The Application of the Competition Act, the Consumer Packaging and Labelling Act and the Textile Labelling Act to Consumer Rebate Promotions

Enforcement Guidelines

Draft — March 31, 2009

(PDF; 663 KB; 15 Pages)

 

 

1. Introduction

This bulletin explains the Competition Bureau’s approach to interpreting the false or misleading representations provisions of the Competition Act, the Consumer Packaging and Labelling Act and the Textile Labelling Act in the area of consumer rebate promotions.

It also sets out best practices that the Bureau recommends businesses follow when offering rebates, both to comply with the law and to help consumers make informed purchasing decisions.

It is not the Bureau’s intention with this bulletin either to change the law or for it to be a substitute for legal advice. This bulletin is not binding on the Commissioner of Competition, whose enforcement decisions depend on the circumstances of each case.

Business practices that deviate from this bulletin may not necessarily contravene the Competition Act or the other laws mentioned here. The examples of rebate promotions are for illustrative purposes only and are not exhaustive.

Businesses considering offering rebates may request a binding written opinion on whether their proposed approach will cause any concerns under the Competition Act. Guidance can also be sought as to whether they would comply with the other statutes. For more information on written opinions, see section 8 of this bulletin.

2. What are Rebates

Formally known as consumer rebate promotions, rebates include any type of promotion that involves a discount to consumers in the form of cash or a cheque. There are two types of rebates.

Instant rebates

Consumers receive the rebate at the time of purchase. It is generally available to anyone who purchases the product, without further conditions.

Mail-in rebates¹

Consumers apply for the rebate after the purchase, by mail-in application, online or by other means.

Rebates can be beneficial to both consumers and businesses. For consumers, rebates can result in lower prices. For businesses, rebates can increase sales dramatically.

However, when rebates are not promoted or administered correctly, consumers can end up paying more than they intended, and competitors can be unfairly disadvantaged.

Various market participants are involved in promoting and administering rebates.

Manufacturers

Manufacturers generally design the rebates and set all the conditions for them. Manufacturers most commonly make representations about rebates on product packaging and associated promotional materials. They may also do so on point-of-purchase displays, on the Internet and through print or broadcast advertising.

Retailers

Retailers may decide to participate in rebate promotions designed by manufacturers. When they do, they may choose to make additional representations about the rebates, through flyers, in-store signage or by other means. At times, retailers offer their own rebates.

Fulfillment houses

Fulfillment houses specialize in managing rebate programs. Some manufacturers and retailers manage their rebate programs themselves, while others use the services of fulfillment houses to receive and process rebate application requests, and to make rebate payments.

3. What Legal Provisions Apply to Rebates

Subsection 52(1) of the Competition Act is a criminal provision that prohibits anyone from knowingly or recklessly making a materially false or misleading representation to the public to promote the supply or use of a product or a business interest. Any person who contravenes this subsection is guilty of an offence and liable to a fine and/or imprisonment.

Paragraph 74.01(1)(a) of the Competition Act is a civil provision that provides that anyone who makes a materially false or misleading representation to the public to promote the supply or use of a product or a business interest engages in “reviewable conduct”. When the Competition Tribunal, on application by the Commissioner of Competition, finds that a person has engaged in reviewable conduct, it may order the person not to engage in such conduct, to publish a corrective notice and/or to pay an administrative monetary penalty.

Neither of these provisions requires the Commissioner to prove that anyone was in fact misled. The Competition Act states that representations must be false or misleading “in a material respect.” This means that consumers would act in a way they believe is advantageous to them as a result of seeing the representations. The Bureau considers that representations on price and rebates (including eligibility for them) are generally material to consumers. For example, flyers advertising discounted products may lead consumers to buy items they might not have purchased at the regular price.

The Consumer Packaging and Labelling Act is a regulatory statute governing the packaging, labelling, sale, importation and advertising of pre-packaged products.² Subsection 7(1) prohibits false or misleading representations, which can include consumer rebate promotions. Anyone who contravenes it is guilty of an offence and liable to a fine.

The Textile Labelling Act is also a regulatory statute that requires consumer textile articles to bear accurate and meaningful labelling information to help consumers make informed purchasing decisions.³ Subsection 5(1) prohibits the making of false or misleading representations. Anyone who contravenes it is guilty of an offence and liable to a fine.

