Critical Claims Concerns - Truth in Advertising under the Competition Act

Transcription

1 Critical Claims Concerns - Truth in Advertising under the Competition Act Bill Hearn, Partner, Fogler Rubinoff LLP Advertising and Marketing Law: Social, Digital, Online Compliance CPD Program Ontario Bar Association Toronto, October 21,

2 INTRODUCTION 2

3 My Focus Critical claim concerns? Legal and regulatory compliance Focus on Canada s federal competition law» Deceptive advertising practices Mitigating risks of» Lawsuits from consumers or competitors» Enforcement actions by the regulator i.e., the federal Competition Bureau» Reputational damage arising from noncompliance 3

4 My Focus Informed largely by the mandate of the Competition Bureau under the deceptive advertising provisions of the Competition Act and the views of the Competition Bureau in its published guidance on the subject which include: The Deceptive Marketing Practices Digest, June 2015 Online Advertising in Canada Disclaimers Demystified The Deceptive Marketing Practices Digest, March 2016 Substantiating Performance Claims 4

5 Bureau s View Canadians have embraced the online world Online advertising occupies an increasingly significant percentage of Canadian advertising Online advertising is ever more prevalent and sophisticated 5

6 Bureau s View From the Bureau s perspective, innovation in this area must respect the rights of consumers not to be misled by advertisers This perspective is widely shared by the many of the Bureau s counterparts around the world including those in the US, UK and Australia 6

7 Bureau s View Online trends appear and mature quickly Bureau s main concern with these trends is how they impact on the quality of consumer information Bureau cites examples of behavioural advertising, geolocation and mobile technology (and there are others e.g., Big Data and the Internet of Things) to conclude that advertisers now have access to huge amounts of information about consumers This presents unprecedented marketing opportunities and compliance challenges 7

8 Bureau s View While marketing trends tend to come and go, the Bureau sees common problems when it comes to online marketing and the potential for consumer deception Even if these problems are not unique to online marketing, they require extra care given the complexities of the Internet as a medium and its role in the digital economy 8

9 Bureau s View Bureau identifies four examples of advertisements that often mislead consumers online Common element of each is that the advertiser has not adequately disclosed information necessary for consumers to make informed choices The truth, if revealed at all, is often buried in fine print disclaimers or obscured by placement in the context of the overall advertisement 9

10 Bureau s View The four problematical examples are: Where key terms are inadequately disclosed Where the true cost is hidden Where the online review does not disclose the connection between the reviewer and the advertiser astroturfing When what looks like unbiased information is actually advertising - deceptive native advertising I will focus on key terms and true costs 10

11 OVERVIEW 11

12 What I ll Cover Deceptive advertising under Competition Act General Rules Sanctions Scope of provisions Sophistication of average consumer Literal meaning and general impression Disclaimers 12

13 What I ll Cover Deceptive advertising under Competition Act Substantiating performance/comparative claims» ASC Guidelines Consumer surveys and preference/perception claims» ASC Guidelines Takeaways Some Native Ads Q&A 13

14 TRUTH IN ADVERTISING - GENERAL RULES 14

15 Sanctions Civil Administrative monetary penalties of up to $10 million (first occurrence) and up to $15 million (for each subsequent occurrence) Criminal Paid restitution to purchasers Freeze assets Upon indictment, a fine without upper limit at the discretion of the Court, imprisonment of up to 14 years, or both 15

16 Deceptive Representations Can t make representation to public that is deceptive in material respect and promotes a good/service/business interest All representations are caught If representation could influence a person to purchase, it is material But following the CASL amendments to the Competition Act the representation need not be material if it is made in certain areas of an electronic message i.e., the electronic message s locator (e.g., URL and metadata), sender information or subject matter line 16

17 Criminal vs. Civil Criminal provision requires intent (that the advertiser knowingly or recklessly engaged in deceptive advertising) The civil provision does not require intent In either case, no need to show that: any person was actually deceived any member of the public to whom the representation was made was within Canada the representation was made in a place to which the public had access 17

18 Basic Rule for Ad Interpretation The general impression conveyed by a representation, as well as its literal meaning, will be taken into account when determining whether or not the representation is deceptive in a material respect (Remember: materiality is not an element of a deceptive electronic message) 18

