Annual Report of the Commissioner of Competition for the year ending March 31, 2005

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Chapter 2: Policing Criminal Activities

The Bureau administers and enforces the provisions of the Competition Act prohibiting conspiracy, bid rigging, price discrimination, predatory pricing and price maintenance.

The conspiracy provision covers agreements among two or more competitors to unduly lessen competition, such as agreements to fix prices or allocate customers and territories. The bid rigging provision deals with agreements to thwart the competitive tendering process.

The price discrimination provision helps to ensure that small and medium-sized businesses have an equal opportunity to participate in the economy by requiring suppliers to offer discounts, price concessions and advertising allowances to competing customers on fair terms.

The predatory pricing provision addresses situations in which a firm sells products below cost for a sufficiently long period of time to eliminate or deter rivals as competitors, and subsequently raises prices or otherwise harms the competitive process.

The price maintenance provision allows resellers of products to set their own prices and protects suppliers that deal with firms that have low-pricing policies from customer-led boycotts.

The Act also contains criminal and civil provisions to address false or misleading representations and deceptive marketing practices when promoting the supply or use of a product or any business interest. The general criminal provision prohibits all materially false or misleading representations made knowingly or recklessly. Other provisions specifically prohibit deceptive telemarketing, deceptive notices of winning a prize, double ticketing and pyramid selling schemes. The multi-level marketing provisions also define the responsibilities of operators and participants in multi-level marketing plans.

The Consumer Packaging and Labelling Act, the Precious Metals Marking Act and the Textile Labelling Act prohibit false and misleading representations in specific sectors: pre-packaged non-food consumer products, articles made from precious metals, and textiles and apparel, respectively. In addition, these laws set out required labelling information, such as bilingual product descriptions, metric measurement declarations and dealer identity, that allows consumers to make informed choices.

The Bureau has a range of tools at its disposal to enforce these laws. It refers the most serious matters to the Attorney General of Canada and recommends prosecution. Offenders may receive heavy fines, prison terms or both. The first section of this chapter describes these responses to non-conformity during 2004–2005.

The Bureau also addresses anti-competitive behaviour through alternative case resolution; examples of this are provided in the second section of the chapter. Finally, under the Competition Act, parties may request written opinions, some of which are summarized in the third section of the chapter. For more information on these cases and others, including information notices, news releases and backgrounders, visit the Bureau's Web site.

Prosecutions

Conspiracy

The conspiracy provision of the Competition Act prohibits agreements between two or more persons to restrain or injure competition or to unreasonably enhance the price of a product. Agreements between competitors to fix prices, to allocate customers or geographic markets, or to restrict production of a product by setting quotas among competitors or by other means are considered to be "hard-core" cartel activities. Protecting consumers and businesses against harmful anti-competitive agreements is an important priority for the Bureau. The Bureau has developed an immunity program that has proven to be especially effective in detecting cartels.

Crompton Corporation

In May 2004, Crompton Corporation, a U.S.-based global marketer of specialty chemicals, polymer products and processing equipment, pleaded guilty for its part in an international conspiracy to increase the price of rubber chemicals used in products such as tires, car bumpers and rubber hoses. The company was fined $9 million.

Morganite Canada Corp. and The Morgan Crucible Company

In July 2004, Morganite Canada Corp. of Mississauga pleaded guilty and was fined $450,000 for its part in a price-fixing conspiracy among manufacturers of carbon brushes and current collectors. These products transfer electrical current from wires or rails to vehicles such as subways, streetcars and light-rail trains. During the period in which the conspiracy operated, Morganite Canada Corp., also known as National Electrical Carbon Canada, sold approximately $2 million worth of carbon brushes and current collectors to transit authorities in Canada.

In related proceedings, The Morgan Crucible Company, a holding company based in the United Kingdom, pleaded guilty to obstructing the Bureau's investigation. The company was fined $550 000.

Taxi Companies

In July 2004, the Bureau charged six taxi companies and seven individuals with conspiracy under section 45 of the Competition Act, further to an inquiry initiated in January 2001 into an alleged agreement to lessen competition in bidding for taxi-service contracts in St. John's, Newfoundland and Labrador. The Bureau alleges that, between 1992 and 2004, the taxi companies agreed not to compete with each other for contracts to supply taxi services to institutional and commercial facilities in the city of St. John's. The preliminary hearing is scheduled to begin on January 9, 2006.

