Draft- Staying 'On-side' When Advertising On-line: A Guide to Compliance with the Competition Act When Advertising on the Internet

by the Competition Bureau

(PDF: 49 KB)

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1 Introduction

Internet advertising offers consumers and businesses many advantages. It gives consumers access to a rich source of information that can help them to compare products and prices and lead to more informed purchasing decisions. It also grants businesses the benefits of access to a global market and provides smaller firms the opportunity to compete on equal footing with larger firms.

The rapid growth of Internet advertising has generated considerable interest in the application of the false or misleading representations and deceptive marketing practices provisions of the Competition Act (the "false or misleading representations provisions") to this new medium. Accordingly, this guide aims to provide details of the approach taken by the Competition Bureau (the "Bureau") toward on-line representations. While these guidelines are not law, they reflect the Commissioner of Competition's interpretation of the law and how the Competition Act (the "Act") will be applied by Bureau staff.

2 The Competition Act Generally

To understand how to comply with the Act when making representations on-line, it is appropriate to first review its basics. It is a federal law governing business conduct in Canada. It aims to promote competition in the marketplace by preventing anti-competitive practices.

The Act contains criminal and civil provisions prohibiting false or misleading representations and deceptive marketing practices in promoting the supply or use of a product or any business interest. Any representation, in any form, which is false or misleading in a material respect is prohibited. A representation is material if it could influence a consumer's course of conduct. The most common example is a representation which could influence a consumer to purchase a particular product or service. To determine whether a representation is false or misleading, the courts are required to consider the "general impression" it conveys, as well as its literal meaning.

The Act specifically prohibits deceptive telemarketing and schemes of pyramid selling and sets out the responsibilities for operators and participants in multi-level marketing plans. Other prohibited deceptive marketing practices include advertising at a bargain price a product that is not available in reasonable quantities; selling a product at a price above the advertised price; and conducting a contest, lottery, or game of chance or skill, without making fair and adequate disclosure of, among other things, facts that materially affect the chances of winning.

Breaches of the Act pertaining to multi-level marketing, pyramid selling, double ticketing and deceptive telemarketing are addressed only through the criminal courts. Matters falling under the general provisions of the Act relating to false or misleading representations may also be dealt with under the criminal provisions, if the person responsible for breaching the relevant provision of the Act did so knowingly or recklessly. On summary conviction under the general provision, a person is liable to a fine of up to $200,000, imprisonment for up to one year, or both. If convicted on indictment, the person is liable to a fine at the discretion of the court, imprisonment for up to five years or both.

Alternatively, for matters arising under the civil provisions of the Act, the Commissioner of Competition (the "Commissioner") may apply to the Competition Tribunal, the Federal Court - Trial Division, or the superior court of a province (the "courts") for an order requiring the person to cease the activity, publish a corrective notice and/or pay a monetary penalty. If a court finds that a civil provision has been breached, individuals are liable to penalties of up to $50,000 and corporations are liable to penalties of up to $100,000. These amounts could double for subsequent occurrences.

The false or misleading representations provisions of the Act apply to Internet advertising because these provisions address the substance of a representation, not the means by which it is made. Therefore, the same basic rules that govern traditional advertising and marketing practices apply to on-line advertising and on-line marketing practices.

This guide focuses primarily on the application of the Act to commercial web sites. However, the Act and these guidelines apply equally to all on-line representations, including representations made in e-mails and in chat rooms, where the representations are made for the purpose of promoting the supply or use of a product or a business interest.

2.1 Understanding "materiality"

To contravene the Act, a representation must be "false or misleading in a material respect". This phrase has been interpreted to mean that the representation could lead a person to a course of conduct that, on the basis of the representation, he or she believes to be advantageous.

Often, the test for materiality is to examine whether the representation could influence a consumer to buy a product or service. If it could, the representation is considered to be material. This influence is not limited to representations which could influence strictly on-line purchases, but includes on-line representations which could influence off-line purchasing decisions as well.

Furthermore, the Commissioner takes the view that materiality extends beyond representations which can influence purchasing decisions to include representations which can influence other consumer conduct. For example, a false or misleading representation which influences consumers to frequent one web site over another may give rise to an examination by the Commissioner, even though both web sites are accessible at no cost to consumers.

2.2 Understanding the "general impression test"

In determining whether a representation is false or misleading in a material respect, a court will take into account the general impression conveyed by the representation, in addition to its literal meaning. In the Commissioner's view, the general impression must be evaluated in the context of the medium used. For example, a disclaimer available by hyperlink on a web site may be found to have a substantially different impact on the general impression created by the principal representation than a disclaimer located at the bottom of a newspaper advertisement.