19 The Average Consumer 19

20 Standard for Ad Interpretation Appropriate level of sophistication to be attributed to average consumer when interpreting general impression of advertisement for deception has been in flux over past couple of years Whether average consumer, for advertising interpretation purposes, can be taken to be a reasonable person or merely a credulous one Richard v. Time, SCC, 2012 Commissioner of Competition v. Chatr, ONSC,

21 Standard for Ad Interpretation Reasonable person the average purchaser someone who possesses ordinary reason, intelligence and common sense but lacks any special expertise respecting the subject matter of the ad Credulous person the trusting and inexperienced purchaser someone who takes no more than ordinary care to observe that which is staring them in the face upon first entering into contact with the entire ad 21

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24 Richard v. Time Supreme Court of Canada, 2012 Held that the general impression test for deceptive advertising under Quebec s Consumer Protection Act is as follows: that of the first impression the one a person has after an initial contact with the entire advertisement, and it relates to both the layout of the advertisement and the meaning of the words used. Ignored the disclaimers that were inconspicuous and buried in a sea of text and, with respect to the average consumer for determining the general impression of an ad, expressly rejected the standards of: the consumer with an average level of intelligence, skepticism and curiosity, and the careful and diligent consumer 24

25 Richard v. Time Supreme Court of Canada, 2012 Instead, applied the credulous person standard describing it as the standard of: ordinary hurried purchasers, that is, consumers who take no more than ordinary care to observe that which is staring them in the face upon their first contact with an advertisement..., and the credulous and inexperienced consumer - i.e., not a well-informed person but someone who is not particularly experienced at detecting falsehoods and subtleties found in commercial representations. 25

26 Richard v. Time Supreme Court of Canada, 2012 Elaborated on this standard stating: The words credulous and inexperienced therefore describe the average consumer for the purposes of the [Quebec Consumer Protection Act]. This description is consistent with the Legislature s intention to protect vulnerable persons from the dangers of certain advertising techniques. The word credulous reflects the fact that the average consumer is prepared to trust merchants on the basis of the general impression conveyed to him or her by their advertisements. However, it does not suggest that the average consumer is incapable of understanding the literal meaning of the words used in an advertisement if the general layout of the advertisement does not render those words unintelligible. Note that the ordinary meaning of credulous includes an element of gullibility. For instance, from the Canadian Oxford Dictionary: credulous: adjective 1. too ready to believe; gullible. 2. (of behaviour) showing such gullibility [Latin credulous from credere believe] gullible: adjective: easily persuaded or deceived; credulous 26

27 Commissioner of Competition vs. Chatr Ontario Superior Court, 2013 Arguably, applied the credulous person standard for interpreting ads under the deceptive advertising provisions of the Competition Act 27

28 DISCLAIMERS 28

29 Bureau s First Basic Principle A disclaimer that expands on, or clarifies possible ambiguities in the main body of an advertisement is unlikely to mislead consumers assuming that the general impression of the advertisement is not otherwise misleading Given space constraints and to avoid aesthetic clutter in the main body of an ad, fine print can be perfectly legitimate if it adds useful information to a truthful ad 29

30 Bureau s Second Basic Principle A disclaimer that is used to restrict, contradict or somehow negate the message to which it relates likely confuses consumers and so is deceptive If the main body of the ad creates a deceptive general impression in itself, the fine print disclaimer may not do much to alter that deception 30

31 Apple s Get a Mac - Legal Copy Ad 31

32 Other Rules of Thumb Disclaimers Should be prominent, clear and close to main claim being clarified Main claim in ad, apart from the disclaimer, should be capable of standing alone Must be likely to be read and likely to alter the general impression of the ad Print must be large enough to be clearly visible and readable without resort to unusual means don t go below 7 point font 32

