IntegrityLink Code of Advertising
These basic advertising standards are derived from the Competition Act of Canada.
There is no legislation of general application in Canada that contains regulatory powers requiring an advertiser to withdraw or amend an advertisement. Some statutes, however, provide a degree of regulation of the content and style of an advertisement, either in relation to certain classes or types of products, as in the case of the Food and Drugs Act, the Consumer Packaging and Labelling Act and the Textile Labelling Act, or in relation to specific situations, as in the case of the Broadcasting Act.
The Competition Act, which is administered by the Bureau of Competition Policy, part of Consumer and Corporate Affairs Canada, is the only federal statute of general application to all Canadian media advertising. In Canada, the first major impetus toward effective misleading advertising laws came in 1960, due to pressure from businesses. They were concerned that misleading regular price comparisons were making the genuine advertising of sales less credible to consumers and that these misrepresentations were giving their originators an unfair competitive advantage. Consequently, a provision prohibiting these practices was added to the then Combines Investigation Act, now known as the Competition Act.
A. The General Scope of the Misleading Advertising and Deceptive Marketing Practices Provisions
In general, these provisions apply to anyone promoting, directly or indirectly, the supply or use of a product or service, or any business interest, by any means. This does not include advertisements or representations made solely for a political or charitable purpose.
All methods of making representations, including printed or broadcast advertisements, written or oral representations, audio-visual promotions and illustrations, are within the general scope of the Act. Some provisions, however, relate only to advertisements (for example, sections 57 and 58).
The Act refers to representations made "to the public." It has been held that a representation to just one person constitutes a representation to the public. It should also be noted that it is not necessary for the Crown to prove that any person was in fact misled; all that is required is that the representation is capable of misleading.
To contravene the Act, a representation must be "misleading in a material respect." This phrase has been interpreted to mean that the representation leads a person to a course of conduct that, on the basis of the representation, he or she believes to be advantageous. "Material" does not refer to the value of the product to the purchaser but, rather, the degree to which the purchaser is affected by the representation in deciding whether to purchase the product.
Finally, it should be noted that, although the Act contains some specific offences, there are circumstances which do not necessarily fall within the scope of the specific provisions and are, therefore, prosecuted under the general prohibition against misleading advertising, section 52(1)(a). For example, the non-availability of an advertised product (a practice known as "bait and switch") is prohibited under section 57(2) where a "bargain price" is involved. If there is no representation (expressed or implied) of a bargain price, a case could nevertheless be pursued under section 52(1)(a).
B. The General Impression Test
Section 52(4) requires a court to take into account the general impression conveyed by a represen-tation, in addition to its literal meaning. This test applies only to offences under sections 52(1)(a ) - general misleading representations, 52(1)(b) - performance claims not based on adequate and proper tests, 52(1)(c) - misleading warranty or guarantee representations and 52(1)(d) - ordinary price representations.
The application of the general impression test is particularly important where:
- The representation is partially true and partially false, or the representation is capable of two meanings, one of which is false;
- The representation is literally true but is, in fact, misleading since it fails to reveal certain essential information (see Non-disclosure of Material Information, chapter 3);
- The representation is literally or technically true but creates a false impression, for example where the advertised results of a test of a product may not be significant to its use or efficacy but the representation makes it appear otherwise (see Inappropriate Claims, chapter 3);
- The representation is literally true insofar as the oral or written statements are concerned but the visual part of the representation may create a false impression, for example where it depicts a model which is different from the advertised product (see Use of Illustrations, chapter 3).
Two cases that resulted in convictions in 1978 provide useful illustrations of the application of the general impression test:
A house represented as having a new furnace, where the word "new," although understood by the industry to mean a replacement and not the original furnace, was found by the court to give the impression to a purchaser that the furnace was in fact new.
A catalogue contained the statement "you are entitled to 33_ per cent discount off all items in this catalogue," where the representation was literally true, but the word "discount" gave the impression of a bargain price which in fact was no bargain since the quoted, undiscounted prices were fictitious.
Summary of the Misleading Advertising Provisions
The following description of some of the misleading advertising and deceptive marketing practices provisions of the Competition Act is provided for information purposes only and should not be taken to be a complete statement of the law. Other provisions not summarized cover tests and testimonials (section 53) and pyramid and referral selling schemes (sections 55 and 56).