In reviewing their on-line advertisements, to determine the general impression conveyed by the representation, advertisers should adopt the perspective of the average consumer who is interested in the product or service being promoted. In this regard, the Bureau cautions on-line advertisers to take special care in advertising or marketing targeted to classes of consumers who may not have the capacity to fully understand the information the information presented to them.

Advertisers should also assume that consumers do not read an entire web site, just as they do not read every word on a printed page. Accordingly, information required to be communicated to consumers to ensure that a representation does not create a false or misleading impression should be presented in such a fashion as to make it highly probable that consumers will see it.

3 Applying the Competition Act On-line - Some Practical Advice on How to Avoid Common Pitfalls

While the Act applies regardless of the medium used to convey representations, the Internet nevertheless poses unique challenges for achieving compliance. Accordingly, this guide focuses on providing guidance to businesses to enable them to structure their on-line representations in a manner that is likely to avoid conflict with the false or misleading representations provisions of the Act.

3.1 Use of Disclaimers

Advertisers frequently use disclaimers, often signalled by an asterisk, to alter the general impression of their principal representation when promoting their products or services. The Commissioner has taken the position that disclaimers which expand upon and add information to the principal representation do not raise an issue under the Act.

However, some advertisers may attempt to use disclaimers to limit or contradict the principal representation. Disclaimers such as this could violate the Act. For example, if a disclaimer is used to protect its author from the consequences of the general impression created by the principal representation, then the disclaimer is being used to limit or contradict the principal representation. As indicated earlier, the general impression conveyed by the representation, as well as its literal meaning, must be taken into account in determining whether a representation is false or misleading. Accordingly, it is not sufficient for the disclaimer to be present, it must also be likely to be read to alter the general impression conveyed by the principal representation. This can pose new challenges that are unique to the electronic medium.

When determining whether an on-line disclaimer is sufficient to alter the general impression created by the principal representation, the Commissioner recommends that the following be considered:

(a) The location of the disclaimer on the web site: The disclaimer should generally be placed on the same screen and close to the representation to which it relates. The more important the disclaimer, the more likely that it will have to be placed immediately adjacent to the representation it modifies in order to be effective. In appropriate circumstances, advertisers should consider disclosing important information on each page of a web site in order to increase the likelihood that it will be read and understood.

(b) The layout of the page: The page should encourage consumers to read any disclaimer. Accordingly, in circumstances where the disclaimer is not visible on the same screen as the representation it modifies, the page should be structured such that the readers understand that there is important information available elsewhere.

(c) The evolving technology makes it more appealing for advertisers to use attention grabbing tools such as graphics, sounds or flash images: In doing so, advertisers should ensure that consumers will not be distracted by these elements and will still notice and read the disclaimer.

(d) The size of font used in the disclaimer: The disclaimer should be easy to read regardless of the size of the monitor used by consumers to view the representation. If the disclaimer takes the form of scrolling text, the text should move at a rate which is easy to read.

(e) The accessibility of the disclaimer by all potential users: The disclaimer should be equally prominent regardless of the viewing technology used. For example, disclaimers in audio messages and graphics should also be presented in visual text for consumers who do not have the appropriate technology. Similarly, for disclaimers to be effective, they should be viewable by all users. For example, some web sites bypass pages containing disclaimers for repeat customers.

(f) Use of hyperlinks to lead to disclaimers: Hyperlinks should be placed immediately adjacent to the representations to which they relate and should be labelled so as to encourage consumers to click on them. Generally, the tips set out above for the use of disclaimers are equally applicable to the use of hyperlinks.

3.2 Required Disclosures

Unlike some other laws, the Act generally does not set out what specific information needs to be disclosed in order to ensure that a representation is not false or misleading in a material respect. However, there are several exceptions to this general rule.

Disclosure is required under section 55 of the Act, which pertains to multi-level marketing schemes. The section provides for the disclosure of certain information relating to compensation when such representations are made to prospective participants.

Other required disclosures pertain to section 74.06 of the Act, which deals with contests designed to promote a product or business interest. The provision requires adequate and fair disclosure of, among other things, certain information which materially affects the chances of winning.

The Commissioner also takes the position that all required disclosures should be prominently available on the web site where the representation at issue is being made, so that readers will not be required to take an additional step, such as sending an e-mail or placing a phone call, in order to obtain the required information. In this regard, many of the same considerations relevant to disclaimers will be applicable in determining whether there has been compliance with the disclosure requirements in the Act.