33 Disclaimers-Below is 7 point font See The Pit.org - Standard Disclaimer This product is meant for educational purposes only. Any resemblance to real persons, living or dead is purely coincidental. Void where prohibited. Some assembly required. List each check separately by bank number. Batteries not included. Contents may settle during shipment. Use only as directed. No other warranty expressed or implied. Do not use while operating a motor vehicle or heavy equipment. Postage will be paid by addressee. Subject to CAB approval. This is not an offer to sell securities. Apply only to affected area. May be too intense for some viewers. Do not stamp. Use other side for additional listings. For recreational use only. Do not disturb. All models over 18 years of age. If condition persists, consult your physician. No user-serviceable parts inside. Freshest if eaten before date on carton. Subject to change without notice. Times approximate. Simulated picture. No postage necessary if mailed in the United States. Breaking seal constitutes acceptance of agreement. For off-road use only. As seen on TV. One size fits all. Many suitcases look alike. Contains a substantial amount of non-tobacco ingredients. Colors may, in time, fade. We have sent the forms which seem right for you. Slippery when wet. For office use only. Not affiliated with the American Red Cross. Drop in any mailbox. Edited for television. Keep cool. process promptly. Post office will not deliver without postage. List was current at time of printing. Return to sender, no forwarding order on file, unable to forward. Not responsible for direct, indirect, incidental or consequential damages resulting from any defect, error or failure to perform. At participating locations only. Not the Beatles. Penalty for private use. See label for sequence. Substantial penalty for early withdrawal. Do not write below this line. Falling rock. Lost ticket pays maximum rate. 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34 Disclaimers in Action 34

35 Disclaimers in Action 35

36 Disclaimers in Action 36

37 Ads Where Key Terms Hidden Commissioner s Premium Text Messaging Case, May 2016 In September 2012, following a five-month Bureau investigation, the Commissioner began legal proceedings in the Ontario Superior Court of Justice against Bell, Rogers, Telus and the Canadian Wireless Telecommunications Association (CWTA) alleging deceptive advertising relating to premium text message and rich content services (such as trivia questions and ringtones) for mobile phones The Bureau s investigation determined that the three telcom companies, in conjunction with the CWTA, facilitated the sale to their own customers of premium-rate digital content provided by third parties in this way, the Bureau tackled the point of diffusion for the allegedly deceptive advertising 37

38 Ads Where Key Terms Hidden Commissioner s Premium Text Messaging Case, May 2016 The Commissioner alleged that customers were led by third party advertisers into believing this content was free, when it was not In fact, the premium-rate digital content could cost up to $10 per transaction and up to $40 for a monthly subscription these costs were over and above standard text messaging plans Furthermore, the Commissioner alleged that the telecom companies led their customers to believe that measures were in place to prevent unauthorized charges on their mobile phone bills 38

39 Ads Where Key Terms Hidden Commissioner s Premium Text Messaging Case, May 2016 In September 2012, the Commissioner was initially seeking full customer refunds and administrative monetary penalties totalling $31 million that is, $10 million each from Bell, Rogers and Telus and $1 million from the CWTA In March 2015, the Bureau announced that, in settlement, Rogers had agreed to pay up to $5.42 million in refunds to its customers in connection with premium charges that were allegedly unauthorized and crammed onto their mobile phone bills 39

40 Ads Where Key Terms Hidden Commissioner s Premium Text Messaging Case, May 2016 Similarly, in December 2015, the Bureau announced that, in settlement, Telus had agreed to pay up to $7.34 million in customer refunds and to donate $250,000 to consumer advocacy and research groups whose work advances the public interest in areas related to the digital economy 40

41 Ads Where Key Terms Hidden Commissioner s Premium Text Messaging Case, May 2016 Likewise, on May 27, 2016, the Bureau announced that, in settlement, Bell had agreed to pay up to $11.82 million in customer rebates and to donate roughly $800,000 to public interest advocacy groups to support digital media research and awareness the CWTA had agreed to develop a consumer awareness campaign and implement a corporate compliance program focusing on billing on behalf of practices 41

42 Ads Where Key Terms Hidden Commissioner s Premium Text Messaging Case, May 2016 Rogers, Telus and Bell also each agreed to issue a public notice to affected customers, implement an enhanced corporate compliance program, and develop a consumer awareness campaign to educate consumers about how charges can be incurred on wireless devices and how to avoid unwanted charges Bureau s May 27 th press release states that the resolution of this matter brings total refunds to consumers to over $24 million while over $1 million in donations will go to leading consumer advocacy and research groups dedicated to supporting public interest in the digital economy. 42

