False or misleading representations
The Competition Act provides criminal and civil regimes to address false or misleading representations.
Section 52 of the Act is a criminal provision. It prohibits knowingly or recklessly making, or permitting the making of, a representation to the public, in any form whatever, that is false or misleading in a material respect. Under this provision, it is not necessary to demonstrate that any person was deceived or misled; that any member of the public to whom the representation was made was within Canada; or that the representation was made in a place to which the public had access. Subsection 52(4) directs that the general impression conveyed by a representation, as well as its literal meaning, be taken into account when determining whether or not the representation is false or misleading in a material respect.
Any person who contravenes section 52 is guilty of an offence and liable to a fine of up to $200,000 and/or imprisonment up to one year on summary conviction, or to fines in the discretion of the court and/or imprisonment up to 14 years upon indictment.
Paragraph 74.01(1)(a) of the Act is a civil provision. It prohibits the making, or the permitting of the making, of a representation to the public, in any form whatever, that is false or misleading in a material respect. Under this provision, it is not necessary to demonstrate that any person was deceived or misled; that any member of the public to whom the representation was made was within Canada; or that the representation was made in a place to which the public had access. Subsection 74.03(5) directs that the general impression conveyed by a representation, as well as its literal meaning, be taken into account when determining whether or not the representation is false or misleading in a material respect.
If a court determines that a person has engaged in conduct contrary to paragraph 74.01(1)(a), it may order the person not to engage in such conduct, to publish a corrective notice, to pay an administrative monetary penalty and/or to pay restitution to purchasers. When the court orders the payment of administrative monetary penalties, on first occurrence, individuals are subject to penalties of up to $750,000 and corporations, to penalties of up to $10,000,000. For subsequent orders, the penalties increase to a maximum of $1,000,000 in the case of an individual and $15,000,000 in the case of a corporation. The court also has the power to order interim injunctions to freeze assets in certain cases.
Additional information on Restitution Orders and Interim Injunctions to Freeze Assets
In order to proceed on a criminal track both of the following criteria must be satisfied: (1) there must be clear and compelling evidence suggesting that the accused knowingly or recklessly made a false or misleading representation to the public. An example of such evidence is the continuation of a practice by the accused after complaints have been made by consumers directly to the accused; and (2) the Bureau must also be satisfied that criminal prosecution would be in the public interest. More information on the choice of track is available from the following publication Misleading Representations and Deceptive Marketing Practices: Choice of Criminal or Civil Track Under the Competition Act.
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1. Representations relating to supplier or supplier's business
Representations about the nature, size and market position of a business; the reasons for sale (circumstance-related events); employment or business opportunities; the attributes of the supplier; and image advertising fall within subsection 52(1) and paragraph 74.01(1)(a), which prohibit representations that are false or misleading in a material respect.
1.1 Nature, size and market position of the business
A representation that implies that a retail business is not in fact in retail, such as "manufacturer," "wholesaler," or "factory outlet," even if the implication is contained in a registered trade-mark or the registered name of the company, should not be made unless it is also clearly indicated that the business is a retail operation.
- A representation that furniture is manufactured in X's factory, where X has a factory but does not manufacture the advertised furniture.
- "ABC Manufacturing Co. Ltd." where the company is only a retailer.
Words such as "only" or similar claims of the exclusivity or superiority of a supplier should not be used if the result is to deceive or mislead.
- Untrue representations such as:
- "More sales than the next three competitors";
- "The only full-time swimming pool company in the area";
- "The only oil service company licensed to do electrical work in the area"
1.2 Reasons for sale (circumstance-related events)
It should not be represented, directly or indirectly, that a specific event, like bankruptcy, end of lease, etc., is causing the supplier to sell off all existing stock or all the stock purchased from a third party unless such a representation is true.
- "Giant Bankruptcy Sale including 6,000 coats from X Co.'s bankruptcy stock," where only part of the stock is from X Co.
- "The end of the big and final sell out - everything reduced to clear - entire stock must be sold by 4 pm today," where the supplier is not closing out the business.
