This article first appeared in the 2008 Lexpert®/American Lawyer Media Guide to the Leading 500 Lawyers in Canada

Advertising law in Canada encapsulates a multitude of legal issues and is governed by federal and provincial laws as well as self-regulatory codes, policies and bodies. This paper is a summary of the most relevant developments in Canadian advertising law in the last year.

National Do-Not-Call List

In July 2007, the Canadian Radiotelevision and Telecommunications Commission (CRTC) issued a decision establishing rules for the set-up and operation of a National Do-Not-Call List. The rules will officially come into force when an independent operator has been chosen to administer the list. Once the administration is up and running, Canadians will be able to add their names to the list free of charge and telemarketers will be prohibited from calling individuals on the list. Violations of the do-not-call list will be subject to administrative monetary penalties including up to $1,500 per offending call for individuals and up to $15,000 per offending call for corporations.

Advertising Standards Canada

Advertising Standards Canada (“ASC”) has made an amendment to the Trade Dispute Procedure to clarify the term “Advertiser”. The ASC introduced the amendment “to help ensure that the definition of the term “Advertiser” in the Trade Dispute Procedure does not inadvertently limit its application in situations to which it was intended to apply”.

In April 2007, the ASC also announced Interpretation Guidelines for the Canadian Code of Advertising Standards, which came into effect in September 2007. These guidelines primarily relate to advertising to children, and in particular, to food advertising directed to children.

Advertising in Québec

For the last two years, there has been renewed vigor at the Office québécois de la langue française with respect to enforcement of the French language and advertising requirements found in the Charter of the French Language.

All commercial advertising, such as public signs, posters, billboards and displays may show another language in addition to French as long as the French is markedly predominant—meaning that the French must occupy twice the space of any other language (the 2/3–1/3 rule). Overall, French must have a bigger visual impact. Advertising in any public means of transportation, including bus shelters, must be exclusively in French. Other materials, such as coupons, brochures, catalogues, invoices and receipts, may show French with another language, provided that the other language is not more prominent than French (the 50/50 rule). Broadcast and print advertising must be in the language of the media.

Grey Marketing – Euro-Excellence v. Kraft Canada

The Supreme Court of Canada has released its decision in the grey-marketing case Euro-Excellence Inc. v. Kraft Canada Inc. While the grey-marketer in this particular case prevailed, the Supreme Court appears to have confirmed that in many other cases, copyright law can be used by brand owners to effectively restrain grey-marketing activities in Canada.

Kraft Canada Inc (“KCI”) brought an action against Euro-Excellence (“EE”) for secondary copyright infringement, alleging that EE imported and distributed Toblerone chocolate bars in Canada – which it had acquired legally in Europe – despite the fact that KCI controlled, by exclusive license from its parent companies, the Canadian copyright in two artistic works (logos) appearing on Toblerone wrappers. The Federal Court awarded – and the Federal Court of Appeal upheld – an injunction restraining EE from selling, distributing, or offering for sale any copies of the copyrighted label designs.

The Supreme Court of Canada allowed the appeal, offering four separate sets of reasons. The basis for the majority decision was five-fold: (1) KCI did not own the copyrights in the label designs, but only held an exclusive license; (2) the owners of the copyrights were KCI’s licensors (i.e. parent companies); (3) KCI’s parent companies had manufactured and distributed the European chocolate bars that KCI was trying to keep out of Canada as infringing grey goods; (4) the European chocolate labels could not be deemed infringing of the exclusive licensee’s rights because, under Canadian licensing law, an exclusive licensee has no right to prevent its licensor from using the licensed copyrights in Canada; and (5) KCI could not rely on Section 27(2) of the Copyright Act to prevent the importation of the European chocolate bars because this section applies only to imported works that would have infringed a copyright if they had been made in Canada by the persons who made them.

It should be noted, however, that the outcome of this case would have been different if KCI had actually owned the Canadian copyrights in the label designs. In effect, this assignment / exclusive license distinction may offer a “fix” for companies that would like to rely on copyright as a basis for keeping grey market versions of their products out of Canada. Thus, where it is possible to do so, local rights-holders should obtain a full assignment of Canadian copyright for the logo or other packaging element in question.

Wrong Price Mistakenly Advertised – Dell v. Union des consommateurs

An error on Dell’s website allowed a number of Québec consumers to purchase various handheld computer devices for a much lower price than the intended price (C$89 and C$118 vs. C$379 and C$549).