VAW Carbon GmbH and Nippon Electrodes Company, Ltd.

In September 2004, VAW Carbon GmbH, a German manufacturer and distributor of carbon and graphite cathodes, pleaded guilty for its role in an international conspiracy to fix the price of cathode blocks and was fined $500 000. Cathode blocks are used principally in the production of primary aluminium.

Another conspirator, Nippon Electrodes Company, Ltd. of Japan, pleaded guilty in November 2004 for its role in the international conspiracy to fix the price of cathode blocks. The company was fined $225 000.

UCAR International Inc.

In March 2005, a former senior vice-president of UCAR International Inc. (now GrafTech International Ltd.) pleaded guilty and was fined $50 000 for his role in a conspiracy to fix the price of graphite electrodes.

Bid Rigging

The Competition Act prohibits agreements between two or more persons, usually competitors, to withhold bids in response to a tender or to fix a price for their bids. The bid rigging provision does not apply when the parties make the agreement known to the tendering authority before submitting their bids, since this allows the tendering authority to cancel the tendering process or modify it in a way that keeps it competitive. Bid rigging often targets government agencies and ultimately costs Canadian taxpayers.

Since bid rigging is considered a serious crime that increases costs to the public, the Bureau launched an outreach program to teach individuals how to prevent and detect it. Bureau officials provide guidance to tendering authorities who suspect they are victims of bid rigging on how to help the Bureau with its investigation. In 2004–2005, the Bureau's seven regional offices assumed greater responsibility for criminal competition investigations, particularly those related to bid rigging. As part of the outreach program, the Bureau gave more than a dozen presentations on bid rigging to tendering authorities and potential bidders across Canada.

Price Maintenance

The Competition Act prohibits attempts by agreement, threat, promise or any like means, to influence upward the prices of a supplier's products or to discourage the reduction of those prices. Refusals to supply or discrimination against suppliers who have low-pricing policies are also illegal under the Act. The price maintenance provision is designed to ensure that suppliers, notably retailers, are free to set their own prices for their products. This provision also protects suppliers from customer-led boycotts because they have decided to do business with other suppliers that have low prices.

Royal Group Technologies (Quebec) Inc.

In November 2004, Royal Group Technologies (Quebec) Inc. pleaded guilty to attempting to influence another company to maintain the price of polyvinyl chloride window coverings, such as vertical blinds and valances. Royal Group Technologies was fined $200 000 and, under a prohibition order, is required to implement a policy to ensure that the company's future business practices comply with the Competition Act.

John Deere Limited

In October 2004, the Bureau resolved price maintenance concerns arising from allegations that John Deere Limited was preventing its dealers from selling its Series 100 lawn tractors below a certain price, contrary to section 61 of the Competition Act. Following a Bureau investigation, John Deere Limited agreed to the terms of a prohibition order, which includes an obligation to compensate consumers. The prohibition order requires the company to make a five percent voluntary rebate payment to each person who purchased a Series 100 lawn tractor in the period between January 1, 2003, and August 31, 2003, an expected consumer restitution of $1.2 million. The prohibition order also requires John Deere Limited to develop and implement a competition compliance policy and training program for its dealers and their employees responsible for pricing, selling and marketing the Series 100 tractors in Canada.

False or Misleading Representations

Yellow Business Directory.com

In October 2004, four Toronto-area residents were sentenced to prison, fined or both for their involvement in the Yellow Business Directory.com phony invoice scam.

Those sentenced sent out letters inviting recipients to have their business details appear in Internet based directories operating under the names Yellow Business Pages.com and Yellow Business Directory.com. The letters, sent to approximately 900 000 businesses and non-profit organizations in Canada, appeared to be bills or invoices from Bell Canada or Yellow Pages and generated more than $1 million in sales between May and December 2000.

Alan and Elliot Benlolo were sentenced to three years in federal penitentiary and fined $400 000 each for violating the false or misleading representations provision of the Competition Act. Also sentenced for their involvement in the scam were Victor Serfaty, who must serve an 18-month conditional jail sentence (including six months of house arrest), do 100 hours of community service and pay a $15 000 fine, and Simon Benlolo, who must serve a nine-month conditional jail sentence (including three months of house arrest) and pay a $100 000 fine.

