On February 24, 2014, the Ontario Superior Court of Justice released its decision regarding remedies in Canada (Commissioner of Competition) v. Chatr Wireless Inc.1 The Court’s decision provides important judicial guidance on the determination of appropriate remedies under the reviewable conduct provisions of the Competition Act (Act). In particular, the Court held that an administrative monetary penalty must be imposed for the purpose of promoting compliance with the Act and must be proportional to the nature of the person whose conduct one seeks to change.
In August 2013, the Court found that Chatr Wireless Inc., a discount talk and text service owned by Rogers Communications Inc., had violated the deceptive marketing practice provisions of the Competition Act for failing to conduct adequate and proper testing prior to making a performance claim that its service had “fewer dropped calls.”2 But importantly, the Court did not find, as the Commissioner of Competition (Commissioner) had alleged, that Chatr had engaged in false and misleading advertising. In the same decision, the Court also confirmed the constitutionality of the administrative monetary penalty (AMP) provisions of the Act generally.
The Commissioner had initially sought an order prohibiting Chatr from engaging in similar conduct for a period of 10 years and requiring Chatr to pay restitution to customers, to pay an AMP in the maximum amount of $10 million and to issue a corrective notice.3 Subsequently, the Commissioner narrowed the relief sought to a 10-year prohibition order and an AMP of $5 to $7 million. The Commissioner argued that the high AMP was necessary to ensure compliance with the Act and that prohibition orders were standard procedure when a violation of the Act was found. The Court specifically rejected each of the Commissioner’s arguments and ordered only payment of a $500,000 AMP.
Judicial Guidance on the Determination of the Appropriate AMP
The Court commented generally on the application of AMPs, stating that “the amount of any administrative monetary penalty ordered must be proportional with the nature of the person whose conduct one seeks to change” and that “[a]n administrative monetary penalty cannot be imposed with a view to punishment or deterring others who might contemplate making unsubstantiated performance claims.” As the Act now provides for the possibility of imposing very significant AMPs, the Court’s emphasis on proportionality and promoting compliance rather than punishment or deterrence provides some comfort that the maximum AMP would not be appropriate in all (or most) cases.
In denying the Commissioner’s request for an AMP of $5 to $7 million, the Court specifically found that the Commissioner’s submission failed to take into account two key distinguishing aspects: (1) Chatr’s conduct was not found to be false or misleading; and (2) Chatr’s subsequent testing had substantiated its claim. Comments of the Court in obiter appear to suggest a significant emphasis on the former aspect, as the Court noted that an AMP “in the range of $5-7 million might have been justified on the facts of this case if the fewer dropped calls claim had been false or misleading.”
The Court addressed the following aggravating or mitigating factors set out in section 74.1(5) of the Act in ultimately setting the AMP at $500,000:
a. the reach of the conduct within the relevant geographic market;
b. the frequency and duration of the conduct;
c. the vulnerability of the class of persons likely to be adversely affected by the conduct;
d. the materiality of any representation;
e. the likelihood of self-correction in the relevant geographic market;
f. the effect on competition in the relevant market;
g. the gross revenue from sales affected by the conduct;
h. the financial position of the person against whom the order is made;
i. the history of compliance with this Act by the person against whom the order is made; and
l. any other relevant factor.
The Court placed considerable weight on the following facts in its reasoning:
- Post-Claim Substantiation. While the fact that subsequent testing had substantiated Chatr’s claim was not sufficient to avoid a finding that Chatr had violated s. 74.01, the Court found that the subsequent substantiation was relevant to factors (a), (b), (c), (d), (f) and (g) above, and that these factors, with the exception of (f), therefore did not aggravate the amount of the AMP. In respect of factor (f), the Court found that, while consumers had not been harmed since the claims were substantiated, competition was adversely affected because the market was exposed to the risk that the claims might be false, thus aggravating the amount of the AMP.
- Reputational Risk. The Court considered that the reputational risk to a business like Rogers of making an unsubstantiated claim was relevant to factors (e) and (h) above. Having indicated that the financial position of the respondents is “a significant relevant consideration” when determining the AMP and noting Rogers’ 2010 operating revenue of $6.98 billion, the Court then held that the reputational risk to a business such as Rogers “is so significant that a properly conducted cost-benefit analysis will lead to the conclusion that it is better to comply with the Competition Act.”
- Compliance History. The Court also considered Rogers’ previous history of compliance, including a 2009 injunction (upheld on appeal) against Rogers in respect of claims that Rogers made regarding reliability of its network without testing its network against TELUS’ HSPA/HSPA+ network. The Court found that this aggravated the amount of the AMP.
- Precedent. The Court considered penalties that had been imposed in past cases. The Court cited three cases of AMPs being ordered for a breach of s. 74.01 of the Act, none of which it found to be persuasive. Two of the three cases considered occurred prior to the 2009 amendments that increased the maximum AMP to $10 million for a first offence (from $100,000). The third was a case of multijurisdictional fraud in which an $8-million AMP was ordered against Yellow Page Marketing, and the Court noted Chatr’s argument that imposing a similar penalty would unfairly stigmatize it as a similar company. The Court also considered a 2009 consent agreement in which Bell voluntarily agreed to stop making representations that the Competition Bureau considered misleading and pay an AMP of $10 million,4 but found that it was “not helpful ... because [Bell’s] representations were misleading, a fact not present in this application.”
- Harm Caused to Rogers. The Court also assessed the harm caused to Chatr by complainants that capitalized on the commencement of the proceeding, finding that Public Mobile, Wind Mobile and Mobilicity all benefited from publicizing the proceeding at Chatr’s expense. The Court found that this harm to Chatr mitigated the amount of the AMP.
Judicial Guidance on the Need for a Prohibition Order
The Commissioner argued that a 10-year prohibition order would help ensure compliance, and that orders are regularly made even when the reviewable conduct occurred over a short period of time. Chatr argued that a prohibition order would be an unfair punishment, tantamount to an injunction because it would expose the company to a $15-million AMP for subsequent reviewable conduct and would compound the reputational harm it had already suffered. Chatr also argued that the Bureau had a practice of discontinuing proceedings once adequate testing was done, but that the company had been subject to harsh treatment since the Bureau maintained the proceedings even after adequate and proper testing proved the claims to be true. The Court found that Chatr had indeed suffered reputational harm and determined that a prohibition order was unnecessary.
Shortly after the release of the decision, the Commissioner issued a statement indicating its dissatisfaction with the decision:
"While we are pleased that the Court recognized that Rogers did not exercise due diligence in making its performance claims, we are examining the modest amount of the penalty imposed and the decision not to issue a prohibition order. The Bureau will take the time necessary to review the Court’s reasons in order to make a determination as to next steps."5