3.3 Information About the Transaction

As provided in the Guidelines for Consumer Protection in the Context of Electronic Commerce, developed by the Organisation for Economic Co-Operation and Development (the "OECD"), as well as in the Principles of Consumer Protection for Electronic Commerce- A Canadian framework, to avoid making misleading representations, advertisers engaged in electronic commerce should provide accurate information about the terms, conditions and costs associated with a transaction in order to enable consumers to make an informed decision about whether to enter into the transaction. Depending upon the nature of the general impression created by the representations contained on the web site, this information could include:

(g) The full price, the currency, any shipping charges, taxes, customs duties, customs broker fees and any other charges;

(h) Delivery terms, including timing, cost and method;

(i) Terms, conditions and methods of payment;

(j) Any geographic or time limitations imposed on the sale of the products or services;

(k) Details of and conditions related to withdrawal, termination, return, exchange, cancellation or refund and any related time limitations or associated fees;

(l) For products, any warranties, guarantees, including any limitations, supply limitations and conditions; and

(m) For services, any material standards, schedules, fees, or other offered terms, including limitations and conditions.

On-line advertisers should ensure that they are able to live up to any representations they make regarding their policies or practices, particularly those which may influence a consumer to choose to transact with one firm rather than another. For example, representations with respect to the privacy policy of a company should be truthful and not misleading.

3.4 Representations About the Product or Service

In the on-line environment, consumers cannot physically inspect products available for sale, and therefore rely significantly upon the advertiser's representations. Accordingly, to ensure compliance with the Act, all representations about a product, including accompanying text, pictures, illustrations and audio, should be crafted to ensure that they do not mislead consumers about any aspect of the product or service being marketed. Where an illustration forms part of a representation, it should accord with the accompanying text of the web page. Photography, artwork or audio-visual representations should accurately and fairly illustrate the product or service offered.

Advertisers are also reminded in this context that the Act prohibits making a representation in the form of a statement, warranty or guarantee about the performance, efficacy or length of life of a product if that representation is not based on an adequate and proper test.

3.5 Representations About the Advertiser

The nature of the Internet is such that on-line businesses can now easily market their products and services to consumers who may have dealt with them in the past or may have never heard of the business before. Accordingly, representations about the nature or character of the business can also raise issues under the Act if the representations are false or misleading. The following provides specific advice to help ensure that consumers are not materially misled about the advertiser's business:

(a) Ensure that the web site in question does not create a false or misleading impression as to the geographic origin of the advertiser;

(b) Identify the business on whose behalf the marketing or advertising is being conducted, if the failure to do so would be deceptive;

(c) Avoid creating false impressions of affiliation, sponsorship, endorsement, or popularity, by the use of text, graphics, trust marks, seals or other logos, or otherwise;

(d) Ensure that the representations do not create the false or misleading impression that the content, merchandise or service of another's business is the advertiser's own; and

(e) Ensure that the representations do not mislead consumers as to the type of organization making the representations or as to the purpose of the representations.

4 Liability for Internet Representations

The false or misleading representations provisions of the Act ascribe liability to the person who has caused the representation to be made. However, several exceptions to this rule are particularly important to the determination of liability in the context of electronic commerce. In the past, law enforcers have been called upon to consider the role of traditional media outlets such as print and television, advertising agencies and lessees of major retailers. The electronic commerce equivalents may include web page designers, proprietors of cyber-malls and electronic bulletin boards, chat room operators and Internet service providers (ISPs).

Under the criminal prohibition against false or misleading representations found in section 52 of the Act, in order for an offence to be proven, it must be demonstrated that the conduct in question was engaged in "knowingly or recklessly". Subsection 52(1.2) of the Act which applies in the context of selected criminal and civil provisions further provides that a reference to the making of a representation includes "permitting a representation to be made".

Under the civil provisions of the Act, there is no requirement that intent be established to find that a person has engaged in reviewable conduct contrary to the Act. However, a "publisher's exemption" is provided for in section 74.07 of the Act which states that the reviewable conduct provisions do not apply to a person who prints or publishes or otherwise disseminates a representation, including an advertisement, on behalf of another person in Canada. To rely upon this exemption, the person must establish that he or she obtained and recorded the name and address of the person on whose behalf they published the representation, and that the person accepted the representation in good faith for printing, publishing or dissemination in the ordinary course of business.