Anitech Enterprises Inc. (PetNet)

In July 2004, Anitech Enterprises Inc., also known as PetNet, pleaded guilty in the Federal Court of Canada to a criminal charge of misleading thousands of pet owners through a deceptive mail campaign.

PetNet, based in Markham, was a distributor of microchips used to permanently identify pets, and owned and operated the National Pet Registry and Recovery Service. From 1991 to September 2002, PetNet's advertisements and marketing materials stated that clients only had to pay a one-time fee for its microchip and recovery service. Over the years, PetNet built up its customer base to more than 400 000 registrants across Canada, mostly under the direction of Paul Brown.

On January 1, 2003, PetNet changed its fee policy, instituting an annual administration fee of $19.95 for registrants, both new and existing. PetNet's decision to apply this new policy to its pre-2003 registrants raised concerns under the Competition Act and led the Bureau to intervene.

PetNet was fined $150 000. In addition, Paul Brown agreed to abide by a 10-year prohibition order requiring PetNet and any successor company to do the following:

• stop demanding pre-2003 registrants to pay any fee for services originally contracted;
• clearly disclose the annual administration fee to all new registrants;
• establish and implement a corporate compliance program; and
• stop making false or misleading representations.

Paul Brown was also required to sever all relations with PetNet and any successor company, including disposing of all his shares in the company. In acknowledgement of the seriousness of the matter, he was also required to pay $50 000 to PetNet.

This case marks the first time the Bureau has used the Immunity Program in a case of false or misleading representations.

JD Marvel Products Inc. and CDN MailOrder Exchange Inc.

In March 2005, the Bureau announced that criminal charges under the Competition Act had been laid against JD Marvel Products Inc., CDN MailOrder Exchange Inc. and their president, John Dragan, for having made false or misleading representations targeting Canadian and U.S. residents, mainly senior citizens.

The two companies offered a wide range of consumer products through mail order, advertising inserts, coupons in discount envelopes and magazines, catalogues and the Internet. The Bureau alleged that the products were not delivered in the advertised time period of two to five weeks and that some consumers never received the products. The Bureau also alleged that consumers were misled about the performance of some of the products.

Yellowbusiness.ca

In May 2004, James Tetaka of 1473253 Ontario Incorporated was fined $60 000 and made subject to a five-year prohibition order for his role in the Toronto-based Yellowbusiness.ca phoney invoice scam. The invoice mail-outs charged recipients $85.55 to have their organization's details listed in an Internet business directory that appeared to come from an existing service provider such as Bell Canada or the Yellow Pages. As part of the investigation, the Bureau and Canada Post seized mail containing an estimated $700 000 in payments. The Bureau's investigation revealed that the 40 000 businesses and non-profit organizations targeted in this scam had been victimized with similar mail-outs in 2000.

Internet Registry of Canada

In June 2004, Daniel Klemann was fined $40 000 and made subject to a five-year prohibition order for making misleading representations through his company, Internet Registry of Canada (IROC). More than 73 000 businesses and non-profit organizations received deceptive mail informing them that their Internet domain name registration was about to expire and offering several renewal options. The letter was designed to mislead recipients into believing they were existing IROC customers and gave the impression that IROC was the Government of Canada agency in charge of Internet domain name registration.

Deceptive Telemarketing

The Competition Act prohibits telemarketers from making materially false or misleading representations when promoting a product or business interest during telephone calls. Telemarketers are also prohibited from doing the following:

• asking for payment in advance as a condition of receiving a prize that has been, or supposedly has been, won in a contest or game;
• failing to adequately and fairly disclose the number and value of the prizes;
• offering a gift as an inducement to buy another product (without fairly disclosing the value of the gift); and
• offering a product at a grossly inflated price and requiring the consumer to pay for it in advance.

The Act also requires that telemarketers disclose the name of the company or person for whom they are working, the type of product or business interest they are promoting, the purpose of the call, the price of any product being sold, and any restrictions or conditions the consumer must meet before the product is delivered.

Hanson Publications Inc., Associated Merchant Paper Supplies Inc., Copier Supply Centre Inc. and OS Networks Inc.

In June 2004, two directors and three employees at four Toronto-based telemarketing firms pleaded guilty to using deceptive telemarketing practices to target Canadian and U.S. consumers. Between May 1999 and September 2002, telemarketers used false and misleading sales techniques to induce U.S. organizations to purchase business directories and credit card paper supplies, and Canadian organizations to purchase photocopier toner cartridges. The telemarketers led potential clients to believe that their organization had an established business relationship with the telemarketing firms and that the purpose of the call was to confirm product orders and delivery.