1.3 Employment or business opportunities
A representation that an employment or business opportunity exists should not be made where employment is not in fact being offered or where an advertised business opportunity is little more than a "get-rich-quick" scheme which is unlikely to succeed. A position should also not be advertised if it does not exist or can only be attained after a substantial probation period in a lesser position at significantly reduced wages.
In advertising a business opportunity, care should be taken to ensure that words such as "earn" which could convey the impression that employment is being offered, are not used. Further, when an advertisement for an employment or business opportunity appears in the classified section of the newspaper, the advertiser should ensure that it is inserted under the appropriate heading.
- An advertisement under the heading "Help Wanted" advertising part-time employment when, in fact, no employment is being offered and the advertiser is attempting to sell a product.
- "Earn money stuffing envelopes in your spare time," where employment is not being offered.
It should also be noted that some envelope-stuffing schemes or similar practices may also violate the multi-level marketing and pyramid selling provisions (sections 55 and 55.1).
1.4 Attributes of the supplier
No claim of association with, authorization by, or relationship to, a third party should be made unless true. If no agreement exists between the advertiser and the third party, this is a good indication that such a claim should not be made.
- "Authorized agent," where X Co. is not authorized as an agent to sell airplane tickets for the specified airlines.
- "CMHC Approved," where neither the product nor X Co. has approval.
- "Associated with X Co.," a well-known product supplier, where such association does not exist.
1.5 Image advertising
The term "image advertising" is used to describe all forms of non-product advertising. The fact that an advertisement does not specifically mention the advertiser's product does not automatically transform it from a commercial attempt to expand or retain the advertiser's market into an altruistic exercise in social responsibility. To the extent that any such advertisement could materially misrepresent or falsely portray market information, it would be subject to the same prohibitions under the Act as are the more familiar product claim advertisements, as long as it promotes, directly or indirectly, a business interest.
- X Co., a pulp and paper mill, mounts an advertising campaign to publicize its considerable investment in reforestation but the amount of investment is substantially exaggerated. The representation would clearly be soliciting the approval of environmentally conscious consumers whose purchasing decisions would be swayed by such a display of corporate conscientiousness.
- X Co. advertises that it donates a certain proportion of its profits to a charitable organization, when, in fact, it donates substantially less.
2. Representations relating to products
Any representation relating to a product that is being offered for sale should contain all the information necessary to enable a reasonable purchaser to make a sound purchasing decision. This section deals with testimonials and endorsements, comparative advertising, the non-disclosure of material information, hidden or additional charges and the use of illustrations. Since these matters generally fall within the scope of subsection 52(1) and/or paragraph 74.01(1)(a), the general impression test will apply.
2.1 Testimonials and endorsements
The practice of encouraging the sale or use of products using prominent figures, recognized organizations, experts or other consumers is well known. Representations contained in such endorsements or testimonials must be free from ambiguity, since audiences normally attach greater weight to them. In addition, consumers are more likely to accept representations about products made by other consumers when apparently based on practical use and conveyed with a candor that may itself vouch for the reliability of the representations.
Advertisers should therefore give careful attention to the following areas.
2.1.1 Requirement of actual use or test
It can be reasonably expected that, in many cases, consumers would assume that a third party touting a product had actually used or tested the product before commenting on it.
An endorsement to the effect that a company's entire line of products is reliable, based on exposure to some but not all of a company's wares, would be misleading.
2.1.2 Continued use and approval
A related problem would arise if a representation were to imply continued use or experience with a product. Apart from situations in which regular use is implied as the basis of a third party's assessment, the continued use problem could typically arise when, for example, a commercial message was broadcast repeatedly over an extended length of time and the third party's brand preference or assessment of the product had changed.
2.1.3 Relevance of experience or use
The third party's knowledge or experience must be relevant to the views offered. Thus, it could be deceptive to base a representation about a motor oil additive on the views solicited from someone dressed as a competitive racecar driver, appearing in a competitive racing setting, if, in fact, that person was not a racecar driver.
The relevance of the third party's use of the product could also be questionable if the assessment were based on use of the product in circumstances that were not representative of the typical circumstances in which a consumer would use the product (such as an air conditioner being endorsed by a sub-arctic dweller) or if features assessed did not relate fairly to the range of tasks the product would normally be expected to perform (such as a brand of mayonnaise which makes a great furniture polisher but is inedible).
