Annual Report 1994/95 - Strategic Approach to Marketing Practices Matters Yields Results

The misleading advertising and deceptive marketing practices provisions of the Act help to ensure an honest and effective functioning of the market, and thereby build consumer confidence in it. I noted in last year's report that the marketing practices business plan had reoriented activities to wards cases of higher economic impact. I predicted that these high impact, more complex cases would take longer to prepare and litigate, but should produce higher fines. Reference to Table 6 on page 48, will show that while the number of cases we are taking on is decreasing, the total of fines has increased considerably over last year, and is in fact the highest of the past five years.

I am pleased to be able to report that in marketing practices cases, the average fine per case ($61,191) and per accused ($39,094) in 1994-95 are roughly twice the previous highs within the last five years.1

Wolverine Tube (Canada) Inc., Lloyd H. Kerr and Johnston B. Clarke

On October 3, 1994, the largest fine for a single charge under the misleading advertising and deceptive marketing practices provisions of the Act, $525,000, was levied against Wolverine Tube (Canada) Inc. In addition, two individuals, Lloyd H. Kerr and Johnston B. Clarke, were fined $10,000 each, following guilty pleas of all accused. The case involved misrepresentation of compliance with certain industry standards, required by various provincial building codes, directly on copper water tubing and in other promotional materials distributed in Vancouver, London and elsewhere in Canada. It is particularly important with goods of this nature, where consumers rely on compliance with standards, that misrepresentations be dealt with appropriately.

Color Your World Corporation

On December 22, 1994, the highest fine at that time under the ordinary selling price provision of paragraph 52(1)(d), $225,000, was levied against Color Your World Corporation. The company had adopted a practice of continually promoting the sale of certain stain, paint and wall covering products through in-store signs, flyers and advertisements at sale prices compared to "after sale prices" or "regular book prices". In fact, for more than 50 percent of the period November 1989 to November 1993, the products were ordinarily sold at the so-called sale prices and a substantial portion of the products were not sold at the quoted "after sales" or "regular book" prices.

False Bankruptcy Sale Claims

We have noted a disturbing trend in recent years towards an increasing number of instances of misleading claims in relation to bankruptcy sales. Our actions in pursuing these matters led us to undertake four cases, one of which, Thomas Liquidation, is reported in more detail on page 28. These cases involved representations of bankruptcy or liquidation sale by persons acquiring the inventory of a bankrupt from trustees-in-bankruptcy or commingling bankruptcy inventory with other stock acquired in the normal course of business.

The other cases concluded this year were Gene Rosenberg Associates Canada Inc. in Montreal on April 8, 1994, in which the company was fined a total of $40,000 on 25 charges and Liquidators M.M. du Canada Ltée. in Sherbrooke on March 3, 1995, in which the company was fined a total of $11,000 on two charges. In addition, on March 29, 1995, the New Brunswick Court of Appeal rejected the defendants' appeals from conviction for false bankruptcy-sale claims in the case of Dube's Furniture Warehouse (1984) Ltd. and Mario Charlebois. Fines of $12,000 and $3,600 on a total of 12 charges under paragraph 52(1)(a) each were registered against the company and the individual, respectively.

These cases indicate increasing concerns with misleading bankruptcy sales in recent years, and my commitment to vigorously pursue the companies and individuals involved. 2

Sentences on Individuals

I have already made reference to several cases in which fines were levied against individuals (see pp. 19 ff). The importance the Bureau places on charging individuals was also underscored in six marketing practices cases during the year. Experience confirms that personal liability, in appropriate cases as provided for in the Act is a significant component of the deterrent objective of prosecutions. The Montreal case of Les Publications Groupe R.R. International Inc. (a.k.a. 2619-7533 Québec Inc.), Louis-Luc Roy and Danielle Ouimet involved misleading advertisements about the effectiveness of a cream to treat facial wrinkles. The company and the other accused pleaded guilty, and were fined $8,000 and $10,000 respectively on October 3, 1994, while on July 6, 1994, Ms. Ouimet, a public personality in the arts and entertainment community of Quebec, was found guilty in the only contested proceeding during the year. She was fined $8,700 on 11 charges of misleading advertising under paragraph 52(1)(a) and $1,100 on 11 charges of making a representation without adequate and proper testing under paragraph 52(1)(b) for a total of $9,800. Apart from the importance of individual convictions for deterrence, the case underscores Bureau policies concerning the use of testimonials in advertising, 3 and my commitment to pursue their misuse.

Another case which involved the prosecution of an individual was that of Lando Lighting Inc. and Brian Whitelaw in Brampton, Ontario involving misleading ordinary selling price comparisons. The company was fined $5,000 while the individual received a conditional discharge, with a prohibition on advertising lighting fixtures for six months.

Restitution Order

Another noteworthy marketing practices case in the 1994-95 fiscal year resulted in the obtaining of a restitution order. In the London, Ontario case of 962876 Ontario Ltd., c.o.b. as World Gym, the company was fined $5,000 for failure to comply with the requirements for promotional contests, under paragraph 59(1)(b) and was required to pay $6,000 in restitution to a winner of a promotional contest . The restitution order was directed at restoring to the winner of the contest, the expected value of the prize, which was a car. The winner discovered that she had actually won the use of the car, encumbered by alien, under certain conditions, including the displaying of advertising on the car for the accused's business.

Section 55

As most readers will be aware, the new provisions concerning multi-level marketing became law in 1993. As anticipated in last year's report, the first case under this new provision was decided this year. On August 4, 1994, in Toronto, Lifestyles Canada Ltd. was fined $35,000 on one charge under the amended section 55 for making representations concerning the earning potential of potential participants, without the disclosure of typical earnings as required by the section 4.