Section 52(1)(a): All representations, in any form whatever, that are false or misleading in a material respect are prohibited. This general provision prohibits all misleading representations not specifically prohibited elsewhere.
Section 52(1)(b): Any representation in the form of a statement, warranty or guarantee of the performance, efficacy or length of life of a product, not based on an adequate and proper test, is prohibited. The onus is on the one making the claim to prove that it is based on an adequate and proper test.
Section 52(1)(c): This paragraph covers any representation that purports to be a warranty or guarantee of a product, or a promise to replace, maintain or repair an article, or any part of an article. Such representations are prohibited where their form is materially misleading or where there is no reasonable prospect that the warranty, guarantee or promise will be carried out.
Section 52(1)(d): Any materially misleading representation as to the price at which a product is ordinarily sold is prohibited. Here, price means the price that the product ordinarily sells for in the market area, unless specified to be the advertiser's own selling price.
Section 54: Where two or more prices are clearly shown on a product, its container or wrapper, the product must be supplied at the lower price. This provision does not actually prohibit the existence of two or more prices, but requires that the product be offered for sale at the lowest price depicted.
Section 57: Advertising a product at a bargain price that the advertiser does not have available for sale in reasonable quantities is prohibited. Liability will be avoided where the advertiser can establish that the non-availability of the product was due to circumstances beyond its control, the quantity of the product obtained was reasonable, or the customer was offered a rain check when supplies were exhausted.
Section 58: The supply of any product at a price higher than the price currently being advertised is prohibited. This section does not apply where the price advertised was erroneous and immediately corrected, or where the seller is not a person engaged in the business of dealing in that product.
Section 59: Any contest that does not disclose the number and approximate value of prizes or important information relating to the chances of winning in the contest, that does not select participants or distribute prizes on the basis of skill or on a random basis, or in which the distribution of prizes in unduly delayed, is prohibited.
2. 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 section 52(1)(a), which prohibits representations that are false or misleading in a material respect.
A. Nature, Size and Market Position of the Business
A representation that implies that a retail business is not in fact 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.
"X Manufacturing Co.," 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"
B. 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.
C. Employment/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 pyramid selling provision (section 55).
D. 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.
E. 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 mis-represent 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.
3. 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 heading deals with testimonials and endorsements, the non-disclosure of material information, hidden charges and the use of illustrations. Since these matters generally fall within the scope of section 52(1), the general impression test will apply.
A. 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.
(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) 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.
(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 (share-holder, 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.
(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.
(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.
B. Comparative Advertising
Comparative performance claims fall most often within sections 52(1)(a) and (b). The former prohibits misleading or deceptive representations by any means while the latter prohibits performance or efficacy claims about products which are not based on adequate and proper tests.
The following are some of the areas of concern.
(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) Performance Tests
A related issue involves the reliability of performance tests. This issue is considered below with reference to section 52(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.
C. Section 52(1)(b) - Adequate and Proper Test
The onus is on advertisers to ensure that claims about the performance, efficacy or length of life of their products have been substantiated by an "adequate and proper test."2 The test must have been concluded before the representation is made. In other words, a subsequent substantiating test would not exempt an advertiser from liability under this provision.
Section 52(1)(b) requires an accused to proffer evidence in support of the tests, after which it is open to the Crown to lead evidence to show that the testing is not "adequate and proper." Performance claims that raise a question under the Act fall into two broad categories: those that are inappropriate in relation to the actual test results and those that are based on poorly designed test methodologies.
(1) Inappropriate Claims
(a) If the performance claim is broad, the existence of adequate and proper tests relevant to only one portion of the claim or under only one condition of use is insufficient. For example, where a national representation of energy savings relates to the tested perfor-mance of a heat pump, and it is shown that the test was conducted under the climatic conditions of Southern Ontario, the results should not be generalized to all areas of the country.
(b) Results must not only be significant but must be meaningful. For example, a representation that an air conditioner is quieter than another brand, where the difference cannot be detected by the human ear, should not be used.