4. Who Bears the Responsibility for Making False or Misleading Representations

Although each representation is assessed on its own merits and based on the facts of the case, as a general principal, whoever makes a representation to the public that is false or misleading may be held responsible.⁵ The following section provides greater detail on the subject.

Manufacturers

The Competition Act states that whoever caused the representations to be made on or accompanying products is deemed to have made them. When the person responsible for a representation is outside Canada, then the importer of the product at issue is deemed to have made the representation.

Under the Consumer Packaging and Labelling Act and the Textile Labelling Act, the manufacturer, importer and seller are considered to be a “dealer” and are liable for any representation accompanying a product.

In the case of rebates, this means that when a manufacturer in Canada makes false or misleading representations about a rebate on or accompanying a product, the manufacturer is liable unless the manufacturer is outside Canada, in which case the importer is liable.

Retailers

Retailers are generally not liable under the Competition Act and the Textile Labelling Act for representations on or accompanying products except when the manufacturer who makes a representation is outside Canada. In that case, the retailer assumes liability if it is the importer or dealer.⁵

It is important to note that under the Consumer Packaging and Labelling Act, the retailer is considered to be a “dealer” and is liable for any representation accompanying a pre-packaged product.

Therefore, under the Competition Act when a retailer makes its own representations about a rebate (for example in a flyer, a shelf talker, on its website or on in-store display), then the retailer could be liable if the representation was found to be false or misleading. The retailer could also be held responsible, along with the manufacturer and importer for misleading representations on a pre-packaged product.

Fulfillment houses

Under all three Acts, whoever makes a mail-in rebate representation could be held responsible if consumers, who have sent in a valid application and meet all conditions, were not to receive their rebate. Fulfillment houses would not generally be held responsible for such failure, since the manufacturer and/or retailer usually makes the representations. However, if fulfillment houses were to make their own representations, they could be held responsible for any false or misleading representations and consequently for the failure to fulfill valid mail-in rebate applications.

5. Examples of False or Misleading Representations

When deciding whether a representation is false or misleading, the Bureau looks at the general impression the representation conveys, as well as its literal meaning. When consumers make the decision to purchase products that feature a rebate, their decision is generally based on the general impression created by the representation as a whole.

While there can be any number of ways to promote a rebate, the Bureau has identified the following five as examples of those it could consider to be false or misleading.

5.1 Inadequate Disclosure

When they are not brought to consumers’ attention, conditions, limitations and exclusions that affect whether consumers will receive the advertised rebate can contradict the general impression that they are eligible for it simply by purchasing the product and sending in their rebate claim. In some situations, consumers’ general impression could be contradicted when certain information is not disclosed.

For example, the information below should be clearly and conspicuously disclosed when:

• there is a deadline to submit a claim;
• consumers must purchase another product in order to qualify for the rebate;
• geographic limitations within Canada restrict who is eligible for the rebate;
• consumers are required to provide material details beyond mailing address and proof of purchase, such as personal information;
• consumers with post office box addresses are ineligible;
• consumers are required to forgo their right to confidentiality or allow their personal information to be given to others in order to receive the rebate;
• there is a limit of one rebate per household regardless of the number of purchases made; or
• the rebate is not valid if the purchase is made at certain ineligible retailers.

How to avoid making false or misleading representations

Manufacturers and retailers who want to attach conditions, limitations or exclusions to their rebates must bring them to the attention of consumers before they act upon the representation. Only disclosing conditions inside product packaging or on the website to which consumers go to apply for their rebate will likely be inadequate to counter consumers’ general impression.

Conditions, limitations and exclusions that could contradict the general impression created by a representation must be conspicuously and clearly displayed so that they likely come to the attention of consumers reading the main representation.

5.2 Rebates Disguised as the Sale Price or Regular Price

Rebate promotions that appear to show that a product is on sale can also be misleading. Consumers may not realize that the lower price is the result of a mail-in rebate and will be surprised when they have to pay the full price. Consequently, representations of this type may mislead consumers about the amount they will pay at the time of purchase.