Dell blocked access to the erroneous order pages – which contained the incorrect prices – but did not withdraw the pages from the site. Consequently, consumers were able to purchase the incorrectly priced products by accessing the order pages through deep links. Dell posted a price correction notice and at the same time, announced that it would not process orders for computers sold at the incorrect prices. In response to a class action suit filed against the company, Dell relied on the mandatory arbitration clause in its standard terms and conditions of sale and argued that the matter must be referred to arbitration.

The Québec Court of Appeal held the mandatory arbitration clause unenforceable against consumers on the basis that the clause was not properly brought to the attention of consumers by merely including a hyperlink to the terms and conditions of sale on the website.

The Supreme Court of Canada, however, allowed the appeal and held the mandatory arbitration clause enforceable, rejecting the argument that the hyperlink made the arbitration clause external and therefore null pursuant to article 1435 of the Québec Civil Code. The Supreme Court held that an “external” clause in an electronic contract is one that: (1) requires operations of such complexity that its text is not reasonably accessible; or (2) is contained in a document on the Internet to which a contract on the Internet refers, but for which no hyperlink is provided.

Punitive Damages for Misleading Advertising – Richard v. Time Inc

Mr. Richard received an envelope addressed to him personally from Time that contained a document entitled “Official Sweepstakes Notification”. The document had large bolded headlines, which indicated that Richard had won the C$833,337.00 Sweepstakes prize. Not surprisingly, however, the document also contained much smaller print – preceding the bolded headlines – which stated that “Contestants must have the Grand Prize winning entry and correctly answer a skilltesting question in order to win”. Richard subscribed to Time magazine, expecting to receive the cash prize, but was ultimately told by Time that he had not won the Sweepstakes. Richard sued Time in damages for the amount he thought he had won; and, in the alternative, the same amount in punitive damages.

The Québec Superior Court granted the action in part. With regards to whether Time needed to pay Richard C$833,337.00 even though he did not hold the winning claim number, the court held that all correspondence from Time was made conditional – in much smaller letters and with ambiguous wording – upon Richard “having and returning” the Grand Prize winning “entry”. In effect, this conditional language, although designed to confuse and mislead the reader, made it impossible for the court to conclude that Time made an unconditional offer to pay Richard C$833,337.00.

With regards to the issue of compensatory and/or exemplary damages, however, the court held that the very same conditional wording that enabled Time to avoid contract formation was specifically designed to mislead Richard and contained misleading representations. Ultimately, the document – written only in English – was clearly misleading for the average, inexperienced Frenchspeaking consumer in Québec and was contrary to the Québec Consumer Protection Act (ss. 218 & 219) and the Charter of the French Language. As such, even in the absence of prejudice to Richard, the gravity of Time’s infractions militated in favor of an award of C$100,000 in punitive damages to dissuade Time from continuing to use this type of advertising.

Tobacco Advertising - Canada v. JTI-Macdonald

JTI and other tobacco manufacturers challenged provisions of the Tobacco Act and the Tobacco Products Information Regulations, alleging that they limited their right to freedom of expression under section 2(b) of the Charter of Rights and Freedoms. The Attorney General appealed the decision of the Québec Court of Appeal, which found parts of some provisions to be unconstitutional. The Supreme Court of Canada allowed the appeal, thus upholding the general ban on the advertising and promotion of tobacco products, subject to specific exceptions for brand-preference and informational advertising.

Misleading Price Advertising

Part VII of the Competition Act prohibits misleading price claims. Basing a savings claim on the “ordinary selling price” of a product is deceptive, unless (1) the advertiser actually sold a substantial volume (i.e., at least 50 percent of the volume of stock) of the advertised product or service at this price within the six months preceding the advertisement; or (2) the advertiser offered the product for sale in good faith at this price for a substantial period of time [i.e., at least 50 percent of the time] in the six months immediately preceding the advertisement. The Competition Bureau takes a strong approach toward enforcing proper pricing practices.

In July 2006, the Bureau announced that a settlement, in the form of a consent agreement, had been reached with Grafton-Fraser Inc. (“G-F”), resolving the Bureau’s investigation of certain pricing practices. The Bureau alleged that G-F, a retailer of men’s clothing, had significantly inflated the regular price of select items sold in its stores, which resulted in an inflation of the savings claims made on these items when they were marked down at a sale price. The Bureau concluded from its investigation that the items at issue had not in fact been sold in any significant quantity or for any reasonable period of time at the marked regular price.

As a part of the 10-year consent agreement, to which G-F’s president and Chief Executive Office is also a party, GF was required to pay an administrative monetary penalty of C$1 million and to cover a portion of the Bureau’s inquiry costs, in the amount of C$200,000. G-F was also required to ensure that any current and future references to regular selling prices were fully compliant with the Competition Act. To further this end, G-F was required to implement a corporate compliance program, including designating a corporate compliance officer, to ensure conformity with respect to the provisions of the Competition Act dealing with false or misleading representations and deceptive marketing practices. Finally, pursuant to the consent agreement, G-F was required to prominently display corrective notices in its stores across Canada, on its websites as well as in certain newspapers.