(c) Consumer panel testing of product character-istics that are perceptible only to the senses can sometimes establish relative superiority, but cannot usually quantify the extent of the superiority. Consequently, such testing, if proper, could substantiate claims such as "feels softer" or "tastes better," but not a claim such as "three times more softness."
(2) Test Methodology
The test should indicate that the result claimed is not a mere chance or one-time effect.
(a) Non-repetition of test - it is axiomatic that the reliability of the data resulting from a test is conditional upon the achievement of similar results from a repetition of the test.
(b) User-tests - When consumers are asked to use and evaluate a product, various "test effects" can influence their behaviour. For example, a user testing a gas-saving device may modify his or her driving habits to a degree sufficient to affect the observed results. Furthermore, since such tests are not conducted under "ideal controlled test conditions," other factors such as climate and location would also have an effect. Unless such weaknesses are controlled, user tests would not be adequate and proper. At minimum, control groups are necessary in such situations.
(c) Unrepresentative samples may produce biased test results. If, for example, subjects selected for the test were already known users of the product (and therefore potentially biased in its favour), the use of such results, unless expressly qualified in the representation, would likely contravene this provision.
Most prosecutions under section 52(1)(b) have related to representations made where no tests had been undertaken or where user tests (notably of gas-saving devices) have not been found adequate to substantiate the claims.
"20% to 40% better gas mileage," where there is no adequate and proper test upon which the statement is based.
D. The 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.
8% mortgages, where they are in fact 11_% mortgages, reduced to 8% by means of a CMHC interest reduction loan.
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.
E. 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 $4.95," where there is an additional $1.45 charged.
"Service check of automatic transmission for $15.88 plus tax," where there is an additional charge of $15 for labour.
"Bicycle, completely assembled," where there is an additional charge of $3 for assembly.
"Edmonton to Glasgow - seat sale return $359," where there is no direct flight and an additional charge of $42 is payable to connect with the flight.
"Customers only to pay for the prints they like," where there is an additional $2 processing fee.
F. 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 $49, 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 $499, where the illustrated model is not being sold at that price.
G. Adaptation of Manufacturer's Promotional Material
The deeming provisions contained in sections 52(2) and (3) are referred to below in connection with the manufacturer's liability, but it should be noted here that a retailer who takes a representation made by a manufacturer and transforms it into its own advertisement has chosen to promote the product itself and would therefore be liable for any violations of the misleading advertising or deceptive marketing practices provisions.
4. Representations as to Price
Price representations often involve either a comparison of two or more prices or a "savings" claim. Such representations usually fall under section 52(1)(d), although, of course, they are also subject to the general provision, section 52(1)(a).
A. Section 52(1)(d) - Misleading Price Representation
This section explicitly states that the relevant market is used for determining regular price unless the representation clearly states that the quoted regular price is the advertiser's own regular price.
(1) General Guide
A simple general test that can be applied to determine whether a representation may be in violation of the provision is: "Would the representation lead a reasonable consumer to conclude that the comparison price quoted is that at which the product has been ordinarily sold?" If the answer to this question is "yes" and the comparison price is not the regular market price, such a comparison should not be made.
(2) The Concept of Ordinary Selling Price
The interpretation given to the term "ordinary selling price" has evolved from early decisions regarding representations about price consisting of words such as "regular" and "comparable." Generally speaking, the courts have adopted the broad meaning of words used in representations and disregarded semantic differences; phrases such as "Compare to," "Was," "$X or X¢ off," "Special" and "Value" convey the impression that the comparison price so designated is that at which the product has been ordinarily sold.
(3) Reference to Price in Market Area
A seller should ensure that it knows the fair market price of the product before using the word "regular" or a similar term. If the seller does not know the market price, but the sale price is a reduction from the seller's price, then the comparison price should be qualified by saying, for example, "our regular price." In addition, care should be taken not to quote the regular price prevailing in another geographical region. For example, an Ottawa retailer should not rely on a Toronto regular price.
(4) Comparison Price Should be Recent and Relevant
The advertiser should not rely on out-of-date pricing history. The comparison price should be one at which the article was sold during a period sufficiently recent as to have relevance or, in a case where the representation relates to an introductory offer, the offer should not be outstanding for a prolonged period.