43 Ads Where True Cost Hidden Avis and Budget, June 2016 In March 2015, the Commissioner of Competition filed an application with the Competition Tribunal against Aviscar, Budgetcar and their parent Avis Budget Group Inc. alleging deceptive vehicle rental price advertising Commissioner initially sought a total of $30 million in administrative monetary penalties and $35 million in refunds for consumers 43

44 Ads Where True Cost Hidden Avis and Budget, June 2016 Following the Bureau s investigation, the Commissioner alleged that: Avis and Budget advertised prices for vehicle rentals that were not attainable due to additional fees imposed during the rental process These fees were characterized as taxes, surcharges and fees that governments and agencies required Avis and Budget to collect from consumers when, in fact, Avis and Budget imposed these fees to recoup their costs of doing business 44

45 Ads Where True Cost Hidden Avis and Budget, June 2016 The litigation was the first proceeding under new provisions for deceptive electronic messages under the Competition Act that came into force in July 1, 2014 as part of CASL That is, the Commissioner alleged, among other things, that Avis and Budget had used electronic messages to disseminate the allegedly deceptive advertisements 45

46 Ads Where True Cost Hidden Avis and Budget, June 2016 Under consent agreement, Avis and Budget paid a $3 million administrative monetary penalty and $250,000 towards the Bureau s investigative costs; also agreed to implement a corporate compliance program Bureau s investigation found that certain prices and discounts initially advertised were not attainable because consumers were charged additional mandatory fees (ranging from 5% to 20% of the originally advertised price) that were only disclosed later when making a reservation Bureau concluded ads were deceptive even though an estimate of the fees was disclosed before consumer completed their reservation 46

47 Ads Where True Cost Hidden Comwave, September 2016 Under a consent agreement, Comwave agreed to pay an administrative monetary penalty of $300,000 and $60,000 towards the costs of the Bureau s investigation Bureau concluded Comwave advertisements regarding its charges and the level of service for Internet and home phone connections were deceptive Ads misrepresented charges and advertised prices were unattainable because of additional mandatory fees Ads also misrepresented services as unlimited when in fact there were monthly caps on usage Comwave s fine print disclaimers were not sufficient 47

48 Disclaimers Digital Dilemma Online advertising appears in many digital formats Advertising created in any one format may appear across interconnected platforms Consumers, often on the go, encounter online advertising throughout their day and assess this information on mobile devices (with space constraints) If the format only allows the advertising to unfold through a series of pages or steps, consumers may be misled if important information is relegated to a disclaimer especially if the disclaimer appears after the consumer has somehow committed to the advertisement 48

49 Disclaimers Digital Dilemma The same advertisement, viewed on one platform or mobile device, may present important information (including the disclaimer) in a way that is not obviously accessible to the consumer When online advertising is shared (as is often the case), there is a risk that fine print disclaimers get lost or left behind depending on the formatting or technical constraints of the secondary platforms or mobile devices These and other challenges associated with digital formats significantly limit the likelihood that fine print disclaimers will be effective in online advertising 49

50 Bureau Guidelines for Web Reps Application of the Competition Act to Representations on the Internet, Enforcement Guidelines, October 16, 2009 Disclaimers where possible, a disclaimer should appear on the same screen and close to the representation to which it relates hyperlinks can be an effective means of providing disclaimers if information is critical to ensuring ad is not deceptive, it may not be appropriate to use linking to navigate to a disclaimer appearing on a separate page 50

51 Bureau Guidelines for Web Reps Application of the Competition Act to Representations on the Internet, Enforcement Guidelines, October 16, 2009 Disclaimers for all required disclosures (such as contest minirules), they must be displayed in such a way that they are likely to be read» e.g., notice of contest should not require readers to take an active step (like sending an or making a phone call) to get the required information; Bureau does not consider clicking on a clearly labelled hyperlink as an active step thus bit.ly links may be acceptable 51

52 US FTC.com Disclosures In March 2013, the US Federal Trade Commission published.com Disclosures How to Make Effective Disclosures in Digital Advertising While not law in Canada and not binding on the Competition Bureau, this document contains practical guidance for Canadian advertisers illustrated by examples of advertising in the digital marketplace FTC guidance says advertisers should relegate disclosures to a hyperlink only if impossible to make the disclosures otherwise 52

