada' guidelines to the marketing and advertising of diamonds. Finally, in the next few months we will be launching consultations on the issue of environmental labelling, as well as on possible revisions to the Precious Metal Marking Regulations.

The Branch has also commenced exploratory work relating to modernization of the labelling statutes. This project is not currently part of the next round of amendments that is subject to consultation, and would only proceed in the next mandate subject to ministerial approval. However, internal research into laws and practices in other jurisdictions has commenced. Review of the legislation will encompass a fundamental examination of the substance covered, the investigative machinery and compliance tools and remedies. This will be a significant undertaking, and one where we would hope particularly to receive input from the Bar.

New Legislative Developments

I would like to briefly describe some current legislative developments that impact upon the area of misleading advertising.

Bill C-276, An Act to amend the Competition Act (negative option marketing), a Private Members Bill proposed by Roger Gallaway, MP, Sarnia-Lambton, was passed by the House of Commons on May 17, 2000. The Bill is now before the Senate, and as such, it would be premature to comment on the enforcement policy that the Bureau would pursue if it should be enacted into law. However, practitioners may wish to note the subject matter affected in order to monitor future developments.

The Bill would amend the Competition Act so that charging money for the provision or sale of a new service without the express consent of the clients would constitute reviewable conduct for banks, broadcasting and telecommunications undertakings. Such an enterprise would be engaging in reviewable conduct if it did not provide detailed notice to the client, at least once a month for three consecutive months, and receive express consent from the client for the purchase of the service. The notice must contain a description of the service, the date the new service is to begin, the cost of the new service calculated monthly and annually, a statement that the new service is not mandatory, a statement of how to obtain the new service, and any other matter that may be prescribed. Exceptions are provided where the new service is effectively an upgrade at no cost or lower cost to the client/subscriber, where there is no separate and specific charge for the new service, or where the service is required by law and the party is authorized to charge for the service. The Committee on Banking, Trade and Commerce is examining the Bill in the Senate.

Another initiative is Bill C-438, a Private Member's Bill proposed by Karen Redman, MP, Kitchener Centre, to deal with the issue of games of chance delivered through the mail.

The Bill would create a new criminal offence under the Competition Act which targets deceptive direct mailers. It prohibits any person, for the purpose of promoting a product, or any business interest, from delivering, by mail or through any other system of delivery, printed material that conveys the general impression that the recipient has won a prize or advantage, where the distribution of such prize or advantage, or any request for information regarding them, is conditional on the prior payment of a sum of money or specific telephone charges.

The Bill specifies that where the printed material indicates that it is necessary to make a telephone call in order to obtain information regarding prizes and specific charges apply to the call, such charges would be deemed to be specific telephone charges. The Bill also provides that section 33(1.1)(b) of the Competition Act (injunction issued in respect of an offence under section 52.1, the deceptive telemarketing section) would also be amended to apply to the proposed new offence. The Bill is analogous to the deceptive telemarketing provision, 52.1, included in last year's amendments to the Competition Act.

The Bill was proposed in the wake of widespread mailings of scratch-and-win cards, where recipients were led to believe that they had won a significant prize and were directed to call a 1-900 number to claim the prize. Upon calling the number, however, almost all consumers found they had won either a much smaller prize than they were led to believe, or no prize at all.

This Bill was originally sponsored as Bill C-229, An Act to amend the Canada Post Corporation Act. Bill C-229 was withdrawn however, and the subject matter referred to the Standing Committee on Industry which endorsed, on April 10, 2000, Bill C-438 which would amend the Competition Act to prohibit sending deceptive contests through the mail. The Commissioner of Competition, with the Public Policy Forum leading the process, has subsequently initiated consultations with stakeholders, the consultation period ending on September 30, 2000. If there is broad support for the principles behind the proposed Bill C-438, the Minister of Industry will consider the scope for developing government legislation which meets the spirit of the proposed improvements and anticipates the needs of enforcement in the changing global marketplace.

Administration of the New Regime - Some Thoughts on Our Experience To Date

I believe that the information covered earlier in this paper conveys what kinds of issues and activities have been our main focus over the past year. However, I also want to offer some behind the scenes comments and some reflections on how the new advertising regime is working in practice.

Perhaps I can begin with some thoughts on developments in the area of telemarketing. The new provisions with respect to telemarketing have created a complete code. This has clarified the law for industry, so as to facilitate voluntary compliance, while at the same time allowing the Bureau to use its resources more efficiently in those instances of non-compliance. While there are no cases on the public record as yet, I can assure you that there are a number of investigations ongoing under these new provisions.

A change to section 183 of the Criminal Code permits the Bureau to apply for wiretapping in relation to deceptive telemarketing investigations. The new wiretap provisions will enable the Bureau to gather concrete evidence of misleading representations made over the phone. The new provisions also enable the Bureau to obtain injunctions against suspected fraudulent telemarketers, as well as against third party suppliers such as telephone service providers. We believe that this power will allow us to bring deceptive telemarketing operations to a halt more quickly.

Also noteworthy is the fact that the new telemarketing provisions explicitly set out aggravating factors that the court shall consider in sentencing convicted telemarketers. This is an important provision because it will give the court concrete factors to consider when sentencing. Sentences in the past have tended to be relatively light, perhaps due in part to the fact that judges do not often deal with these types of cases. It is our hope that the new legislation will result in stiffer penalties against deceptive telemarketers, particularly those with prior records for telemarketing related offences.