The comparison price should also reflect a substantial sales volume. If, for example, the price of the product were to be raised for a few weeks, during which very few sales took place, and then reduced, the retailer should not appear to suggest that the inflated price was the regular one. The relevant price is that at which the product is sold, not merely offered for sale. What would be regarded as a "substantial sales volume" will depend on the nature of the product and the industry. However, it can be said that there should be a sufficient number of sales so that a consumer would be justified in assuming that the amount of the reduction from the price represents a genuine bargain or saving.
(5) Consumer Bargain
That a customer obtains some savings is not sufficient to avoid liability for prosecution under this section. For example, if the actual market price of a product were $15, a representation of "Reg. $20.00 - Sale price $10.00" would nevertheless violate this provision.
(6) Manufacturer's Suggested List Price
The use of a term such as Manufacturer's Suggested List Price in a comparison with a retailer's price can be deceptive where it does not reflect a product's ordinary selling price. Further, it is not necessarily reliable as an indication of market price since in many product areas such price indicators are significantly higher than the market price.
In each of the following examples, the first or comparison price was shown not to be the ordinary selling price and a conviction resulted under this provision.
"Compare at... Our price..."
"Regular... now only..."
"Tagged (price)... Special..."
"Our regular suggested list... save... reduced to only... "
"Regular price... private backdoor sale (price)"
"Save... (same or similar product) ordinarily sold for 3 times the price."
B. Section 52(1)(a)
Price-related representations, other than those relating to ordinary selling price, fall within the scope of section 52(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.
5. Representations or Practices Solely by Manufacturers
A. Deeming Provisions Related to Offences Under Section 52
Sections 52(2) 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 violation of sections 52 and 53. The primary purpose of section 52(2) 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 repre-sentation and to impose liability solely on the originator. At the same time, representations that violate section 52 but that are made only within the chain of supply are deemed by section 52(3) 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 section 52(2). 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 he is merely repeating the representation made to him, he may be convicted if he chooses to promote the product himself.
A situation might arise where both a manufacturer and a retailer could be subject to investigation for similar representations. For example, if a manu-facturer, 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 offence would differ slightly. The manufacturer would be liable for his or her representations to the retailer pursuant to section 52(3), and the retailer would be liable for the representation in the advertisement.
B. Package Information
Manufacturers bear the responsibility for the representations they make on their products which will subsequently appear on retail shelves. Section 52(2) deems 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.
This provision 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 (see Misleading Price Repre-sentations, chapter 4).
"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.
C. Section 52(1)(c) - Misleading Warranties
Although section 52(1)(b) also relates to warranties and guaranties, and is considered above, section 52(1)(c) operates where the warranty is itself misleading or where there is no reasonable prospect that it will be honoured. It also covers warranties that deceptively reduce a purchaser's usual rights as well as guarantees that are otherwise useless.
A tire warranty contains the representation "adjustment prices are intended to, but may not in all cases, represent current average selling prices" and, in 85 percent of the cases, the adjustment prices are higher than the average selling prices.
6. Other Price-Related Representations
(Sections 54, 57 and 58)
A. Section 54 - Double Ticketing
The offence created by section 54 occurs when a product is supplied at the higher of two or more prices marked on it by or on behalf of the supplier. It should be noted that the definition of "supply" includes an offer to sell. This section does not affect shelf stock revaluation if the old price is removed or is obscured so that it is no longer clearly expressed. Prosecutions under this section have rarely occurred.
B. Section 57 - Non-availability of Advertised Specials
This section is specifically designed to deal with the practice of advertising products at bargain prices that are not available in reasonable quantities.
(1) Bargain Price
The section does not come into play in all cases of non-availability. It is only relevant where a product is being advertised at a "bargain price" as defined in the section. However, other instances not involving bargain prices may fall within the scope of section 52(1)(a). The use of words in an advertisement such as "sale price" or "special" could bring an advertisement within the purview of this definition. In addition, if a product is advertised at a price that is significantly lower than the ordinary price for that product in the market, then the provision could also apply even if there is no direct mention in the advertisement that the advertised price is a bargain price.
(2) Nature of the Market
This phrase, not specifically defined in the Act, refers to considerations such as geographic location, time-frame, method of advertising, type of product advertised and other factors which relate to the business or industry in question.