The four companies were fined a total of $100 000. Adrian Towning, director of all the firms, and Charles Hamouth, director of both Hanson Publications and Associated Merchant Paper Supplies, received 10-month conditional sentences comprising six months of house arrest and a fourmonth curfew, one year of probation and 75 hours of community service. Three company managers, Jamie Lynes, Neil Underwood and Sean Beesley, were fined a total of $25 000 and were sentenced to 50 hours of community service and one year of probation. Another manager, (Russell) Todd Ivison, was fined $20 000 in March 2004. All companies and individuals were made subject to a 10-year prohibition order banning them from selling business directories, credit card paper supplies, photocopier and printer toner cartridges, or any other non-durable office supplies and from selling any product over the phone without the customer being able to agree to purchase the product either in writing or in a face-to-face transaction.

The Federal Trade Commission launched parallel litigation, which resulted in Towning and Hamouth being prohibited from selling directories or nondurable office supplies in the United States and requiring them to turn over US$853 000 for consumer redress. The U.S. court also entered an order prohibiting Montréal defendant Albert Mouyal from selling business directories and non-durable office supplies by telephone in the United States, and requiring him to post a US$500 000 bond before he sells other products over the telephone.

Alexis Corporation

In January 2005, Constantina Athanasopoulos was sentenced to a 15-month conditional sentence and two years of probation for her role in a prizepitch scam that targeted consumers in Australia. In March 2005, five participants pleaded guilty in the Court of Quebec (Judicial District of Montréal) to taking part in the same scam. One of them, Sheldon Cutler, was fined $20 000 and received a 20-month conditional sentence and two years of probation. William Kenwood received a six-month conditional sentence, and must serve two years of probation and do 100 hours of community service. Armenia Linhares received a six-month conditional sentence, and must serve two years of probation and do 100 hours of community service. Two others, Scarlet Jove and Gerald Goldstein, had not received their sentences as of March 31, 2005.

The guilty pleas followed a criminal investigation that used wiretaps to gather evidence into the deceptive telemarketing activities of Alexis Corporation (3636135 Canada Inc.) and 3587932 Canada Inc. Between May 2000 and June 2001, the Bureau and PhoneBusters received numerous complaints alleging that telemarketers were telling consumers they had won valuable prizes, such as a new car, diamond watches, a washer and dryer set, a sapphire bracelet and a video camera. To receive the prizes, consumers had to purchase a promotional item. The Bureau investigation confirmed allegations that the telemarketers greatly deceived and misled consumers about the quantity and value of these prizes and the value of the promotional items.

In late 2002 and early 2003, six other people were penalized in various ways, including a fine, conditional sentences, probation and community service, as a result of this scam.

Multi-level Marketing and Pyramid Selling

The Competition Act sets out the differences between multi-level marketing plans and pyramid selling schemes, as well as the responsibilities of operators and participants in these types of plans. Multi-level marketing, when it operates within the limits of the Act, is a legal business activity, while a pyramid selling scheme is not.

Multi-level marketing is a plan for the distribution of products through which participants earn money by supplying products to other participants in the same plan. They, in turn, make money by supplying the same or other products to other participants. Operators and participants in multi-level marketing plans are prohibited from making representations about the compensation available under the plan without also disclosing the amount of compensation typical participants receive or are likely to receive.

A pyramid selling scheme is a multi-level marketing plan that includes compensation for recruitment, required purchases as a condition of participation and inventory loading, or the lack of a buy-back guarantee on reasonable commercial terms.

Global OnLine Systems Inc.

In November 2004, Global Online Systems Inc., a Vancouver-based multi-level marketing firm, pleaded guilty under the multi-level marketing and pyramid selling provisions of the Competition Act. An investigation by the Bureau revealed that Global OnLine was operating a pyramid selling scheme that involved healthrelated products marketed by Herbalife Canada Ltd. Contrary to the Act, participants were compensated for recruiting new participants, who had to buy specific quantities of products as a condition of joining the plan. In addition, Global OnLine and its participants recruited new participants by exaggerating income expectations without disclosing the income of a typical participant.