This problem would typically arise if the third party had an undisclosed connection with the advertiser or its product, such as where the third party had an undisclosed financial interest in the firm responsible for the representation (shareholder, employee, etc.) or in the advertised product (supplier to the advertiser), or where what was implied to be an independent testing agency or unaffiliated organization was, in fact, financed or controlled by, or similarly related to, the advertiser.
Such factors would be relevant even if the third party's assessment were uninfluenced by them, since the public attaches weight not only to the third party's reputation or status, but also to its independence.
2.1.5 Payment of endorser
Where a prominent figure offers an opinion, the public would normally assume that that person has been paid or has otherwise benefited from making the representation. In such cases, non-disclosure of payment would not be misleading. Exceptions could arise, however, if the format of a commercial suggested that the party had volunteered his or her services, for example because of concern about deteriorating standards in an industry, or, in the case of a member of the professional or scientific community, the representation implied that the party was exercising disinterested professional judgment.
2.1.6 A canvass or survey of consumer preferences, attitudes or beliefs
It is essential that a survey questionnaire be devoid of bias so as to reflect accurately consumer views and so that the reporting of such views does justice to the actual findings. So, for example, if the format of a television commercial implied, directly or indirectly, that a number of consumers, other than the persons interviewed in the commercial, were canvassed, and that the views of the persons interviewed were representative of the consumers surveyed, it would be deceptive if the views of the persons interviewed in the commercial did not represent a fair sampling of the opinions expressed by the persons approached.
The survey results should support, to a statistically significant degree, any claims made. Where the survey contains a statistically significant chance of error, for example plus or minus 4%, 1 out of 20 times, this should be disclosed. Moreover, the manner of presentation of survey results should not be capable of deceiving or misleading.
2.2 Comparative advertising
Comparative performance claims fall most often within subsection 52(1) and paragraphs 74.01(1)(a) and 74.01(1)(b). The first two provisions prohibit false or misleading representations by any means while the last prohibits representations about the performance, efficacy or length of life of a product which are not based on adequate and proper tests.
The following are some of the areas of concern.
2.2.1 Generalized superiority claims
Comparative data should not be used to imply the general superiority of a product unless such a claim is valid over a comprehensive range of normal conditions of use. If the superiority of the product is limited to a certain range of conditions, then any superiority claim should be clearly qualified to reflect that range. For example, if a brand of gasoline were to be advertised as producing better mileage than several competitive brands, and the claim would be accurate under highway driving conditions but inaccurate under city conditions, this limitation should be clearly expressed.
2.2.2 Performance tests
A related issue involves the reliability of performance tests. This issue is considered under Performance representations not based on adequate and proper tests with reference to paragraph 74.01(1)(b).
Comparisons demonstrating the relative effectiveness of competing products should be shown under equivalent conditions. For example, a demonstration of the different effects of two types of paint on a wall should be displayed under equal lighting conditions.
Demonstrations of the relative effectiveness of products should not attempt to compare products in uses or under methods of application for which they have not been designed or recommended. For example, various oven cleaners are designed to be applied in different ways; some are intended for immediate scrubbing following application while others are designed to be scrubbed only after a waiting period of several hours. Obviously, if an advertiser of the first type of oven cleaner were to compare its product with a cleaner of the second type, both products would have to be used as intended and directed by the manufacturer.
2.3 Adequate and proper tests [paragraph 74.01(1)(b)]
Refer to the Performance representations not based on adequate and proper tests page.
2.4 Non-disclosure of material information
Any information that would likely have a tendency to affect a purchasing decision should be included.
- Carving leather of various weights available at specified prices, where it is not disclosed that the sale price only applies to the purchase of a full side of leather.
- Photocopier: $2995, where an integral part of the copier is not included in the price.
- Vehicles for sale with "free insurance," where the insurance is only included if the full asking price is paid.
- Sewing machines represented as capable of certain functions, where an additional item is required before the machine can perform as advertised.
- "No charge for children under 12 in same room as parents," where the special rate is charged only when specifically requested.
- Carpet cleaning service will "clean all fibres deep down to the backing," where the offer does not include removing the dirt and shampoo.