In addition, sales taxes on products that are on sale are calculated on the lower sales price. In contrast, when products are offered with an instant or mail-in rebate, taxes are calculated on the before-rebate price of products. Therefore, the practice of disguising a rebate as a sale may mislead consumers by giving the general impression that taxes would be calculated on a lower price. In fact, consumers would end up paying more since taxes on rebated items are calculated on the higher amount.⁶

Similarly, some representations may lead consumers to believe that the price being promoted is simply the regular price, when in fact it is the after-rebate price. Again, in such a case, consumers would pay sales taxes on the before-rebated price.

The example below illustrates a promotion that refers to a savings of $20, while prominently displaying an after-rebate price. The Bureau could consider this representation to be false or misleading.

How to avoid making false or misleading representations

The term save could give the general impression that the price is the result of a sale, not a rebate. In order not to contradict the general impression, manufacturers and retailers should clearly disclose whether the price of a product is the result of a sale or a rebate. This would ensure that consumers are aware of the price they will effectively pay at the time of purchase.

5.3 Mail-In Rebates Disguised as Instant Rebates

Mail-in rebates disguised as instant rebates could lead consumers to believe that they will receive the rebate at the cash register when in fact they will have to apply for it by mail or on the Internet.

The example below does not specify what type of rebate is offered. Consequently, consumers could form the general impression that they will receive the advertised rebate at the time of purchase. If they do not receive it at the time of purchase, this means that they could have been misled about the amount they will have to pay. As a result, this representation could be considered false or misleading.

How to avoid making false or misleading representations

Manufacturers and retailers should ensure that their representations disclose the type of rebate offered (mail-in or instant). This will help ensure consumers are not misled about the actual price they will pay at the time of purchase.

5.4 Discounts on Future Purchases Disguised as Rebates

Some manufacturers and retailers offer gift cards to be used for future purchases. Occasionally, representations show the price that results when the value of the gift card is subtracted from the regular price. These representations could mislead consumers, causing them to think that they will pay the lower price for the product when in fact they will get a credit towards a future purchase in the form of a gift card.

The example below shows a net price of $119.99. Consumers will never be able to pay this price, since they may only use the gift card on a future purchase. As such, the Bureau could consider this representation to be false or misleading.

How to avoid making false or misleading representations

When making representations, manufacturers and retailers should not subtract the value of the gift card from the original price, since a gift card is not a rebate. In the case of mail-in rebate representations, manufacturers and retailers should provide a rebate in the form of cash or cheque for the amount advertised, not a gift card. This will help ensure that consumers are not led to think that the after-gift card price is the price they will pay.

5.5 Mail-In Rebates that are not Fulfilled

Consumers do not always receive their rebates, only receive partial payment, receive a cheque that can easily be mistaken as “junk mail” or only receive payment after an unreasonable delay, despite sending in a valid application and meeting all the conditions. This can be the result of manufacturers, retailers and/or fulfillment houses not having a transparent and efficient rebate fulfillment process.

When consumers do not receive the rebate they were expecting, this contradicts the general impression created by the representation. In addition, they end up paying a higher price for products they might not have purchased in the first place.

How to avoid making false or misleading representations

It is important that businesses using rebate promotions take measures to ensure that fulfillment houses and any other third-party service providers are performing their duties as part of the rebate process properly and in accordance with the terms and conditions of the rebate. In addition, businesses who are considering offering mail-in rebates should first perform their financial due diligence to ensure they can afford such promotions and ensure that the fulfillment houses who manage these programs are properly funded.

6. Best Practices

When the Bureau considers whether a representation is false or misleading, it looks at the general impression the representation creates as well as its literal meaning.

Although there are many ways to make rebate representations correctly, the following two examples illustrate some of the practices manufacturers and retailers can follow to lessen the likelihood of making a false or misleading representation.

• Prominently and clearly disclose all conditions, limitations and exclusions that could contradict consumers’ general impression.
• Show the price consumers will effectively pay.
• Clearly indicate the amount of the rebate that may apply.
• Clearly identify the type of rebate offered (mail-in or instant).

The following example shows a mail-in rebate promotion.