The company was fined $150 000 and, along with its directors, Deborah Jane Stolz and Marilyn Thom, was made subject to a prohibition order issued by the Federal Court of Canada in which it agreed to do the following:

• disclose the average income all participants actually received;
• inform existing distributors and participants of the terms of the prohibition order; and
• not become directly or indirectly involved in any other pyramid selling schemes.

Millnaires of Canada Ltd.

In November 2004, the Bureau announced that charges had been laid against Stalin McIntosh, president of Millnaires of Canada Ltd., under the Competition Act and the Criminal Code for his involvement in alleged fraudulent pyramid selling schemes. The Bureau alleged that from September 2000 to December 2001, McIntosh operated and promoted pyramid selling schemes that promised participants free cellular telephones and to eliminate cellular telephone bills, and vehicle, rent and mortgage payments. McIntosh was also charged with making false representations to the public in order to induce people to pay to join and with defrauding members of the public of more than $5000.

NSV Nutrinautes Inc.

In March 2005, NSV Nutrinautes Inc. and its vice-president, Richard Arsenault, pleaded guilty in Quebec Court to four charges under the Competition Act's multi-level marketing, pyramid selling and general false or misleading representation provisions. The Quebec-based company operated a multi-level marketing plan known as the Cocooning Club. A Bureau investigation found that the Cocooning Club and its participants made representations on websites and in a television infomercial that exaggerated income expectations without disclosing the income of a typical participant in the plan.

NSV Nutrinautes Inc. was fined $75 000 and Arsenault received a conditional jail sentence of two years less a day and was made subject to a prohibition order preventing him from being involved in any future multi-level marketing plans for 10 years. Charges against two other individuals are outstanding.

Immunity Program

The Competition Bureau launched its Immunity Program in 2000 in an effort to increase its ability to detect, investigate and prosecute cartels. Under the program, immunity is available to the first applicant that reports its involvement in illegal anticompetitive activity under the Competition Act and that meets all other eligibility criteria. Immunity is available to both businesses and individuals, and when immunity is granted, the Attorney General of Canada takes no enforcement action against the party in question. The Bureau is responsible for investigating the illegal activity and recommending to the Attorney General whether immunity should be granted. The final decision to grant (or revoke) immunity is the responsibility of the Attorney General. The details of the program are described in the Information Bulletin Immunity Program Under the Competition Act and supplemented by a series of frequently asked questions published in 2003. Both documents are available on the Bureau's Web site.

In September 2004, the Commissioner of Competition announced a review of the Immunity Program. The review will draw on the Bureau's experience with the program since 2000 and will ensure the program's transparency and that it provides applicants with a high degree of certainty about their treatment under the program. A public consultation is planned for the autumn of 2005.

Alternative Case Resolution

The Bureau chooses the best and most efficient means of restoring competition in the marketplace, only resorting to an adversarial approach when all other avenues have failed or are likely to fail, or the anti-competitive activities constitute a flagrant disregard for the law. Some matters may be resolved quickly and easily, without a full inquiry or judicial proceeding. This reduces uncertainty, saves time and avoids lengthy court actions.

The following are summaries of cases resolved through alternative case resolution.

Conspiracy

Hotel Associations

In January 2004, the Bureau received two similar complaints that members of two separate hotel associations located in different parts of Canada had each agreed to implement a three percent destination marketing fee on room rates to fund increased marketing initiatives in the destination cities. The Bureau met with each association to discuss its concerns about the alleged agreements, as well as concerns that the fee might be misrepresented to the public as a government tax. The Bureau advised both groups that an agreement between competitors to contribute money to a central fund to finance marketing in the destination cities would not, in and of itself, violate the Competition Act, provided each hotel independently decided how it would finance its contribution. To resolve the Bureau's concerns, the associations implemented training programs to ensure that hotel staff accurately portrayed the nature of the fee to consumers. One association also agreed to redraft its agreement to make clear that it was up to each member to decide how it would finance its fee contribution, while the second association delayed implementing the fee, pending a review of its membership agreement.

Bid Rigging

Access to Information and Privacy

In October 2004, a procurement and contracting officer from a government agency contacted the Bureau about a tender issued to hire two information access specialists to work in the area of Canada's Access to Information Act and Privacy Act. Two very similar bids were received in response to the tender. The information suggested that the two bid respondents, who were first-time entrepreneurs, had agreed on the bid and were unaware of the bid rigging provision of the Competition Act. The Bureau met with the respondents and explained the bid rigging provision. They agreed to comply with the Competition Act in any future bid activity.