- "Casino of discounts, purchaser entitled to participate in game of chance for 10-40% discounts," where a minimum purchase is required to become eligible to participate.
2.5 Hidden or additional charges
This subject is similar to non-disclosure, but relates specifically to undisclosed costs to the purchaser. If any representation is made concerning the price of a product, any such additional required payment should be disclosed at the same time.
- "Replacement mufflers installed for $49.95," where there is an additional $14.95 charged.
- "Service check of automatic transmission for $75.95 plus tax," where there is an additional charge of $39.99 for labour.
- "Bicycle, completely assembled," where there is an additional charge of $15 for assembly.
- "Edmonton to Glasgow - seat sale return $699", where there is no direct flight and an additional charge of $99 is payable to connect with the flight.
- Customers only to pay for the prints they like," where there is an additional $2 processing fee.
2.6 Use of illustrations
The general impression test ensures that a court will consider all aspects of a representation. Where an illustration forms part of a representation, it must accord with the accompanying text of the advertisement or, in the case of broadcast advertisements, with the script. Care must therefore be taken to ensure that no erroneous impression results.
- Coats depicted with fur collars in a broadcast advertisement as reduced to $399, where the coats being sold at that price do not have fur collars as represented.
- An illustration of a TV represented to be on sale from $499, where the illustrated model is not being sold at that price.
2.7 Adaptation of manufacturer's promotional material
The deeming provisions contained in subsections 52(2), 52(2.1) and 52(3) as well as subsections 74.03(1), 74.03(2) and 74.03(3) are referred to in section 4 — Representations or practices solely by manufacturers in connection with the manufacturer's liability, but it should be noted here that a retailer who takes a representation made by a manufacturer and transforms it into its own advertisement has chosen to promote the product itself and would therefore be liable for any contravention of the false or misleading representations and deceptive marketing practices provisions.
3. Representations as to price
The Competition Act contains five provisions dealing specifically with price representations: four under the civil regime (false or misleading ordinary selling price representations [74.01(2) and 74.01(3)], bait and switch selling [74.04], sale above advertised price [74.05] ) and one under the criminal regime (double ticketing ). Price representations may also be addressed under the general provisions against false or misleading representations [52 or 74.01(1)(a)].
3.1 False or misleading ordinary selling price representations — Paragraphs 74.01(2) and 74.01(3)
Refer to the False or misleading ordinary selling price representations section.
3.2 Bait and switch selling — Section 74.04
Refer to the Bait and switch selling section.
3.3 Sale above advertised price — Section 74.05
Refer to the Sale above advertised price section.
3.4 Double ticketing — Section 54
Refer to the Double ticketing section.
3.5 Other price-related representations — Subsection 52(1) or paragraph 74.01(1) (a)
Price-related representations, other than those relating to false or misleading ordinary selling price representations [74.01(2) and 74.01(3)], bait and switch selling [74.04], sale above advertised price [74.05] and double ticketing  fall within the scope of subsection 52(1) or paragraph 74.01(1)(a).
- The following words and expressions, used in circumstances where they were found to be false or misleading in a material respect, have been dealt with in the courts:
- "Sale prices in effect" during a specified sale period, although the prices remained unchanged before, during and after the period.
- "Reductions of 40%-70% on all merchandise", although some items were not reduced as represented.
- "Special of the week - 50% off in this section", where a number of items were not reduced as represented.
- "Your discount - 50% off all prices shown in this catalogue", where the discount price was in fact the ordinary selling price.
- "Discount for diesel fuel of 17¢ per gallon", where the discount was refused to some purchasers.
- "Because you're buying directly from the manufacturer you can save up to 60%", where the accused was not the manufacturer.
- "Factory to you savings", where the accused did not manufacture the advertised item.
- "Selling gold jewellery wholesale to the public", where the prices were not in fact wholesale prices.
- "The lowest price for printing tickets" and "the lowest prices we've seen", where the prices were not the lowest in the market area.
- "Half-price fur sale", where the accused inflated the regular price before marking it down to half price.
It is well established that a representation for a "free" or other refund or coupon offer should not contain an essential feature or condition that is hidden from a purchaser who might not be willing or able to comply with it.