(3) Nature of Advertisement
An advertiser may clear out old stock that would not normally amount to a reasonable quantity without contravening the section if he or she clearly specifies in the advertisement the number of items available. However, use of a general phrase, such as "quantities are limited," would not be an absolute defence to a charge under this section, although it may reduce the quantity that would otherwise be required for a reasonable supply in a given situation.
(4) Advertiser-Supplier Relationship and Franchise Advertising
The section was drafted in contemplation of situations where the person who advertises the product would be the same as the one who supplies it. Quite often, however, retail outlets are operated as franchises, which may mean that the franchisor is not the same as the person operating an individual store. In these circumstances, there may be a co-operative agreement with respect to advertising.
Many franchise operations share advertising costs with the parent company which, in return, provides advertising, such as newspaper supplements or flyers, to promote products on behalf of franchised retailers. In such cases, a franchisee could be regarded as coming within the purview of the section if the franchisee is responsible for the non-availability to the public of reasonable quantities of an advertised special. In addition, the franchisor could be liable if it did not supply reasonable quantities of the advertised special to franchisees.
Particular problems regarding the non-availability of advertised products may arise:
- where small retail outlets do not have the facilities to carry a full line of stock at all times;
- where products are seasonal or are a special head office purchase made available to the retailer on request;
- where there is limited supply in clearance sales of slow-moving or discontinued stock.
For the advertiser, the promotion of those products that are subject to any of these circumstances entails a corresponding responsibility to ensure that the public is properly informed of any applicable supply restrictions. Lacking such disclosure, a complaint of non-availability from the public could provide the Director with reason to initiate an inquiry.
In order to avoid such an outcome, advertisers should take all reasonable steps to disclose prominently their store policy and the conditions generally applicable to their flyer sale advertising. Advertisers might therefore wish to consider the following suggestions for inclusion in such advertising:
- if a discontinued line or clearance sale is being promoted, the total quantity of the product available nationally or regionally, if known, could be stated, noting that some stores may not have access to any supply;
- where items listed in a sale flyer may have become unavailable before the commencement of the sale due to events beyond the retailer's control, a correction notice should, if possible, be placed on the front of the flyer; and
- where items will only be available in some stores, the portion of the advertisement relating to those items should be clearly distinguished from the advertising of the products generally available. The phone numbers and retail store addresses of participating retailers should then be provided, with an indication that customers should phone ahead to check for supply availability of any items specifically distinguished in the flyer.
(5) Defences Provided in Section 57(3)
(a) Inability to Supply
There often may be legitimate reasons for an advertiser's inability to supply an advertised product. Since, for example, catalogue sale advertisements must be prepared weeks and even months in advance, and goods are often ordered for a delivery date to coincide with the opening of the sale, any events beyond an advertiser's control, for example transportation delays due to bad weather or strikes, could make it impossible to have the product available for the advertised sale period.
(b) Reasonable Quantities
Although the crux of this offence depends on the definition of this term, it is not possible to specify what quantities might be considered reasonable since this is an issue to be determined on a case-by-case basis. What is reasonable will depend on the factors outlined in the section, some of which have already been discussed. In general, the best guide for an advertiser would be the history of consumer demand for the same or comparable products during previous sales using similar advertisements. If a reasonable quantity were available, the advertiser would likely have a good defence.
(c) Rainchecks for Non-Available Items
Offering and fulfilling rainchecks is another defence available to retailers should allegations be made that no reasonable supply of the special was made available.
However, it should be emphasized that this defence will only apply in a case of bona fide non-availability and not where there is a systematic practice of advertising at bargain prices with no genuine effort to supply in reasonable quantities during the currency of the sale.
Retailers should prominently display the terms and conditions of any raincheck policy in their stores as well as in their advertising. Although there is no legal requirement that a raincheck policy be displayed, it has been found that many complaints, and subsequent preliminary investigations, could have been avoided if the customer had known of the existence of a raincheck policy and of its terms and conditions.
C. Section 58 - Sale Above Advertised Price
Section 58 of the Competition Act makes it an offence to "supply" a product at a price that is higher than the rental or sale price "advertised" in the market to which the advertisement related.