Price Maintenance

Telescopes

In January 2004, a Western Canada distributor sent a letter to retailers of his telescopes imposing a minimum advertised price for the products and stating that non-compliance would result in retailers being cut off from their supply. The Bureau informed the distributor about the price maintenance provision of the Competition Act. The Bureau secured the distributor's agreement to comply with the Act and supply the product regardless of the prices the retailers advertised.

Dog Food

In the spring of 2004, a company informed one of its retailers that it would reduce its dog food discounts because the retailer was selling the product at lower prices than were its competitors. The Bureau met with company representatives to explain the price maintenance provision of the Competition Act. As a result, the company agreed to provide the same discounts to all retailers, regardless of the prices they were charging.

Advertising

In September 2004, the Bureau responded to a complaint concerning a by-law of a professional association regarding advertising. The Bureau's review of the by-law identified provisions on the advertising of prices that raised concerns under the price maintenance provision of the Competition Act. The by-law stipulated that any advertisement of a price or a price reduction by a member of the association must remain in effect for a minimum period, which may have led members to believe that they no longer had control over their retail prices. The association agreed to modify the by-law so that it would no longer raise concerns under the Competition Act.

Bicycles

In the fall of 2004, a bicycle manufacturing company terminated its supply to a Western Canada retailer because of its low prices. The matter was resolved after the Bureau met with company representatives to review the price maintenance provision of the Competition Act and the company agreed to re-supply the retailer.

Fine Art Prints

In November 2004, an East Coast distributor informed retailers that discounted their fine art prints below recommended retail prices that they would be cut off from their supply if they maintained their low-price policy. The Bureau discussed the price maintenance provision of the Competition Act with company representatives, who agreed to inform their retailers of the Competition Act and indicate that price discounting was allowed.

False or Misleading Representation s, Deceptive Marketing Practices and the Standards-based Statutes

In 2004–2005, the Bureau settled through alternative case resolution 35 matters under the false or misleading representations and deceptive marketing practices provisions of the Competition Act and the provisions of the three standards-based statutes.

The Bureau may examine certain matters under both the criminal and civil provisions of the Competition Act, the provisions of the standardsbased statutes or both. Depending on the circumstances, the Bureau examines matters under all relevant provisions of the statutes it enforces. The following are examples of cases in which concerns were raised under the criminal false or misleading representations and deceptive marketing practices provisions of the Competition Act, the provisions of the standards-based statutes or both.

Stainless Steel Jewellery

In April 2004, the Bureau resolved a complaint about misleading representations made in a jewellery store's brochure. The brochure alleged that stainless steel jewellery with 18-karat gold accents contained more gold than stainless steel, when in fact the reverse was true.

A Bureau examination conducted under the marking provisions of the Precious Metals Marking Act and the false or misleading representations provisions of the Competition Act confirmed that the brochure could lead consumers to believe that the gold content of the articles was greater than it actually was. The Bureau contacted company officials, who agreed to recall the remaining brochures and print new ones containing accurate information about the gold content.

Garments

In April 2004, the Bureau addressed an enquiry from a garment manufacturer that had discovered its product was being shipped into Canada with an incomplete dealer name and address on the label. Under the Textile Labelling and Advertising Regulations, these garments require "the name and postal address of the dealer" to be listed on a permanent label attached to each garment.

After discussions with Bureau officials, the company provided written assurances that all of the articles would have a new label attached, that garments produced in the future would be labelled with a complete dealer name and postal address, and that a quality control program had been established to prevent similar labelling errors in the future.

Fastener Products

In April 2004, the Bureau resolved a complaint about misleading "Made in Canada" claims on fastener products. The complaint alleged that these types of products were no longer manufactured in Canada. Under the misleading representation provision of the Consumer Packaging and Labelling Act, it is illegal to make a false statement on a label; it is a reviewable matter under the Competition Act.

After discussions with the Bureau, two major distributors of the products agreed to correct the representations on the packages that incorrectly identified the country of origin, correct all in-stock packaging, and ensure the compliance of future packaged products.

