Misleading advertising practices in Canada

Misleading advertising

How is editorial content differentiated from advertising?

Where editorial content is influenced by an advertiser, it may be treated as advertising. Where applicable, this relationship likely needs to be disclosed to ensure that the advertising is not misleading. Examples of influence could include providing a free product for review or paying for a product to be included in editorial content. If the advertiser is responsible for the content itself, this would constitute advertising. The nature of the connection between the advertiser and the editorial content will inform the scope of disclosure required, as well as the format of the disclosure. If an advertiser does not have any connection to editorial content, then no disclosure would be required.

How does your law distinguish between ‘puffery’ and advertising claims that require support?

There are no legislative provisions that specifically address puffery or other instances where a claim would not need to be substantiated. In evaluating contested advertising, a regulator would determine whether a specific claim is being made, considering the literal meaning as well as the general impression that the advertising creates. Many claims that might be considered puffery in other jurisdictions may be interpreted more literally in Canada and require substantiation (eg, claims of ‘best’ or ‘favourite’). If it is capable of being substantiated, it likely must be substantiated under Canadian law.

What are the general rules regarding misleading advertising? Must all material information be disclosed? Are disclaimers and footnotes permissible?

Paragraph 74.01(1)(a) of the Competition Act is the civil provision that prohibits those who promote the supply or use of a product or a business interest from making a materially false or misleading representation to the public. In evaluating the meaning of a claim, the court or regulator will consider the general impression, including both literal and implied meanings. Courts have held, in recent decisions, that consumers interpreting advertising are ‘credulous’ and ‘inexperienced’. Where necessary, claims must be supported by adequate and proper testing.

All material information should be provided in or with a main claim, and disclaimers can be used to provide additional information that is relevant to expand upon the claim. Disclaimers or footnotes may be used to clarify the main claim, but cannot be relied upon to correct what would otherwise be a false or misleading representation; information provided in the disclaimer is likely not sufficiently prominent to overcome the general impression created by a main claim.

Must an advertiser have proof of the claims it makes in advertising before publishing? Are there recognised standards for the type of proof necessary to substantiate claims?

An advertiser must have adequate and proper testing that substantiates its advertising claims, and this testing must be conducted in advance of publishing the advertising. The standard for such testing will depend on the nature of the claim and the impression the advertising conveys. The following factors should be considered when determining if a test is sufficiently adequate and proper (see the Commissioner of Competition v Imperial Brush Co Ltd and Kel Kem Ltd (carrying on business as Imperial Manufacturing Group), 2008 CACT 2):

• the content of the testing should reflect how a common person would understand the claim;
• tests must reflect the risk or harm that the product is designed to prevent or assist in preventing;
• tests must be done under controlled circumstances or in conditions that exclude external variables or take account in a measurable way of such variables;
• tests should be conducted on more than one independent sample wherever possible (eg, destruction testing may be an exception);
• results do not need to be certain but must be reasonable (given the nature of the harm at issue), and the testing must establish that the results are materially caused by the product itself; and
• tests must be performed regardless of the size of the seller’s organisation or the anticipated volume of sales.

Recent case law has upheld that the substantiation must be secured prior to making a claim, even if subsequent testing proves the claim was true. Further, courts have held it is constitutional to place a reverse onus on an advertiser to show that its testing is adequate and proper.

Are there specific requirements for advertising claims based on the results of surveys?

There are no legislative requirements specific to relying on survey results to substantiate a claim. The factors set out in question 18 are relevant to determine whether the survey is sufficiently adequate and proper to support the claim or claims being made. Survey data should be consistent with any applicable industry practice as well as market research standards. For example, such data should validly measure what will ultimately be claimed in the advertising (eg, consumer preference or the general impression an advertisement creates). Respondents should be asked neutral questions that do not lead them to a particular answer or force a choice where a consumer may have no preference. The survey methodology must also be reliable, such that the population surveyed reflects the population to whom the advertisement will be targeted. When designing a survey, consider the demographics, geography and currency of the data, and obtain a statistically significant sample.

What are the rules for comparisons with competitors? Is it permissible to identify a competitor by name?

Comparative advertising is permitted, provided that it is not false or misleading, does not infringe on third-party intellectual property rights and does not unfairly disparage the competitor or its products or services. Such comparisons must not be false or misleading (eg, any points of comparison should be consumer-relevant and consistent with the intended use of the compared products). Competitors may be identified by name, provided that the reference does not create confusion between the competitor and advertiser and their respective products or services. Using a third-party trademark such as a brand logo in advertising must be approached carefully, since it may constitute trademark infringement under Canada’s Trademarks Act.

Do claims suggesting tests and studies prove a product’s superiority require higher or special degrees or types of proof?

There are no additional requirements applicable to the substantiation of superiority claims. Like all product claims, these require adequate and proper testing in advance of publishing the claim. Common challenges to substantiating superiority claims include keeping testing current, and ensuring the testing supports the actual claim in the advertising. A claim of market superiority will, of course, require testing against all potentially comparative products, which may expand the scope of testing required. From a practical perspective, superiority claims may be subject to an increased risk of competitor challenge.

Are there special rules for advertising depicting or demonstrating product performance?

There are no special rules when depicting a product’s performance in advertising. Like all advertising, these demonstrations must comply with the general prohibition against making a false or misleading representation. Common challenges to ensuring that a product depiction is not misleading include recreating typical consumer use, limitations on advertisement time and depictions of competitor products.

Where a demonstration includes a competitor product, the demonstration should use the product in accordance with its instructions, and care should be taken not to denigrate the product beyond showing substantiated points of comparison (eg, throwing the product in the litter bin or otherwise implying it has no use).