Representations which are similar to "half-price" sales involve the use of terms such as "2 for 1" or "1¢ sale." These are usually considered together with the representation "free."
- "Free 3 felt pens see details inside" appearing on the outside of a package, where the details hidden inside disclose that an additional purchase is necessary to obtain the "free" pens.
- "Free insurance with the purchase of a car," where the free offer only applies when the full asking price is paid.
- "Free Florida vacation with the purchase of a snowmobile," where the "free" offer does not include transportation and meals and age/gender restrictions are imposed.
Further, where article A is advertised as being free with the purchase of article B, but article B is available at a discount or lesser price if the "free" article is foregone, then article A is not if fact free.
- "When you leave your film for developing and processing, we will give you a new roll at no charge," where the processing price is inflated to cover the "free" film and refunds are given to customers not wishing to receive the film.
Nor is it "free" in a "two-for-one" situation where the price of the first article is inflated to cover the cost of the second.
- "Buy one real estate lot receive your next choice absolutely free," where the price of the first lot is inflated to cover the cost of the "free" lot.
4. Representations or practices solely by manufacturers
4.1 Deeming provisions related to contraventions under subsection 52(1) and sections 74.01 and 74.02
Subsections 52(2), 52(2.1) and 52(3) of the Act clarify the responsibilities of different parties in the chain of supply of a product, such as manufacturer-distributor-retailer, for representations made by them that are in contravention of subsection 52(1). Similarly, subsections 74.03(1), 74.03(2), and 74.03(3) have the same objectives for reviewable matters under sections 74.01 and 74.02.
The primary purpose of subsection 52(2) and 74.03(1) is to protect a person in the supply chain from possible liability for representations that originated further up the chain (and which are contained in material passed on by him or her, such as brochures, labels, etc.), to identify the one responsible for the representation and to impose liability solely on the originator. At the same time, representations that violate subsections 52(1) or 74.01(1) but that are made only within the chain of supply are deemed by subsection 52(3) and 74.03(3), respectively, to be made to the public.
Retailers who display products on their shelves are not potentially liable for representations on labels and other point-of-sale material designed and produced by the manufacturer of the product unless the representations were made at the retailer's specific request or unless the product was foreign manufactured and the retailer was also the importer of the product. However, a retailer who takes a representation made by a manufacturer and transforms it into an advertisement of his or her own, for example repeating a label claim in a newspaper advertisement, could not avoid liability by relying on subsection 52(2) or subsection 74.03(1). In this situation, the retailer has chosen to promote the product and is, therefore, responsible for the claim.
- An in-store sign prepared by a retailer for a gas-saving device represents fuel savings of 25%. Although the retailer is merely repeating the representation made to it by the manufacturer, the retailer may still be found to be liable if it chooses to promote the product itself.
A situation might arise where both a manufacturer and a retailer could be subject to investigation for similar representations. For example, if a manufacturer, in attempting to persuade a retailer to carry his or her product, were to misrepresent the product to the retailer, and the retailer were then to make a similar representation in a newspaper advertisement, both parties might be liable, although the particulars of each contravention would differ slightly. The manufacturer would be liable for his or her representations to the retailer pursuant to subsections 52(3) or 74.03(3), and the retailer would be liable for the representation in the advertisement.
4.2 Package information
Manufacturers bear the responsibility for the representations they make on their products which will subsequently appear on retail shelves. Subsections 52(2) and 74.03(1) deem that any such representation is made only by the one who caused it to be made, i.e. the manufacturer, unless the manufacturer is outside Canada, in which case the importer is responsible.
These provisions may also affect a manufacturer who puts "special," "cents-off," or "free" offers on the packaging of a product, if a retailer's subsequent pricing actions have the effect of making the representation untrue (Refer to section 3 — Representations as to price).
- "Special $1.49" printed on a label attached to a bottle of shampoo by a manufacturer, where the label is used for some six months. The special price is no longer "special" and becomes the ordinary selling price.
5. False or misleading representations under the regulatory statutes
False or misleading representations are also addressed under the Consumer Packaging and Labelling Act, the Textile Labelling Act, and the Precious Metals Marking Act. Refer to the Labelling Corner section.
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