53 US FTC.com Disclosures FTC recommends that advertisers hyperlink disclosures as specifically as possible and right next to the claim requiring disclosure For Twitter, the FTC recommends that advertisers avoid placing disclosures after a bit.ly link (on the assumption that, at best, consumer don t necessarily understand the nature and relevance of the information obtained when clicking on it or, at worst, consumers stop reading a tweet once they arrive at the link) This guidance is more specific and arguably stricter than the Bureau s guidance 53

54 Scrolling 54

55 Pinching and Zooming 55

56 FTC Workshop, Sept 15, 2016 FTC recently held one-day public workshop Putting Disclosures to the Test Goal to improve the evaluation and testing of disclaimers How to evaluate whether disclosures are effective Needed disclosures should grab a consumer s attention or be difficult to miss SNL s Happy Fun Ball Think Like Comedian BH FTC has long history of encouraging effective disclaimers If consumers are overwhelmed disclaimers do little good See FTC website for workshop materials 56

57 PROVING CERTAIN CLAIMS 57

58 Performance Claims Puffery (which does not require support) is only permissible where the statement is so boastful an opinion, so vague a statement, or so hyperbolic or outrageous that no reasonable consumer would rely on it But where the claim relates to performance, efficacy or length of life of a product, the claim must be substantiated by an adequate and proper test before the claim is made Adequate and proper test is not defined in the Competition Act to preserve a flexible and contextual analysis 58

59 Performance Claims The Competition Tribunal s 2008 Commissioner of Competition v. Imperial Manufacturing Group decision summarizes the following non-exhaustive list of factors for determining whether a test is adequate and proper : depends on the claim made as understood by the common person must be reflective of the risk or harm which the product is designed to prevent or assist in preventing must be done under controlled circumstances or in conditions which exclude external variables or take such variables into account in a measurable way 59

60 Performance Claims Imperial Manufacturing Group decision - factors for determining whether a test is adequate and proper (continued): must be conducted on more than one independent sample wherever possible (destruction testing may be an exception) must have results that, while not measured against a test of certainty, are reasonable given the nature of the harm at issue and establish that it is the product itself which causes the desired effect in a material manner must be performed regardless of the size of the seller's organization or the anticipated volume of sales 60

61 Performance Claims In the Ontario Superior Court of Justice s 2013 Commissioner of Competition v. Chatr decision ( fewer dropped calls ), an adequate and proper test was determined to mean: at least a test that is, the advertiser must have actually conducted some sort of test and not just reached a logical conclusion or inference based on certain technological facts a test that at least meets industry standards In Chatr, Rogers paid an AMP of $500,000 for not having completed adequate and proper tests to support its performance claims before making them 61

62 Performance Claims Sport Maska Inc. (c.o.b. Reebok CCM), December 2015 Competition Bureau alleged advertiser made unsupported performance claims related to CCM resistance hockey helmet Bureau alleged that ads created general impression that helmet would protect players from concussions Although Reebok-CCM had, prior to making the claims, conducted testing on the helmet according to current industry standards, the Bureau concluded the testing was not adequate and proper to support the claim 62

63 Performance Claims Sport Maska Inc. (c.o.b. Reebok CCM), December 2015 Current hockey helmet testing standards are aimed at protecting players from catastrophic brain injuries, such as skull fractures, not concussions The science behind concussions in sports is still in its infancy and the role that any hockey helmet can play in protecting players from concussions remains unclear There are a multitude of factors such as age, weight, strength of the player, location of impact, and whether the hit was or was not anticipated when assessing concussion injury risk in sports 63

64 Performance Claims Sport Maska Inc. (c.o.b. Reebok CCM), December 2015 Under a consent agreement with the Bureau, Reebok CCM agreed to: stop making certain performance claims related to the CCM Resistance hockey helmet and similar products implement an enhanced corporate compliance program make a $475,000 donation of sports equipment to a Canadian youth sports charity pay $30,000 towards costs of Bureau s investigation 64