Are there special rules for endorsements or testimonials by third parties, including statements of opinions, belief or experience?

The Competition Act requires that an advertiser obtain written consent before using a testimonial in advertising, or alternatively that the testimonial has been previously published. Additionally, testimonials and endorsements must comply with the general prohibition against making a false or misleading representation.

Common challenges to ensuring that testimonials are not misleading include ensuring that the endorsement is based on the endorser’s honest opinion, is based on actual use in accordance with the supplier’s instructions and that the testimonial remains accurate when used in advertising (particularly for ongoing campaigns). Where an endorser is remunerated for providing the testimonial or is affiliated with the advertising company (eg, employee, owner, etc), the general impression of the advertisement must communicate this relationship. Where the testimonial is published by the endorser or another party other than the brand, there is an increased risk that the general impression of the advertising may not convey its commercial nature.

Any use of a third-party certification mark should be consistent with that party’s intellectual property rights. Some certifications, claims and products are subject to regulated certification standards or accredited certification bodies, or both. Examples include food grade marks, organic certification and radio spectrum product certification.

Are there special rules for advertising guarantees?

The Competition Act specifically prohibits advertising a guarantee, warranty or other statement that is materially misleading or if there is no reasonable prospect that it will be carried out.

Provinces and territories have enacted legislation that require a seller of goods to provide a minimum standard of merchantability and fitness for purpose. Most consumer protection legislation prohibits or voids any terms of sale that purport to negate these implied warranties, and these statutes further expand these sale-of-goods warranties to the benefit of consumers. Some jurisdictions require certain disclosures be made in an additional express warranty provided in respect of a product or service.

Are there special rules for claims about a product’s impact on the environment?

The general legislative framework regulating advertising applies to environmental claims. Additionally, the Competition Bureau has published enforcement guidelines to follow to ensure that an environmental claim is unlikely to raise such concerns. These guidelines are based on ISO 14021:2016, Environmental labels and declarations - Self-declared environmental claims (Type II environmental labelling).

In general, environmental claims should specifically state the supported environmental benefits claimed and not broadly imply an environmental benefit or that a product is environmentally benign. Special care should be made when substantiating claims that a product is ‘free’ from a specified substance or that a product is ‘sustainable’, and where there is any use of environmental symbols (such as the Mobius loop).

Are there special rules for describing something as free or a free trial or for special price or savings claims?

The general impression test will apply to ‘free’ claims, and accordingly, there should not be any required or implied fees associated with obtaining something that is advertised as free. Additionally, any bundled product should provide the promotional object at no additional cost with no cost recovery of the bonus item. In Quebec, the emphasis in an advertisement for a bundled product should not be placed on the premium item.

Free trial offers must comply with the rules around ‘free’ advertising. In addition, the advertiser must clearly disclose the terms under which a free trial ends if an automatic, paid renewal of the service will follow. Provincial consumer protection law will govern the terms of any automatic renewal, and may require that specific disclosures or notice be provided. In general, Quebec consumer protection law prohibits a free trial offer from automatically rolling into a paid subscription, without first going back to the consumer for consent to the paid terms.

Bait-and-switch selling and sales above advertised prices are also specifically prohibited. There are also strict legal tests that must be met when making claims about a special price, when that price is advertised in reference to a claimed ‘regular’ price. These tests apply to comparisons to a supplier’s own price or to comparisons made against prices generally in the market for the same (or similar) products or services. These tests primarily rely on either the volume of product or service the supplier has sold at the regular price or on the time during which the supplier offered the product or service at that regular price (either before or after the pricing representation). The time test also requires that the supplier offered the product or service in good faith, which is based on factors such as open availability, a regular price that is relevant to similar regular prices in the market and having sold volume at the regular price.

Are there special rules for claiming a product is new or improved?

There are no specific legislative rules regarding ‘new’ or ‘improved’ claims. The general impression of the claim must not be false or misleading, and the advertiser must have substantiation on file to evidence the claim. For example, for an ‘improved’ claim, the advertiser must have evidence that the model was updated with additional features when compared with a previous version. The appropriate duration of time for a ‘new’ claim will depend on the type of product or service, but in general should not be longer than one year.

Are there special rules for claiming where a product is made (such as country of origin)?

Claims of Canadian origin are subject to fairly strict regulatory requirements and recent regulatory enforcement, particularly claims that a product is ‘made in Canada’ or is a ‘product of Canada’. To substantiate a ‘made in Canada’ claim: the last substantial transformation of the good must have occurred in Canada; at least 51 per cent of the production and manufacturing costs must be in Canada; and, the claim must include an appropriate qualifying statement, such as ‘Made in Canada with imported parts’. To substantiate the higher threshold of a ‘product of Canada’ claim: the last substantial transformation of the good must have occurred in Canada and at least 98 per cent of the production and manufacturing costs must be in Canada.

Implied claims of Canadian origin can also be conveyed through the overall general impression of words, visuals, illustrations and layout, and could be considered misleading or false if the product does not meet these standards for Canadian content, processing or both. For example, the use of a maple leaf or Canadian flag is likely to give the general impression of a ‘made in Canada’ claim, and so to avoid regulatory challenge, the product should meet the content and processing thresholds in order to support the implied origin claim.

Country of origin declarations are generally not required on product labels, although imported products may select a dealer declaration that identifies a non-Canadian dealer. Additionally, the country of origin can be a required declaration on some categories of products, and these disclosure and labelling obligations are governed by Canada’s international trade agreements.