Bottom Line: On September 14, 2012, the Commissioner of Competition (“Commissioner”) led yet another major misleading advertising action against major telcos in Canada, as well as the industry wireless teko association. If there were any doubt as to whether the new maximum civil penalty instituted under the Competition Act (increased in 2009 from $100,000 to $10 million) was going to be academic, those doubts would now be rmly laid to rest. This is at least the fourth matter where $10 million, or close to $10 million, has been pursued or obtained by the Competition Bureau (“Bureau”) since 2009. This action is also interesting in that the Bureau is not only resting its challenge on representations made directly by the telcos, but also on their allegedly permitting and facilitating representations by content providers and aggregators (collectively, “Content Providers”) in the latters’ ads.

THE ESSENCE OF THE ACTION

This action against Rogers Communications Inc., Bell Canada and TELUS Corporation (“Telcos”) and the Canadian Wireless Telecommunications Association (“CWTA”) is based on their allegedly making – and permitting others to make – false and misleading representations (including inadequate cost disclosures) in connection with the costs of premium text messages and rich content services.

The Commissioner seeks not only a $10 million penalty against each of the three Telcos (or $15 million for each against whom an Order has already been made), but $1 million against the CWTA. She also seeks refunds by the Telcos to all current and former customers affected by the allegedly misleading representations (since at least December 1, 2010).  

PREMIUM “WHAT” AND RICH “WHO? ”

If you are not familiar with “premium text messaging” services, certain (“Content Providers”) will offer consumers various services or opportunities, such as a chance to win in a contest or news, advice, alerts, trivia, quotations or horoscopes where the consumer will have to pay a premium text charge (i.e., beyond the charge he/she would incur for a regular text message). Content Providers might also offer other goods and services designed for wireless devices – like ringtones, electronic wallpaper or other content, programs or applications – which will also be charged to consumers. Content Providers’ messages promoting such services (“call-to-action representations”) can be distributed through various means online and through wireless devices, including banner ads in free wireless applications (i.e., the popular “Angry Birds” game). When consumers select such an ad, it takes them to the Content Provider’s website, where consumers are invited to download the digital content (i.e., a ringtone) being advertised. The Commissioner alleges that once the customer, confirms he or she wants the purportedly free digital content offered, the customer may be unknowingly subscribed and charged.

HOW DOES THAT INVOLVE THE TELCOS?

The Commissioner alleges that advertising for certain of such offerings didn’t adequately disclose the price (among other terms) to consumers and/or conveyed the general impression that the opportunities or services were free when consumers were charged for them. The Telcos didn’t create or publish ads for specific products or services (these were done by Content Providers). The Commissioner alleges, however, that the Telcos permitted the representations to be made by providing content providers with access to their respective networks and billing apparatus (charges are included on customers’ phone bills). As well, the Commissioner says the Telcos had a revenue sharing agreement with the Content Providers, whereby the Telcos would retain a portion of the revenue (ranging, the Commissioners says, between 27% to 60%) before passing on the Content Providers’ share. The Commissioner also alleges that the Telcos received complaints about unexpected charges and continued to permit the same or similar “call-to-action” representations to be made. In addition to section 74.01 of the Competition Act, the Commissioner relies on section 52(1.2), which prohibits one from permitting a false or misleading representations to be made.

More directly, the Commissioner alleges that the section of each Telco’s website that addresses spam conveys the general impression that the Telco safeguards or protects consumers from having to pay for unauthorized premium text and rich content services when, the Commissioner alleges, that is not always true.  

WHAT ABOUT THE INDUSTRY ASSOCIATION?

The Commissioner says that the CWTA maintains the short code registry on behalf of the industry (short codes are four to six digit numbers that permit delivery of the service) and administers the mechanism by which short codes are made available to Content Providers. The Commissioner says that by so establishing, facilitating and exercising control over the short code mechanism, the CWTA has permitted the call-to-action representations.

Again, more directly, the Commissioner says that the CWTA also established and purports to administer guidelines on behalf of its members for (among other things) advertising short codes. On the CWTA’s website, the Commissioner says, the CWTA represents that its members subscribe to a code of conduct which, “ensures that our customers have the information they need to make informed purchasing decisions.” The Commissioner contends that no such assurance results from the code.

WHY SUCH MASSIVE PENALTIES?

The Commissioner’s list of aggravating factors provides insight into why and when massive penalties will be pursued. These include the national reach and number of consumers in the wireless/premium text messaging/ rich content market, the frequency and duration of the representations, the fact that self-correction in the market was unlikely to adequately or at all remedy the conduct, the fact that vulnerable consumers were affected (including children, the disabled and those lacking linguistic ability), the amount of revenue generated, and the Telcos’ financial position.  

WHAT NOW?

The action is at a very early stage, with the defendants (as at the time of writing) not yet having filed their Statements of Defence. As you will see in our previous article, Rogers is already mounting an enormous defence to another misleading challenge brought by the Commissioner. No doubt, this will be a hard fought battle on all sides.