(1) Market May Be Restricted
Section 58(4) gives the advertiser the opportunity to define the market more narrowly in the advertisement than the market which the advertise-ment could otherwise be reasonably expected to reach. Therefore, an advertisement in a local paper may restrict an offer to a specific store branch of a multi-store operation or even to a specific department of that branch, as long as it is clearly indicated in the advertisement. For example, an advertisement could be clearly restricted to the "bargain basement." Similarly, a business that has both catalogue and normal retail operations may limit its advertised prices to one or the other.
The section does not apply in respect of an advertisement that appears in a catalogue in which it is prominently stated that the prices contained therein are subject to error, if the advertiser establishes that the price advertised is in error. Also, if an advertisement containing a price error is immediately followed by a corrective advertisement, this section would not apply.
Where securities are sold at higher prices on the open market during a period when a prospectus relating to them is still current, the section does not apply. Finally, section 58 does not apply to the sale of products by or on behalf of persons not in the business of selling those products.
It should be noted that the section applies only to an advertisement of a product for sale or rent in a market. Accordingly, it does not appear to apply to representations in other forms, such as oral statements and most labels, as do most of the other misleading advertising and deceptive marketing practices provisions. Of course, paragraph 52(1)(a), the general prohibition, may still apply.
(4) Sale Flyers - Are they "Catalogues"?
The question has arisen as to whether sale flyers, such as those which appear as newspaper supplements, could be considered as catalogues and, consequently, whether the exemption relating to catalogues would be applicable.
This special defence is not applicable to flyers since they have much shorter lead times than catalogues and there would usually be ample opportunity to publish an immediate correction.
Many prosecutions under this provision have related to advertisements by supermarket chains and their franchise operations for food items. Others have involved household, hardware, health and personal care items and automotive products.
Airline tickets, advertised at a reduced rate of $31, but supplied at a higher price.
Coats, advertised for sale at a specified price with an accompanying illustration showing the coats to have fur collars, but in fact supplying the coats with fur collars at a higher price.
7. Other Marketing Practices
A. Section 59 - Promotional Contests
Section 59 requires the performance of certain actions rather than prohibiting specified activities, as is the scheme of the remainder of the misleading advertising and deceptive marketing practices provisions. In particular, it requires adequate and fair disclosure of the number and approximate value of prizes and of any fact within the advertiser's knowledge that would materially affect the chances of winning.3 This section also requires that a person conducting a contest ensure that there is no undue delay in distributing prizes and that the selection of participants is made by random chance or by skill in any area to which prizes have been allocated.
Adequate and Fair Disclosure
Disclosure should be made in a reasonably conspicuous manner at a time before the potential entrant is inconvenienced in some way or committed to the advertiser's product or to the contest. The standard of adequate and fair disclosure will be measured with reference to the target audience of the contest - children for example.
The issue of adequate disclosure is important in relation to each of the following:
(1) "Approximate Value"
The section requires the disclosure of the approximate value of the prizes. This normally means the approximate regular market value of the product. However, where the final value of a prize in a contest is dependent upon the location in Canada of the winner, for example where the prize is a trip from the winner's residence to a foreign destination, the inclusion of a few representative examples or of the range of possible values of the prizes would meet the requirements of the section. Depending on the circumstances of each case, there may be other acceptable methods.
(2) Regional Allocation
For contests where prizes are allocated on a regional basis, for example one for residents of the Atlantic provinces, one for residents of Quebec, etc., and where the promotion for the contest takes place on an inter-regional basis, any regional allocation of prizes should be clearly disclosed.
(3) Chances of Winning
Whenever the total number of any production run or other population in which prizes are to be seeded is known, this matter would be a "fact within the knowledge of the advertiser that affects materially the chances of winning" and should be disclosed.
Winning coupons, packed in specially-marked containers. Where the total number of specially-marked containers is known, that fact should be disclosed.
To win, collect a set of tokens, to be found under bottle caps. The availability of scarce tokens, which are necessary to complete a set, should be disclosed.
The preselection of 1 000 participants to enter a final draw. Since this affects the chances of winning, it should be disclosed.
