Column: The Price of Non-Disclosure
August 20, 2013 | Anita Banicevic and James Bunting | Comments
The summer months tend to be a slower time for government action and enforcement. Not so at the Competition Bureau. In July, the Bureau initiated contested proceedings against Leon’s and The Brick for their allegedly misleading “pay later” advertisements. In the first week of August, the Bureau announced that it had reached resolutions with each of Kia and Hyundai Motors with respect to representations made regarding the fuel consumption ratings for their respective vehicles. While the merits of the Leon’s/Brick case will ultimately be decided by the courts (if it is not settled), these proceedings and Kia/Hyundai consent agreements are further examples of the Bureau’s continued commitment to enforcement in the area of allegedly misleading advertising.
In addition to enforcement action from the Bureau (which is frequently seeking the maximum monetary penalties of $10 million), advertisers in Canada are also facing an increase in advertising and consumer-related class action proceedings. In the face of significant legal and reputational risks, staying on the right side of Canada’s advertising and consumer protection laws is more important than ever. That said, in order for advertisers to ensure continued compliance, a crucial first step is to understand the applicable rules. Here are some key areas to watch out for, as well as suggestions regarding prudent practices for advertisers in Canada:
Price Disclosure – Making Sure the Price is Right
A concern that has been repeatedly raised by the Bureau is that consumers are not being provided with accurate disclosure regarding pricing and other key terms and instead, such charges are being “buried in the fine print.” The Bureau has been pursuing its position on pricing disclosure for some time – with the proceedings against Leon’s/The Brick being the most recent example of enforcement action taken in this area. There, the Bureau has alleged that the retailers’ ads which suggested consumers would not pay any charges at the time of purchase were misleading because consumers who chose the deferred payment option were, in fact, required to pay charges (such as deposits and administrative fees) at the time of purchase.
The Bureau’s stance regarding pricing disclosure is also reflected in the Bureau’s previously negotiated resolution with Bell Canada, where the Bureau raised concerns that Bell’s advertisements created the impression that its services were available at a lower price than was actually the case (once other mandatory fees that may have been disclosed in the fine print were included). More recently, the Bureau participated in a sweep of online and mobile websites checking for proper disclosure of pricing terms.
Although the Bureau’s stance on pricing disclosure is not new, the additional nuance arising out of the allegations in The Brick/Leon’s is that the Bureau has raised specific concerns about “drip pricing” (where consumers are provided with an initial advertised price and then face additional mandatory fees that are revealed prior to purchase).
To be prudent, advertisers should disclose all mandatory charges up front (as opposed to in the fine print). For mobile websites or applications, advertisers should assess the adequacy of the disclosure from the perspective of a consumer viewing the site or advertisement from his/her mobile device. Does the consumer have to scroll or click through many web pages in order to get full disclosure of the applicable terms? Are the terms sufficiently clear and legible?
Online Testimonials – Who Said What?
Another concern that the Competition Bureau identified earlier this year is that of “online testimonials that appear to be from unbiased individuals but are actually paid-for, malicious or fraudulent.” Advertisers should expect enforcement action to follow and review their existing practices regarding online testimonials. For example, if a company pays bloggers or third parties to post reviews or testimonials, the relationship should be properly disclosed in any postings. Similarly, advertisers should consider developing an online policy to discourage inappropriate postings regarding competitors’ products and services.
Product Performance Claims – What Kind of Test Do You Need?
Another area where the Bureau has recently taken high-profile enforcement action is performance claims (claims about the performance, efficacy or length of life of a product/service). Under the Competition Act, advertisers making performance claims must ensure they are supported by an “adequate and proper” test. The Bureau has taken the position that a failure to complete supporting tests in advance will expose the advertiser to liability (including penalties of up to $10 million) regardless of the results of subsequent post-claim tests.
Given the potentially high penalties involved, what will be considered an “adequate and proper” test is an important issue for advertisers. While the concept of an “adequate and proper test” is not defined in the Competition Act, the jurisprudence dictates that what will constitute “adequate and proper” will depend on the specific circumstances and the claim itself.
In the resolutions recently reached with each of Hyundai and Kia, the testing undertaken to support the fuel consumption ratings was acknowledged to have been subject to a procedural error that was uncovered after the advertisements were in market. As a result, the Hyundai/Kia resolution does not offer further guidance as to the what will constitute “adequate and proper” testing.
However, in another contested case (where a decision is pending from the Ontario Superior Court), the Bureau has advocated that certain performance claims must be backed up by multiple tests that are each statistically significant at a 95% level. That said, it remains to be seen whether the Courts will agree that this high level of scientific rigour is necessary in order to satisfy a requirement that has previously been recognized to be a flexible and contextual one.
Regardless, advertisers should carefully evaluate any test upon which a product performance claim is based. Are the results statistically significant? Are the results repeatable (and not just a result of chance)? If the test was conducted outside Canada – are the results equally applicable here?
“Buyer Beware” Becomes “Beware the Credulous and Inexperienced Consumer”
Under provincial consumer protection legislation as well as under the Competition Act, in order to determine whether an advertisement is false or misleading, one must first assess the overall message or “general impression” that is conveyed to consumers by the advertisement. This “general impression” may be different than the literal meaning of the words used in the advertisement.
In a recent decision (Richard v. Time), the Supreme Court of Canada held that, for the purposes of Quebec’s Consumer Protection Act, the “general impression” must be assessed from the perspective of a consumer who is “credulous and inexperienced.” Under the Competition Act, the Courts have typically assessed the “general impression” from the perspective of the consumer targeted by the advertisements at issue (who may be more sophisticated than a “credulous and inexperienced” consumer). However, the Bureau has recently argued that the “credulous and inexperienced” standard should also apply under the Competition Act. Once again, whether the Courts will agree with the Bureau’s position remains to be seen. For now, prudent advertisers should critically assess any representations from the perspective of an unsophisticated consumer. For instance, does the advertisement assume a certain level of knowledge or sophistication? Could any terms or phrases used lead to a misunderstanding if the consumer is assumed to be inexperienced?
Anita Banicevic and James Bunting are partners in the Toronto office of Davies Ward Phillips & Vineberg LLP.