The publisher's exemption does not apply to a person who accepts a representation on behalf of an advertiser who is outside Canada. The publisher of such representations bears a higher burden of responsibility to ensure compliance with the false or misleading representations provisions of the Act.

Under both the criminal and civil provisions, responsibility for advertising content should also be examined in the context of the deeming provisions found in sections 52(2) and 74.03 of the Act. In the view of the Commissioner, these provisions are intended to clarify the responsibility of different parties in the chain of supply of a product for representations in breach of the law. While these provisions do not specifically address the electronic commerce context, those involved in electronic commerce benefit from these provisions to the same extent as traditional media.

The determination of liability will have to be made on a case-by-case basis. However, the following examples may provide some general guidance to those involved in Internet advertising as to how the Commissioner would approach the issue of liability for conduct that appears to contravene the law:

(a) Where an advertisement is created and posted by a Canadian entity on a web site owned by that entity, the Commissioner would normally consider the representation to be made by that entity.

(b) Where a false or misleading representation is created by a Canadian entity to promote its products and that representation is published on a web-site hosted by a third party, the hosting party is in an analogous position to a newspaper or magazine publisher. Such a person would be shielded from civil liability provided it could establish the elements of the publisher's exemption. The hosting party would only be liable under the criminal provisions if they knowingly or recklessly published the false or misleading representation, or permitted it to be published. However, given that it is often difficult for a third party to determine whether or not advertising is false or misleading based on a simple reading of the representation, it would not likely be a frequent occurrence that this threshold would be met. However, where a hosting party receives notice with respect to false or misleading representations and fails to take appropriate action to satisfy itself as to the veracity of the representations, the Commissioner may take enforcement action. Enforcement might occur, for example, where the third party is aware that an advertiser has been convicted of misleading advertising with respect to a particular representation, but continues to disseminate the representation on behalf of the advertiser.

(c) Where a false or misleading representation is created by a foreign entity to promote its products and that representation is published on a web-site hosted by a third party in Canada, the hosting party would not have access to the publisher's exemption for civil matters and bears a higher burden of responsibility for the accuracy of advertising it publishes. In determining how to exercise its enforcement discretion in respect of a hosting party, the Bureau would consider a variety of factors, including: whether the publisher has been put on notice that a serious question exists regarding the veracity of the claims; the nature of the representation made; the expertise of the publisher in relation to the subject matter of the claim; the degree of control the publisher is able to exercise with respect to the content it disseminates; and any reasonable measures taken by the publisher to prevent or limit the dissemination of false or misleading representations.

(d) The Bureau is aware that some ISP's and other parties may serve as data carriers only and as such they facilitate the dissemination of information but have little or no ability to review material or otherwise influence its content. In determining how to exercise its enforcement discretion in respect of a data carrier the Bureau would consider a variety of factors including the degree of control exercised by the data carrier with respect to the content it disseminates and any reasonable measures taken by the data carrier to prevent or limit the dissemination of false or misleading representations.

(e) Where an entity wishes to promote its product or business on-line it may provide information or concepts to a web page designer who would create and maintain the web site. Consequently, the web page designer may in some circumstances play a similar role to an advertising agency. The Commissioner would examine the liability of a web page designer under the Act if the designer played an active role in initiating, conceiving, drafting or shaping a representation that raised issues under the Act as this conduct goes beyond coding information and instructions supplied by the client with regard to graphic presentation to implement the client's concept or design.

(f) For a criminal offence, the web page designer must have made the false or misleading representation knowingly or recklessly. This situation might occur when a representation incorporates information that the web page designer knows is erroneous. In a civil matter, intent is not required to establish a violation of the law. Accordingly, as a practical matter, a web page designer who plays a significant role in the design and presentation of information to be disseminated on a web site assumes a higher risk of liability for a false or misleading representation on that site.

5 Jurisdictional Issues

The global nature of the Internet means that representations made on-line by a party situated in Canada can be viewed by consumers all over the world, thereby incurring potential liability not only under the Act, but under consumer protection legislation in foreign jurisdictions as well. Similarly, the Canadian public can be influenced by representations originating from outside of Canada which may raise concerns under the false or misleading representations provisions of the Act. In this globalized environment, the issue of potential liability in different jurisdictions is a legitimate concern for those making commercial on-line representations.