Telecommunications Company

In July 2004, the Bureau resolved a complaint alleging that a telecommunications company's advertisements about its high-speed Internet service were not in compliance with the Competition Act. A Bureau examination revealed that the company's advertised comparisons of its speed of service to its competitors' could not be substantiated. As a result of Bureau contact, the company instituted a compliance program that included the following:

• the review of all advertising material by legal counsel;
• an annual compliance education session for advertising personnel;
• a bi-annual message from senior management to reinforce the importance of compliance; and
• a requirement that advertising managers annually review and confirm their understanding of the Bureau's advertising guidelines.

The company also clarified the meaning of the phrase 'dedicated access/service' by adding a footnote in its advertising clearly indicating that this access extended from the customer's premises to its switching facility. The Bureau substantiated the company's claim that its high-speed Internet service was "consistently fast."

Imported Textile Products

In July 2004, the Bureau resolved a complaint alleging that a company was importing various textile products, including quilts, without attaching the required labels. The Bureau contacted the company and provided information on the labelling requirements of the Textile Labelling Act. As a result, the company agreed to attach the labels to the imported textile products.

Windshield Washer Antifreeze

In January 2005, the Bureau resolved a complaint about a misleading labelling claim concerning windshield washer antifreeze. A preliminary test of the product's density revealed that the windshield washer antifreeze would freeze at –32˚ C not at –40˚ C, as the label claimed. The Bureau examined the matter under provisions of the Competition Act and the Consumer Packaging and Labelling Act.

After discussions with Bureau officials, the automotive supply company agreed to correct the current stock of windshield washer antifreeze by adding methanol to meet the required density and to adjust the formulation for the product fill line to meet the –40˚ C freezing point claim. The company also agreed to replace the windshield washer antifreeze of any purchaser who complained about the product. The company has instituted new production procedures to ensure future compliance.

Infant Bunting Bag

In January 2005, the Bureau resolved a complaint about an infant bunting bag that did not comply with the labelling requirements of the Textile Labelling Act. The bunting bag lacked a dealer's name and address and a CA number on a sewn-in label. Information was only printed on the packaging material and the fibre content was only listed in English, when French is also required for articles sold in bilingual areas of the country. The retailer agreed to resolve the matter by ensuring that future shipments showed the correct information both on the garment's label and on the packaging.

Small Kitchen Appliances

In June 2004, the Bureau received a complaint about the labelling of small, pre-packaged kitchen appliances, alleging that the name and address of the dealer were not completely disclosed. Under the Consumer Packaging and Labelling Act, prepackaged products must include a declaration of the dealer's name and principal place of business.

Bureau officials discussed the requirements of the Act with the company, which subsequently provided verbal commitments that all future products it imported would be correctly labelled and that it would put a quality control program in place to prevent similar errors in the future.

Written Opinions

The Bureau provides legally binding written opinions to businesses seeking to comply with the Competition Act. Company officials, lawyers and others may request a written opinion on whether a proposed business plan or practice would raise concerns under the Act. The Bureau's written opinions take into account jurisprudence, previous written opinions and current policies. Written opinions remain binding for as long as the material facts stay substantially unchanged and the conduct or practice is carried out substantially as proposed.

To promote compliance with and foster transparency in the administration and enforcement of the Act, the Bureau publishes detailed summaries of its written opinions on its Web site.

While the Bureau does not provide written opinions based on provisions of the standards-based statutes, a company may request a written opinion on a proposed label under the false or misleading representations and deceptive marketing practices provisions of the Competition Act. During 2004-2005, the Bureau issued 23 written opinions, 22 of which related to the false or misleading representations and deceptive marketing practices provisions of the Act.¹ Descriptions of some of these written opinions appear below.

Conspiracy and Mergers

Strategic Alliance

In January 2005, an insurance institution sought a written opinion to determine whether entering into a strategic alliance for the supply of a certain type of insurance would raise concerns under the Competition Act. The Bureau examined the matter under the criminal and civil provisions of the Act, specifically those on conspiracy and mergers. The Bureau determined that the strategic alliance, as proposed, did not meet the definition of a merger and that the parties involved did not have the necessary market power for their alliance to contravene the conspiracy provisions of the Act.