65 Performance Claims Bauer RE-AKT Hockey Helmet Claims, November 2014 Predated Reebok-CCM case; same issue Bureau alleged unsupported concussion protection claims Under consent agreement with the Bureau, Bauer agreed to: stop making certain claims related to the Bauer RE- AKT hockey helmet implement an enhanced corporate compliance program make a donation of $500,000 of sports equipment to a Canadian youth sports charity pay $40,000 towards costs of Bureau s investigation 65

66 Performance Claims Bureau s Deceptive Advertising Practices Digest, Vol 2, March 2016 Substantiating Performance Claims Standing the Test of Time for Over 75 Years Constitutionality of testing requirement upheld in Imperial Brush (2008) and Chatr Wireless (2013) in that the requirement does not infringe advertisers right to freedom of expression under the Charter» Objective is to prevent certain unsubstantiated claims seeks to address the imbalance of knowledge between consumer and seller Adequate and proper = a flexible standard for modern times 66

67 Comparative Claims Rules for comparisons with competitors are derived from statutes, common law and industry codes Use of competitor s name, product, slogan or other intellectual property in advertising, even in a fair and accurate comparison, may raise legal risks under Copyright Act, Trademarks Act or at common law for tort of passing-off 67

68 Comparative Claims Basic rules: No deceptive advertising No copyright infringement (although there is a defence of fair dealing for the purpose of parody or satire but unclear to what extent this defence applies to comparative advertising) No trade-mark infringement or depreciation of goodwill (relevant statutory provisions and case law interpreting them are complex and nuanced) No passing-off ASC guidelines (must not unfairly disparage other s products) 68

69 Comparative Claims The risks of unauthorized use of a competitor s trade-mark in advertising are:» increased when competitor s trade-mark is registered for services as opposed to only wares or the advertisement is on the product package or at the point-of-sale» decreased when advertisement focuses on the differences between the two products as opposed to their similarities 69

70 Comparative Claims No passing off Owners of unregistered trade-marks may rely on common law of passing-off or Trade-mark Act s unfair competition provisions to prevent competitors from using their trademark in advertising 70

71 Comparative Claims Advertising Standards Canada (ASC) Guidelines for Use of Comparative Advertising, April 2012 The ASC Code (which underpins a self-regulatory regime) provides that advertisements must not unfairly discredit, disparage or attack other products, services, advertisements or companies, or exaggerate the nature or importance of competitive differences Comparison must be fair and factual Can t cherry pick comparators i 71

72 Preference/Perception Claims ASC Guidelines for Use of Research and Survey Data to Support Comparative Advertising Claims, April 2012 Survey data required to substantiate preference/perception claims Research must be of reasonable quality, reflect accepted and current principles of design and execution, be economically and technically feasible i 72

73 Preference/Perception Claims ASC Guidelines for Use of Research and Survey Data to Support Comparative Advertising Claims, April 2012 Survey data must be: valid (follow published standards of market research industry e.g., see standards of Marketing Research and Intelligence Association (MRIA)) reliable (reproducible) in terms of choosing pertinent population, obtaining a representative sample (with a random element), geographic dispersion right things being measured in right way relevant (the research and data must be connected to the claim; common sense ) 73

74 WRAP UP 74

75 Critical Claim Concerns Takeaways Advertising law can often be reduced to simple rules of thumb - e.g., tell the truth, be clear, play fair But in highly competitive and innovative markets where technology changes rapidly there are important details and nuances e.g., how far can the truth be stretched Regulators are actively enforcing advertising laws Costs of non-compliance are significant big penalties (possibly jail time), class action damages for restitution, reputational harm (name and shame) By comparison, costs of compliance are generally not significant that is, corporate compliance programs and due diligence are prudent and cost-effective 75

76 ADVERTYISEMENT Check out my Canada chapter the in International Comparative Legal Guide to Advertising & Marketing, 2016 published by UK-based Law Business Research If you would like a pdf copy, please contact me at bhearn@foglers.com or Fogler, Rubinoff LLP s Advertising & Marketing Practice Group 76

77 If I hear the word digital one more time, I m going to stick a fork in my head. Bruce Philip, Brand Strategy Consultant and Columnist, There Is No Such Thing as Digital Marketing, Canadian Business Magazine, June

78 Thank You DISCLAIMER: This presentation contains general information only and does not constitute legal advice. Qualified legal counsel should be consulted to assess the application of laws to specific facts. 78