Bill C-10, An Act to implement certain provisions of the budget tabled in Parliament on January 27, 2009 and related fiscal measures, proposes significant amendments to the criminal and civil provisions of the Competition Act (Act) that would create a more robust regime dealing with misleading advertising matters. In particular, the Bill significantly increases both the maximum prison terms and the administrative monetary penalties for reviewable matters and proposes changes in respect of both criminal and civil provisions to capture deceptive marketing practices which target persons outside of Canada. Additionally, the Bill makes possible interim injunctions against persons who make materially false or misleading representations to the public, and creates a framework for restitution-type monetary orders for those who purchased products based on a misrepresentation. Outlined below is a more detailed analysis of the proposed changes.
Offences in Relation to Competition
Under the current criminal regime, in determining whether a person has knowingly or recklessly made a representation to the public that is false or misleading in a material respect, it is not necessary to prove that any person was actually deceived or misled by the representation. Bill C-10 further stipulates that it will not be necessary to establish that the representation was made to persons in Canada or that the representation was made in a place accessible to the public. Accordingly, organizations in Canada targeting individuals outside of the country could be liable under the Act, as could companies which have made materially false or misleading representations in publicly inaccessible places (such as on products that are boxed or only available via catalogue or other remote sales method). By eliminating the requirement to prove such facts, the Bill clearly demonstrates the legislature’s intent that such activity be captured by the Act.
Bill C-10 also increases the maximum terms of imprisonment. Any person found guilty of: (1) knowingly or recklessly making false or misleading representations; (2) sending deceptive notices of prize winnings; (3) deceptive telemarketing; or (4) telemarketing without prescribed disclosures, faces imprisonment for up to 14 years and a fine at the discretion of the court. This is a significant increase from the current maximum of five years and, interestingly, mirrors the maximum imprisonment terms set out in the Canada Criminal Code for fraud over $5,000 and for fraudulently affecting the public market price of stocks, shares, merchandise or anything that is offered for sale to the public. It would seem that the government is of the view that persons who commit any of the above marketing-related offences are akin to those who defraud the public and should face the same penalties.
Deceptive Marketing Practices - Reviewable Matters and Administrative Remedies
Bill C-10 makes significant amendments to the Act concerning reviewable (civil) matters in respect of deceptive marketing practices. The Bill expands the application of the “general impression” test – which currently only applies to false or misleading representations – to representations regarding product testing or testimonials that do not meet the requirements set out in the Act. This test requires that both the general impression and literal meaning conveyed by the impugned representation must be taken into account in considering whether a person has engaged in reviewable conduct. Additionally, the Bill proposes changes to the reviewable matters that echo the proposed changes to the criminal offences for misleading advertising (as discussed above); specifically, the Bill proposes providing that it is not necessary to establish that any person was actually deceived or misled, that any member of the public to whom the representation was made was within Canada or that the representation was made in a public place accessible to the public.
The Bill also increases the maximum amount of administrative monetary penalties (AMP) that may be ordered for deceptive marketing practices, sending a clear signal that even though these practices are not criminal offences, they are considered to be very serious violations of the Act. AMPs are currently capped at $50,000 for individuals for the first offence (and $100,000 for each subsequent violation), and $100,000 for corporations for the first offence (and $200,000 for each subsequent violation). Under Bill C-10, the AMP for an individual is increased to up to $750,000 for the first incident and $1,000,000 for each subsequent order. Corporations will face an AMP of up to $10,000,000 for the first incident and $15,000,000 for each subsequent order. In determining the amount of an AMP, the Bill sets out additional considerations to those currently in the Act as follows: (1) how the reviewable conduct affected gross revenue from sales; (2) the financial position of the person who has engaged in the reviewable conduct; (3) whether the court ordered the person to pay money to persons who purchased the misrepresented products; and (4) whether the person must pay any other amounts as restitution, compensation or as a refund.
The Bill introduces new provisions permitting a court to order that refunds be paid to persons injured by misrepresentations. Specifically, if a court determines that a person has made a materially false or misleading representation to the public under section 74.01(1)(a) of the Act, the court may order that person to distribute money to those persons who purchased the misrepresented products (excluding wholesalers, retailers or other distributors to the extent that they have resold or distributed the products). The court would have wide latitude in specifying terms and conditions to help ensure the successful implementation of the order. The restitution order cannot, however, result in a payment in an amount in excess of the total amount of money received from the sale of such products. In determining the exact amount of payment, the Bill stipulates that the court must take into account whether the person has paid (or has been ordered to pay) any other amounts of money as restitution, compensation or a refund.
The Bill also creates a framework for injunction orders. If, on application by the Commissioner of Competition, the court makes out a strong prima facie case that a person is making materially false or misleading representations to the public and believes the person is disposing (or is likely to dispose) of assets on which the enforceability of an order is substantially dependant, the Bill empowers the court to make an interim injunction order to freeze those assets. The Commissioner must provide the person with at least 48 hours notice of an application for an interim injunction, unless this cannot reasonably be accomplished, the notice would defeat the purpose of an urgent injunction or it would not be in the public interest. Where notice is not given, the Bill only allows an injunction to be issued for seven days, after which time a further application must be made with notice. Where an injunction is made against a person without notice, the person may apply to the court to have the injunction varied or set aside.
Certain changes – most notably the provisions dealing with misrepresentations made outside of Canada and increased fines and penalties – may be in response to reports from authorities in the United States of some Canadian-based companies targeting U.S. residents with marketing scams (telemarketing scams in particular). These changes, with the new injunction provisions, may help facilitate increased monitoring and prosecutions of deceptive marketing practices in Canada.
For more information on Bill C-10, click here.