The Bureau has issued guidelines regarding the enforcement of the telemarketing provisions of the Act. The Guidelines provide detailed information as to how the legislation will be enforced, and expands on which types of conduct will raise issues under the Act. The guidelines also define certain concepts, such as what is meant by the term "fair market value" or what will constitute selling a product "grossly in excess" of its fair market value.

For the most part, we have found that the majority of businesses engaged in telemarketing are complying with the legislation. The disclosure provisions are straightforward, and legitimate telemarketers seem to have no difficulty in meeting the disclosure requirements. For those engaged in deceptive telemarketing, we are finding that they usually fail to make the necessary disclosures under section 52.1(2), in addition to making false or misleading representations as defined in section 52.1(3).

Finally, I should point out that the number of prize pitch telemarketing complaints the Bureau has received since the amendments came into force has declined dramatically. This is very encouraging, as prize pitch telemarketing was one of the main types of scam targeted by the amendments. However, as indicated earlier, analysis of complaints received by the Bureau reveals what appears to be a migration to direct mail schemes.

Now let me speak a bit about our experience with the dual civil-criminal regime. In practice, resources devoted to misleading advertising matters have grown over the course of the past year as we have enhanced the involvement of our regional office staff in numerous Competition Act investigations. Enforcement resources are fairly evenly divided between civil and criminal matters, and this is a trend that I would expect to continue.

As members of the Competition Bar are aware, the amendments to the Competition Act which came into force on March 18, 1999 created two adjudicative regimes to address misleading representations and deceptive marketing practices. Under the new provisions, some types of conduct, such as fraudulent telemarketing, were made exclusively criminal matters. Other types of conduct, such as promotional contests, fall within the civil adjudicative regime.

However, the general provisions which prohibit the making of materially false or misleading representations to the public appear in both the civil and the criminal parts of the Act, differentiated by the requirement for mens rea for the criminal provision to apply. Accordingly, it falls to the Commissioner to decide whether cases under the general provisions will proceed civilly or criminally.

The Act itself provides little guidance as to when the Commissioner should choose one 'track' over the other. To lend some transparency and predictability to the process, the Competition Bureau published a bulletin on its website¹ setting out the approach that the Commissioner is taking when it comes to choice of track. The fundamental principle to emerge from this bulletin is that the civil track will be selected unless there is clear and compelling evidence suggesting that the party responsible for the representation knowingly or recklessly made a false representation to the public, and that criminal prosecution would be in the public interest. Public interest considerations include such factors as whether there was substantial harm to competitors or consumers that could not be adequately dealt with by available civil remedies, and whether the person had engaged in similar conduct in the past.

In practice, the decision is made for us in a considerable number of cases -- such as in the areas of pyramid selling, multi-level marketing or deceptive telemarketing where no precise civil equivalent is available. Equally, where more specific legislative provisions exist on the civil side - such as in relation to bait and switch selling -- the choice of track analysis is normally a relatively brief exercise. Applying the criteria in the bulletin has resulted in the majority of examinations currently underway being treated as civil matters. This is consistent with the desire to more effectively address and resolve marketplace issues.

There remain however, cases which exhibit evidence of intent that require a more careful analysis of the 'public interest' test. While the bulletin strives to lend some transparency and predictability to this process, ultimately it must be recognized that this involves a case-by-case weighing of the various factors, as opposed to a formulaic approach.

Some commentators have also noted the relatively light workload that the Branch has to date brought before the Competition Tribunal, and have queried what implications this has for civil enforcement. As many of you know, this Branch had an established and well-functioning program of alternative case resolution that was developed, in part, to compensate for the slow and inflexible workings of the criminal court system. Now that we have improved civil remedies, we have demonstrated in the Universal Payphone Systems Inc. case that they can be in invoked to bring about a quick and effective resolution. The current challenge for us is to determine how to make best use of the new tools while also making practical use of the conformity continuum. I also think it is important to be transparent with stakeholders as to the direction we are pursuing.

The choice of whether to pursue a more formal instrument -- such as a consent order -- rather than an informal alternative case resolution, is governed by the factors identified in the Conformity Continuum Bulletin, published last June. As that document elaborates, the conduct of the party leading up to the offence and following detection of the offence, their compliance history with the Bureau, and the severity of the alleged infraction are all important considerations.

Given the fast and simple process that is available to us for consent orders, and the added benefit of enforceability, we will increasingly rely on consent orders as the tool of choice in resolving uncontested matters. While we will continue to accept undertakings to resolve matters as appropriate, ideal candidates for such a resolution are expected to be firms or businesses who are able to establish that there has been immediate and voluntary self-correction of the conduct at issue after becoming aware of the problem, and who are able to demonstrate a plan for reversing the adverse effects of the conduct. We will also attach weight to the firm's prior history of compliance and to the severity and economic impact of the deception.

For example, Interwood Marketing was able to address the Commissioner's concerns about adequate and proper testing with respect to a product called the Auto Starter by voluntarily removing the product from the market and publishing a notice offering a full refund without time limit. Under these circumstances, the Commissioner was willing to accept an undertaking from the company rather than seeking an order from the Tribunal.

Conclusion

In sum, the Bureau expects to see more and more activity flowing from the enforcement of the civil misleading representations provisions in the coming months.