Gift Cards

In May 2007, the Ontario government became the first province to regulate gift cards. The provincial government enacted regulations to the Consumer Protection Act that effectively ban expiry dates and monthly service fees. The new regulations apply to all gift cards irrespective of their stated value and took effect on October 1, 2007. Expiry dates on gift cards are prohibited and any cards that are issued with expiry dates will be treated as if there was no expiry. Suppliers are also prohibited from charging fees to card holders, with the exception of fees relating to the replacement of lost or stolen cards or to customization of the gift card. Suppliers are also required to enter into a written agreement with the consumer that states the restrictions, limitations and conditions that apply to the use of the gift card. The province of Manitoba is considering similar legislation.

Enhanced International Role of the Competition Bureau

The enhanced international role of the Competition Bureau is evidenced by the Bureau’s cooperation with the United States and other countries on several key initiatives. Most notably, Sheridan Scott – the Commissioner of Competition, Competition Bureau of Canada – became the Chair of the International Competition Network, an organization aimed at providing competition authorities with a specialized venue for addressing practical competition concerns.

The Competition Bureau has also joined forces with the Federal Trade Commission in the United States and the Toronto Strategic Partnership – an international law enforcement partnership dedicated to combating mass marketing fraud – in an effort to prosecute Canadianbased telemarketing firms engaged in deceptive telemarketing practices.

In addition, the Competition Bureau has enlisted the help of counterpart agencies in the United States and Mexico to announce compliance and enforcement actions against companies promoting bogus diabetes products and services, as well as to launch “FatFoe”, an educational site aimed at informing consumers of weight loss scams on the Internet.

Credit and Lease Advertising

In April 2007, Manitoba became the fifth province to enact new harmonized cost of credit disclosure rules, joining Alberta, Ontario, British Columbia and Saskatchewan. The new provisions regulate how providers of fixed credit, open credit and leases advertise and disclose credit to consumers. At the back end, the new cost-of-credit rules affect calculation of lease and financing interest rates (“APRs”).

These new statutes substantially change disclosure requirements for credit advertising. An advertisement for open credit (i.e., credit card), which discloses any element of the cost of borrowing, must disclose the annual interest rate payable at the time of the ad and the amount of each non-interest “financing” charge payable at the time the agreement is entered into, or on a periodic basis. Advertisements for fixed credit, on the other hand, must disclose the APR and the length of the term, as well as the cash price and the cost of borrowing of the goods in question. Advertisements for leases must disclose that the agreement is a lease, the lease APR, the length of the term, the amount of each preinception payment, and the amount of the monthly payments. Fixed credit and lease advertisements require that the APR be disclosed in equal prominence to any other interest rate or monthly payment. Elements of the cost of borrowing must be disclosed in equal prominence to the APR for open-credit advertisements.

When advertising interest-free periods, advertisers must disclose whether the credit agreement is unconditionally interest-free or whether interest accrues during the period but will be forgiven if certain conditions are met. In the latter case, the advertisement must state the conditions to be met and what the interest rate would be if the conditions were not met.

Direct to Consumer Advertising of Prescription Drugs – The CanWest Constitutional Challenge

CanWest, a media company claiming to have an interest in regulation of all forms of media and advertising, filed an application in the Ontario Superior Court seeking to strike down the current Food and Drugs Act and Regulations that prohibit direct-to-consumer advertising (“DTCA”) of prescription drugs. The basis of the challenge is that the provisions are inconsistent with section 2(b) of the Charter of Rights and Freedoms that guarantees freedom of expression.

CanWest argues that prohibiting DTCA of prescription drugs has a depriving Canadian media outlets of the opportunity to earn revenue that is available to the media in the United States where DTCA is permitted. In support of this argument, CanWest points to the fact that American DTCA of prescription drugs in various American magazines and television commercials is already being imported into or broadcast in Canada. Further, they assert that advertising is allowed for over the counter medicines despite the fact that these drugs – like prescription drugs – also pose risks. CanWest claims that permitting DTCA of prescription drugs would (1) help educate the public about available prescription drugs and their risks/benefits; (2) raise awareness of certain health problems; and (3) reduce stigma, thus breaking down resistance against seeking information, diagnosis and treatment. Overall, CanWest takes the position that the safety concerns addressed by the challenged provisions could be addressed within new legislation that conforms to the Charter and which does not discriminate against Canadian media outlets.