False or Misleading Representations and Deceptive Marketing Practices

The Bureau issued 22 written opinions concerning the criminal and civil false or misleading representations and deceptive marketing practices provisions of the Act. Sixteen of these opinions dealt with the criminal provisions of the Act, specifically sections 52, 55 and 55.1. Section 52 prohibits all representations made knowingly or recklessly in any form and that are false or misleading in a material respect. Under sections 55 and 55.1, an operator or participant in a multi-level marketing plan cannot make representations about compensation without disclosing the compensation a typical participant would receive. Further, a multi-level marketing plan that features recruitment bonuses, a required volume of purchases by participants as a condition of entry and inventory loading, or that lacks a buy-back guarantee on reasonable commercial terms constitutes a prohibited pyramid selling scheme. The following are examples of written opinions that dealt with the criminal provisions of the Act.

False or Misleading Representations

Online Business Directory Web site

In December 2004, a company sought a written opinion on whether a proposed direct mail advertisement promoting an online business directory would raise concerns under the Competition Act. The Bureau concluded that the promotion would not give the Commissioner grounds to commence an inquiry, since the proposed material clearly disclosed the nature of the service and the charges levied.

Multi-level Marketing and Pyramid Selling

The written opinions dealing with the multi-level marketing and pyramid selling provisions covered plans for marketing a wide variety of products and services.

Nutritional Supplements

In April 2004, a multi-level marketing company distributing nutritional supplements sought a written opinion on whether a proposed multi-level marketing plan would raise concerns under the Competition Act.

In its written opinion, the Bureau stated that the plan might cause concern, since the compensation of a typical participant was not stated and the promotional video included lifestyle representations, even though no information about compensation was provided.

Adult Novelties

In May 2004, a multi-level marketing company promoting the sale of adult novelties sought a written opinion on whether a proposed multi-level marketing plan would raise concerns under the Competition Act.

In its written opinion, the Bureau stated that the plan might cause concern, since the compensation of a typical participant was not stated nor was there clear indication that the websites only targeted U.S. consumers. Furthermore, a onetime cash training bonus appeared to provide compensation to participants who recruited other participants into the plan.

Nutritional Supplements

In August 2004, a company that distributes and sells nutritional supplements sought a written opinion on whether its proposed multi-level marketing plan would raise concerns under the Competition Act.

In its written opinion, the Bureau stated that the plan might cause concern, since the operator failed to disclose the earnings of typical participants in a reasonable and timely fashion, and the plan appeared to constitute a pyramid selling scheme, as defined in the Act, for the following reasons:

• All product sales were tied to participation in the marketing plan. Membership could not be separated from product purchase.
• Compensation was paid to existing participants for the sale of the product, suggesting that the initial products were not sold at cost, nor that their purchase was intended to facilitate sales. As well, existing participants received compensation for the recruitment of new participants.

Automotive Products

In August 2004, a company that distributes and sells automotive products sought a written opinion on whether its proposed multi-level marketing plan would raise concerns under the Competition Act. In its written opinion, the Bureau stated that the plan might cause concern, since the plan appeared to constitute a pyramid selling scheme for the following reasons:

• bonuses were paid to participants in the plan when they recruited other prospective participants, who themselves paid to join the plan;
• the plan required participants to purchase products as a condition of fully participating in the plan; and
• return of the product was conditional on the participants' exit from the plan, a condition that is not commercially reasonable. Furthermore, the severity of these return policy conditions combined with the plan's minimum purchase thresholds might have led to inventory loading.

Weight Loss Products

In October 2004, a company that distributes and sells weight loss products sought a written opinion on whether its proposed multi-level marketing plan would raise concerns under the Competition Act. In its written opinion, the Bureau stated that the plan might cause concern, since the operators failed to disclose the earnings of typical participants in a reasonable and timely manner. Furthermore, the plan appeared to constitute a pyramid selling scheme for the following reasons:

• Participants were required to purchase a "starter kit" and reach a one-time volume threshold. A product package was promoted as an optional purchase to reach this threshold. The Bureau believed that this constituted a de facto purchase requirement, since it created sufficient incentive to join the plan.
• The de facto purchase requirement signified that compensation was provided for the recruitment of participants. Furthermore, the product was not sold at the seller's cost.
• The plan's buy-back guarantee was conditional on participants' exit from the plan. This was not considered to be commercially reasonable.
• The severity of the return policy along with the plan's minimum purchase thresholds might have led to inventory loading.

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Footnotes

1 See chapter 2 for a general description of the criminal false or misleading representations and deceptive marketing practices provisions of the Competition Act. See chapter 3 for a general description of the civil false or misleading representations and deceptive marketing practices provisions of the Competition Act.