Consumers should be able to learn the following important details from this representation:

• the price to pay at the time of purchase is $85;
• the amount of the mail-in rebate is $15; and
• they have to mail in a claim to receive the rebate.

In addition, all conditions, limitations and exclusions are clearly indicated.

The following example shows an instant rebate promotion.

A consumer should be able to learn the following:

• the price to pay at the time of purchase is $135;
• an instant rebate is being offered; and
• the rebate is for $15.

7. Consumer Rebate Promotions and Ordinary Selling Price Provisions of the Competition Act

When making representations about consumer rebate promotions, manufacturers and retailers should be mindful of the ordinary selling price provisions of the Competition Act. For instance, prior to offering an instant rebate, retailers and manufacturers who sell directly to consumers should determine whether they meet the time and volume tests set out in these provisions.

The ordinary selling price provisions also apply when businesses refer in advertisements to the price at which products have been, are or will be ordinarily sold. This could include occasions when manufacturers’ and retailers’ advertisements mention a product’s regular price.

For more information on these provisions and on the time and volume tests, consult the Bulletin entitled “Understanding How the Ordinary Selling Price Provisions of the Competition Act Apply to Your Business” on the Bureau’s website.

8. Written Opinions

The Competition Bureau facilitates compliance with the law by providing various types of written opinions subject to fees. Company officials, lawyers and others are encouraged to request an opinion on whether the implementation of a proposed business plan or practice would raise an issue under the Competition Act. These written opinions are binding on the Commissioner of Competition when all the material facts have been submitted by or on behalf of an applicant for an opinion and when they are accurate. A specific written opinion will be based on information provided by the requestor and will take into account previous case law, prior opinions and the stated policies of the Bureau.

9. How to Contact the Competition Bureau

Anyone wishing to obtain additional information about the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act, the Precious Metals Marking Act or the Bureau’s program of written opinions, or to file a complaint under any of these acts should contact the Competition Bureau’s Information Centre:

Web site

www.competitionbureau.gc.ca

Address

Information Centre
Competition Bureau
50 Victoria Street
Gatineau, Quebec
K1A 0C9

Telephone

Toll-free: 1-800-348-5358
National Capital Region: 819-997-4282
TDD (for the hearing impaired): 1-800-642-3844

Facsimile

819-997-0324

Appendix A | About the Competition Bureau

The Competition Bureau is an independent agency that contributes to the prosperity of Canadians by protecting and promoting competitive markets and enabling informed consumer choice.

Headed by the Commissioner of Competition, the Bureau is responsible for the administration and enforcement of the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act.

The Bureau works to correct anti-competitive activities and deter the responsible firms and individuals from future anti-competitive conduct. The Bureau also encourages firms to set up corporate compliance programs to ensure they adopt policies and practices that comply with the legislation.

The Bureau sees communication and advocacy as important to achieving compliance and, consequently, works to inform businesses and other stakeholders about the laws it enforces. Through its advocacy program, the Bureau actively promotes a competitive marketplace and contributes to the development of competition policy legislation.

The Bureau’s commitment to educating the marketplace is complemented by several forms of voluntary compliance. These range from written opinions, which assist businesses that want to ensure compliance with the law, to alternative case resolutions, which correct anti-competitive behaviour in a timely and cost-effective fashion.

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Footnotes

¹In this document, the term mail-in rebate will include mail-in, Internet and other delayed-payment rebates.

²The Consumer Packaging and Labelling Act requires pre-packaged consumer products to bear accurate and meaningful labelling information, such as product identity, net quantity and the dealer’s name and principal place of business, to help consumers make informed purchasing decisions.

³The Textile Labelling Act sets out specifications for mandatory label information, such as the generic name of each fibre present, and the dealer’s full name and postal address or a CA identification number.

⁴Subsection 52(1.2) of the Competition Act specifically assigns liability for making a representation, as set out in 52(1) and paragraph 74.01(1)(a), to the person who makes it or who permits it to be made.

⁵If the product is supplied to the retailer by a Canadian importer or dealer, then the liability falls on the importer or dealer.

⁶See the Canada Revenue Agency, General Information for GST/HST Registrants
(www.cra-arc.gc.ca/E/pub/gp/rc4022/).