Proponents of the prohibition on DTCA of prescription drugs note that the risks of prescription drugs may be exacerbated by DTCA, which may encourage the overuse or misuse of drugs and fail to properly inform consumers about risks and side-effects. Overall, it is argued that DTCA of prescription drugs will drive up health care costs in relation to the medications themselves, and the costs of health care plans.

New Organic Products Regulations

In December 2006, the final Organic Products Regulations were published with the aim of creating a comprehensive regime to bring consistency to the marketing of organic foods in Canada. The objective of the Regulations is to adopt a single Canadian standard, the “Canada Organic / Biologique Canada” logo, for organic foods based on certification by existing accreditation bodies that meet prescribed criteria. The two-fold purpose of the program is to protect domestic consumers against deceptive and misleading labelling practices, and to bring Canada’s organic products regime in line with the organic labelling requirements of its major trading partners in the United States, Japan and the European Union.

The Regulations are limited to agricultural products in respect of which organic claims are made. Non-agricultural products (e.g., cosmetics, textiles) are not covered. The regulations require that multi-ingredient agricultural products must be composed of at least 95% organic products in order to qualify for certification. Unless suspended or cancelled, certification will remain in effect for a period of one year from the date on which it was granted. Only those products certified in accordance with the Regulations will be able to use the “Organic” logo in association with their products. Further, only certified agricultural products can be sold as “Organic” in interprovincial or international trade. However, products sold within intraprovincial trade are not subject to the Federal Regulations; and, thus, confusion may arise where products from outside the country/province are sold alongside local organic products.

It should be noted that the Regulations impose specific labelling requirements on “organic” products, in addition to those already applicable under the Food and Drug Act and the Consumer Packaging and Labelling Act. Specifically, the label must contain the name and accreditation number of the certification body that certified the product, and where the product contains more than one agricultural product, the percentage of each that is “organic”.

Environmental Claims – A Guide for Industry Advertisers

In 2007, the Competition Bureau replaced the Principles and Guidelines for Environmental Labelling and Advertising (“PGELA”) with its draft publication entitled: Environmental Claims – A Guide for Industry Advertisers (“Guide”).

The objectives of the draft Guide are two-fold: (1) to provide users with a practical guide to the application of ISO 14021 (“Self-Declared Environmental Claims”), with some practical examples of the use of environmental claims in the Canadian marketplace; and (2) to provide assistance to industry and advertisers with respect to compliance with statutes that prohibit false and misleading advertising, including the Competition Act, the Consumer Packaging and Labelling Act and the Textile Labelling Act.

The draft Guide discourages the use of unsubstantiated and vague claims; and gives a basis for the proper use of certain common environmental claims, including, for example: “biodegradable,” “recyclable,” “recovered energy,” and “reduced energy consumption”. Further, the Guide provides parameters for comparative claims; and addresses the use of symbols for different environmental claims, including the Mobius loop.

Consumer Advertising Guidelines for Marketed Health Products

In October 2006, Health Canada issued the Consumer Advertising Guidelines for Non-Prescription Drugs Including Natural Health Products (“Guidelines”), which replaced and superseded the 1990 Health Canada Consumer Drug Advertising Guidelines. The Guidelines form the basis upon which Advertising Standards Canada evaluates consumer-directed advertising for non-prescription drugs and natural health products. In addition, the Guidelines are designed to help advertisers develop advertising messages that meet all relevant provisions of the Food and Drugs Act and Regulations; the Natural Health Product Regulations; and other related Health Canada policies and guidelines.

The Guidelines place primary importance on claims adhering to the product’s terms of market authorization as allowed by Health Canada. In addition, the Guidelines establish various advertising requirements, including the need for advertisers to provide one clear therapeutic indication for EACH medical ingredient. Guidance is also provided on how to structure claims to comply with section 9 of the Food and Drugs Act. Lastly, the Guidelines require that consumers be provided with fair and balanced information about the benefits and the risks associated with the use of the advertised product.

The Guidelines apply to all consumerdirected advertising for non-prescription drugs, including natural health products, in ALL Canadian markets. However, they do not apply to advertising for prescription drugs, foods and/or cosmetic products, nor do they apply to advertising aimed at health professionals or advertisements displaying only the brand name of a non-prescription drug or natural health product.

Conclusion

The last year has been full of changes and challenges for advertising and marketing lawyers in Canada. While most basic principles governing advertising law are similar in Canada and the US, there are many important differences; and Québec, with its Civil Code and French-language rules, adds layers that must be considered when embarking on a North American advertising campaign. The information contained in this document provides a brief overview of recent developments in Canadian advertising law and should not be regarded or relied upon as legal advice or opinion. n