The sanctioning of the Canadian distributor of Nivea skincare products last week highlights the significant number of cases brought over the past few months by the Commissioner of Competition under both the criminal and civil misleading advertising provisions of the Competition Act. These cases underscore both (i) the Competition Bureau’s aggressive enforcement approach in this area and (ii) the need for businesses to take proactive steps to ensure their promotional activities comply with the Act. They also highlight the potentially significant compliance concerns associated with the use of disclaimers/fine print, performance claims, and promotional training provided to employees.
The recent enforcement actions taken against Beiersdorf Canada Inc., Ambus Registry Inc., Bell Canada and Rogers Communications Inc., signals the willingness of Commissioner and the Bureau to aggressively pursue companies under the misleading advertising provisions of the Act by seeking to impose maximum sanctions including pulling products from stores, making financial restitution to customers, paying multi-million dollar fines and serving prison terms.
Beiersdorf Targeted for Unproven Claims
Beiersdorf, Nivea’s Canadian distributor, was alleged to have made false and misleading claims regarding the ability of Nivea’s “My Silhouette” products to “slim and reshape the body” and to lead to a “more toned and elastic skin”. Following its investigation, the Bureau concluded that the performance claims in question “were not based on adequate and proper testing”.
While Beiersdorf has publicly stated that it disagrees with the Bureau’s position, it has agreed to withdraw the products in question from the Canadian marketplace, refund the purchase price and shipping costs to Canadian customers, pay an Administrative Monetary Penalty (“AMP”) of $300,000 as well as cover the Bureau’s investigation costs of $80,000. Beiersdorf is also required to publish a corrective notice on Nivea’s Canadian website. This recent case underscores the importance of having adequate and proper testing conducted before making performance claims. Makers of cosmetics product in particular should take note of this case, as the type of claims at issue are commonly used to promote personal care products.
Ambus Employees Jailed for Deceptive Telemarketing
Four Ambus employees were sentenced to jail and another put on probation for their involvement in a cross-border deceptive telemarketing scheme promoting business directories. Ambus targeted U.S. businesses and agencies and fraudulently caused victims to pay for directory listings by misleading them into believing that the company had committed to purchasing the listings. It is estimated that Ambus’ deceptive telemarketing strategy cost victims over $3.75 million.
In convicting the company and its employees, the Court viewed the materials used to train employees as evidence that Ambus intentionally engaged in a strategy designed to deceive its victims. This case highlights the need to ensure that all materials and training provided to employees comply with the Act.
Bell Pays $10 Million Fine for Fine Print
Recently, Bell voluntarily paid the maximum AMP of $10 million allowed under the civil misleading advertising provisions of the Act. At issue were Bell’s representations regarding the prices offered to consumers for phone, internet, TV and wireless services. These representations were found to be misleading because the advertised prices were never available to consumers as they did not include additional mandatory fees which were effectively hidden from consumers in fine-print disclaimers.
In addition to the $10 million AMP, Bell agreed to make changes to any current non-compliant advertising and refrain from engaging in similar practices in the future. Bell also agreed to pay the Bureau $100,000 for costs related to its investigation. This case highlights the risks associated with making aggressive claims and then relying on disclaimers or fine print to modify those claims.
Case Against Rogers for Comparative Claims
Following a complaint by competitor Wind Mobile, the Bureau launched legal proceedings against Rogers in respect of its national ad campaign in which the company claimed that its discount cellular service, Chatr, had fewer dropped calls than any of its discount cellular competitors. The Commissioner is seeking an order requiring Rogers to not only pay a $10 million AMP and cease making the representations at issue, but to also pay restitution to affected customers and issue a corrective notice to the public.
The case was brought because the Bureau’s investigation concluded that there was no discernable difference in dropped call rates between Chatr and other discount cellular service providers. Rogers is vigorously contesting these allegations, and has stated that the statements at issue were based on independent third party testing. While these proceedings are ongoing, this case emphasizes the potential compliance issues associated with making comparative performance claims and the need to ensure that there is an objectively valid basis for these types of claims.
These cases clearly demonstrate the Bureau’s aggressive enforcement approach in the area of misleading advertising, including its willingness to seek significant fines (in particular under the civil provisions, where the maximum fine was increased in 2009 to $10 million) and jail terms. Accordingly, advertisers should be aware of potential compliance pitfalls when designing and implementing marketing and advertising strategies. This is especially the case when making representations that target the pricing or performance of competitors. Further, advertisers should realize that the Bureau will thoroughly scrutinize training or materials provided to employees in any investigation and may use this in any legal proceedings.