(4) Series of Prizes
When a contest involves a series of prizes to be awarded at different times, care should be taken to ensure that the promotional material does not imply that all of the prizes remain to be won when some have, in fact, already been awarded. For example, in a contest where a prize of $1000 is to be awarded each month for a period of five months, advertisements for the contest should not continue to imply, after the first month of the contest, that five $1000 prizes are to be awarded.
(5) "Short List" of Disclosure
A retailer should ensure that if a contest is promoted in the media, the information required by section 59 is disclosed before consumers are drawn to its retail outlets. Similarly, when a manufacturer advertises a contest on a product's package, the required information should not be kept inside the package; consumers should not have to purchase or tamper with a product's packaging in order to receive the required information. Advertisers could ensure fair and adequate disclosure by providing a "short list" of rules either through the media or on the outside of the package, as the case may be.
This "short list" should, at minimum, include:
- the number and approximate retail value of prizes;
- the regional allocation, if applicable;
- if within the knowledge of the advertiser, the chances of winning and any other fact that materially affects the chances of winning;
- the requirement to answer correctly a skill- testing question;
- the date on which the contest closes.
(6) Prosecutions and the Program of Advisory Opinions
Prosecutions under this section have dealt with the non-disclosure of the number and value of prizes, the area to which the prizes relate and delay in the distribution of prizes. Most involve relatively small, local businesses which were not aware of the Director's Program of Advisory Opinions. The Marketing Practices Branch encourages all advertisers, particularly those intending to conduct a contest, to submit the relevant material under this program (for details, see page 18).
B. Section 53 - Untrue, Misleading or Unauthorized Use of Tests and Testimonials
This section prohibits publishing a testimonial or representing that another person has made a test as to the performance, efficacy or length of life of an advertised product, except:
(a) where the third person who gave the testimonial or made the test has previously published the testimonial or represented that he or she has made the test; or
(b) where the person, prior to publishing the testimonial or representation that a test has been conducted, has secured in writing the third party's approval of the testimonial or representation as well as permission to publish or make it.
A letter from the third party to the person does not amount to publication and, unless approval is received from the third party, the use of the letter as a testimonial would violate this provision. Furthermore, the representation or testimonial made or published by the person must accord with the representation or testimonial the third party has previously made, published or approved. An example of this would be where a quote is taken out of context, such as where a reputable lab's report of a product test is published and it expresses favourable comments or results on certain points, but these comments or results are heavily qualified. If the representation presents the favourable comments or results without the important qualifications, the representation may be in violation of this provision.
A representation for liquid fertilizer stating that a third party had made a test, if the third party's permission had not been obtained.
(2) Use of Actors to Portray Consumers in Consumer Testimonials
Advertisers have inquired whether the wording of section 53, "...accords with the representation or testimonial previously made, published or approved...," means that a broadcast consumer testimonial can only be given by the actual consumer and that an actor may not be used to portray the consumer. They have suggested that genuine testimonials often cannot be used to promote products because of some external factor such as a camera-shy consumer. The use of actors to portray consumers in such circumstances would not give rise to an inquiry under the Act, unless:
(a) a cosmetic effect is being portrayed or appearance is otherwise material, as it might be, for example, in the case of an advertisement for clothing;
(b) the testimonial as presented in the advertisement was not given by an actual consumer; or
(c) the testimonial would raise any issue under section 52(1).
C. Sections 55 and 56 - Pyramid and Referral Selling Schemes
Under these sections, a person who induces or invites another to participate in a pyramid or referral selling scheme, as defined, commits an offence. Further information on these sections will appear in an upcoming issue of the Misleading Advertising Bulletin.
8. Miscellaneous and Program of Advisory Opinions
A. Liability of Advertising Agencies
To those who view advertising agencies as passive participants in the dissemination of marketplace information, it may seem unduly harsh to fix these agencies with responsibility for the accuracy of such information. However, it is unrealistic to view advertising agencies as merely conveying information when an agency may have initiated the marketing concept or strategy, the imple-mentation of which resulted in a contravention of the Competition Act, or where it is the creative resources of the agency which gave a promotional effort its critical design. Section 60(1) of the Act contains a general defence (often referred to as the publisher's defence) which, under certain circumstances,4 will also be available to advertising agencies.