5.1 Representations Originating outside of Canada Available to Canadians

Canadian law governing jurisdiction on-line is evolving with the growth in electronic commerce. It is therefore premature to speculate how the courts will interpret jurisdictional questions in every case. However, the Commissioner advises those making representations on-line from outside of Canada, for the purpose of promoting the supply or use of a product or business interest, to assume that they may be subject to examinations under the Act where those representations are available to and might reasonably be expected to materially influence the Canadian public. Accordingly, should persons making representations wish to avoid coming into unintended conflict with the Act, they should take all steps necessary to ensure that Canadians will not be materially misled by their representations.

Several steps can be taken to reduce the likelihood that foreign representations which are not intended for the Canadian public will materially influence Canadian consumers. These include:

(g) Clearly indicating for whom the representations are intended or, alternatively, indicating those for whom the representations are not intended;

(h) Requiring visitors to supply their country of origin, and then linking them to a web site intended for their use;

(i) Using screening technologies to ensure that only consumers from the countries that the advertiser is trying to reach have access to the web site;

(j) Only entering into contracts with consumers in countries that the advertiser is trying to reach where their country of origin can be identified by such factors as delivery address, credit card holder address information, etc.; and

(k) Ensuring that the representations are not directed at Canadians. For example, pictorial representations such as a Canadian flag, maple leaf or a map of Canada would likely create the general impression that the site is intended for the Canadian public. Similarly, displaying a Canadian address or telephone number for contact information, or indicating that Canadian laws will govern in the event of a dispute, will increase the likelihood that a site will be treated as having been directed at Canadian consumers. E-mail sent to Canadians will also likely be treated as having been directed at Canadian consumers.

Those making representations on-line are reminded that these are just some of the factors that the Commissioner will consider when evaluating whether to commence an inquiry with respect to a non-Canadian web site, and that it is the advertiser's responsibility to ensure that Canadians are not misled by its representations. Furthermore, liability under the Act will be determined on a case-by-case basis, having regard to all relevant factors, as well as any emerging law.

On-line advertisers should also be aware that the Commissioner works closely with many foreign law enforcement agencies. This international cooperation is a significant tool for addressing cross-border false or misleading representations.

5.2 Representations by Canadiansvavailable outside Canada

Those making representations on-line from Canada should assume that they are required to comply with the Act. Advertisers may wish to seek legal advice on whether their representations could give rise to additional legal obligations in foreign jurisdictions.

6 Promoting Compliance with the Act: the Conformity Continuum

The Commissioner now places an increased emphasis on education and voluntary compliance to limit the need for contested proceedings. The Commissioner recognises that neither the single-minded pursuit of prosecutions and applications before the courts nor an approach based solely on educational and non-adversarial responses is the most effective manner in which to fulfil the Commissioner's responsibilities. To support a balanced approach, the Bureau has developed a variety of education, compliance and enforcement instruments. Collectively, these instruments are known as the Conformity Continuum.

The Bureau facilitates compliance with the law by providing advisory opinions to those who express a desire to avoid coming into conflict with the Act. Company officials, lawyers and others may request an advisory opinion on whether a proposed business plan or practice would comply with the Act. An advisory opinion does not regulate business conduct or pronounce on the legality of the proposal; it merely indicates whether or not the proposal would raise concerns under the Act. Advisory opinions are neither regulatory in nature nor binding, but are solely intended to avoid breaching the Act. The Bureau has adopted a Fees and Service Standards Policy which provides specific fees and service standards for the preparation of advisory opinions.

7 Consumer Protection On-line

This guide is limited to the application of the Act as it relates to the Internet. However, the Bureau has been involved in other initiatives designed to further consumer protection on-line. Businesses and consumers are encouraged to review the Principles for Consumer Protection for Electronic Commerce- A Canadian framework. Those interested are also invited to examine the Guidelines forvConsumer Protection in the Context of Electronic Commerce developed by the OECD.

8 Conclusion

This guide has been designed by the Commissioner to encourage those who are making representations on-line to consider their responsibilities under the Act and, more specifically, to think about some of the variables affecting the general impression created by their representations. While practical advice and examples of key concepts have been provided wherever possible, readers are reminded that these are for illustration purposes only and are not exhaustive.

It is important to note that other laws or regulations may apply and it remains the responsibility of those who are making representations on-line to ensure that they are in compliance with all of them.

9 How to contact the Competition Bureau

Anyone wishing to obtain additional information about the Competition Act or file a complaint under the provisions of the Act should contact the Competition Bureau's Information Centre at:

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

Facsimile
(819) 997-0324

Address
Information Centre
Competition Bureau
Industry Canada
50 Victoria Street
Hull, Quebec
K1A 0C9

Web site
www.cb-bc.gc.ca

E-mail
compbureau@cb-bc.gc.ca