Even where an agency does no more than "accept" a representation or advertisement for printing, publishing, etc., the agency must act in "good faith." Accordingly, when a representation appears suspect or contains a claim that requires substantiation, the agency is responsible for ensuring that the information provided to it is accurate and can be substantiated. The expertise of an agency in relation to the promotion of a particular product or industry, or the use of a promotional technique, such as contests, will be considered in determining whether an agency has acted in "good faith."
An advertising agency, which had been retained by a client to create a television commercial, hired a research firm to prepare a survey, the results of which became the basis for the representations made in the commer-cial. The agency prepared the wording of the commercial and arranged for airing in Canada. (It was convicted under the misleading advertising provisions.)
B. Common Law Defence of Due Diligence and Section 60(2)5
A statutory defence to a charge of misleading advertising under sections 52 or 53 has been available to advertisers since 1976. In order to avoid liability, section 60(2) sets out four essential facts which an advertiser must establish:
(a) that the act or omission giving rise to the offence with which the advertiser is charged was the result of an error;
(b) that the advertiser took reasonable precautions and exercised due diligence to prevent the occurrence of such error;
(c) that reasonable measures were taken to bring the error to the attention of the class of persons likely to have been reached by the representation or testimonial; and
(d) that the measures referred to in paragraph (c) were taken forthwith after the representation was made or the testimonial was published.
4. Readers should note that the defence is only available when the advertising agency acts on behalf of an advertiser situated in Canada. Where the client firm is located outside Canada, the defence would not be available to the agency.
5. The constitutional validity of this section has been challenged recently. As of July 1991, the issue remains to be decided by the Supreme Court of Canada in the case of R. v. Wholesale Travel Inc. Until that case is decided, it is the Branch's view that this section continues to be in force. Accordingly, advertisers should continue to be guided by the requirements of this section.
C. Advertising Error Correction Notices and Section 60(2)
While correction notices are generally placed promptly in newspapers once an error has been detected, this may not be sufficient to "bring the error to the attention of the class of persons likely to have been reached by the representation." The following additional steps should also be con-sidered, where appropriate:
(a) Where newspaper advertisements containing an error are displayed in the store, a correction should be displayed as prominently as the original advertisement.
(b) Correction notices should be placed at point of sale immediately.
(c) Sale flyers should, where possible, have the correction notice on the front of the flyer.
(d) Correction notices should appear in the same media as the original inaccuracy, although the use of more immediate, yet different, media may be necessary.
(e) Errors in catalogues should be brought to the attention of the purchaser at the time of order, not on delivery.
D. Program of Advisory Opinions
The Marketing Practices Branch is always available to give advisory opinions to businesses or their legal counsel under this program. With respect to the misleading advertising and deceptive marketing practices provisions, these opinions are an expression of whether, on the basis of the information supplied, the Director would have reason to initiate an inquiry if a proposed advertisement were to be published or a practice to be established. These opinions are neither regulatory in nature nor binding on either party, but are intended to avoid the commission of an offence that might otherwise occur. This program has been of particular assistance to potential contest holders in interpreting the requirements of section 59, as well as to advertisers encountering specific difficulties with other sections of the Act.
E. The Misleading Advertising Bulletin
Summaries of advisory opinions which may be of general application are regularly published in the Misleading Advertising Bulletin. Aside from setting out recent convictions under the misleading advertising and deceptive marketing practices provisions of the Act, the Bulletin also contains articles dealing with issues yet to be litigated and sets out the Director's position in relation to them, for readers' guidance.
Those who wish to have their names added to the mailing list should contact:
Marketing Practices Branch
Bureau of Competition Policy
Consumer and Corporate Affairs Canada
How to Contact the Bureau
For further information, to obtain a written opinion, to register complaints concerning national advertising, or advertising in the National Capital Region or to inform the Bureau about any matter that may involve an offence under the misleading advertising and deceptive marketing practices provisions of the Competition Act, contact the Information Centre of the Competition Bureau.
The Information Centre
50 Victoria Street
Gatineau, Quebec K1A 0C9
Toll free: 1-800-348-5358
TDD (hearing impaired): 1-800-642-3844
Web site: www.competitionbureau.gc.ca
Date Modified: 2011-08-09