The general prohibition on false or misleading advertising under the Competition Act is somewhat unusual in that it contains two adjudicative regimes, criminal and civil, that can be used to address the same conduct – the making of a materially false or misleading representation to the public for the purpose of promoting one’s product or business interest[1]. The elements of the conduct that must be proven under both the criminal and civil provisions are the same. The difference is that the criminal provision also requires that the representation be made “knowingly or recklessly”, which in legal parlance amounts to a requirement of mens rea (Latin for “guilty mind”) or a person’s intention to commit a crime or knowledge that his/her action or lack thereof would cause a crime to be committed. Also, each element of the criminal offence must be proven on a criminal “beyond-a-reasonable doubt” standard.

Not surprisingly, the vast majority of misleading advertising cases are dealt with under the civil provisions and the criminal track is reserved for the most serious, fraud-like cases. In the Misleading Representations and Deceptive Marketing Practices: Choice of Criminal or Civil Track under the Competition Act bulletin, the Competition Bureau[2] clarifies that it will only proceed along the criminal track when (i) there is clear and compelling evidence suggesting that the accused made the representation “knowingly or recklessly” and (ii) criminal prosecution would be in the public interest.[3] That said, there have been a number of criminal misleading advertising prosecutions in Canada, with penalties involving jail time, and the Competition Bureau recently reiterated its willingness to use the criminal track in appropriate cases. Moreover, even if the Bureau decides not to proceed criminally – because it feels it cannot prove the distinguishing element of the criminal offence, that the representation was made knowingly or recklessly, or the prosecution would not be in the public interest – the consequences of a civil prosecution could be equally, if not more significant, from both a financial and reputational perspective.[4]

In light of the seriousness of a misleading advertising prosecution, understanding where aggressive marketing tactics end and misleading advertising begins, what it is the Competition Bureau is and is not required to prove, and the factors that could tip the scale towards a criminal, rather than civil track, is crucial for any business.

To be actionable under either criminal or civil provisions, a representation must be “materially” false or misleading. The key element of this assessment is the general impression created by the representation. This means that the entire mosaic and overall messaging of a promotion must be considered, including what may be reasonably implied, rather than a dissection of its specific parts and whether each, on its own, is literally true.

The offending representation must also have been made “to the public”. The scope of this requirement was addressed in the Stucky case.[5] In that case, the accused operated a direct mail business in Ontario that sold lottery tickets and merchandise only to persons outside of Canada. He was charged with 16 counts of making false or misleading representations to the public contrary to section 52(1) of the Competition Act. The charges pertained to four direct mail promotions sent primarily to people in the United Stated, Great Britain, Australia and New Zealand. The trial judge acquitted Mr. Stucky because, in his view, the phrase “to the public” meant “to the Canadian public” and none of the mailings were made to persons in Canada. The Crown appealed and the Ontario Court of Appeal held that the meaning of “the public” was not restricted to the Canadian public where there was a real and substantial link or connection between the offence and Canada.[6]

Importantly, the Bureau is not required to show (in either criminal or civil proceedings) that anybody was actually deceived or misled. Consequently, even if many consumers bought a product knowing full well that the claims about it were not true, the conduct could still be actionable under the misleading advertising provisions.

In addition to being able to prove the “knowingly or recklessly” requirement, the Bureau will only pursue a criminal misleading advertising conviction if it is in the public interest to do so. While the factors to be taken into account in making the public interest determination will vary from case to case, some of the factors the Bureau will consider include whether (i) the advertisement was targeting a particularly vulnerable group (e.g., elderly, sick, uneducated), (ii) efforts were made to remedy the misleading advertising and (iii) there is evidence of recidivism. At a recent roundtable presentation, the Bureau indicated that one of the key factors in its assessment also involves looking at whether there is a real business at the heart of the conduct.

Key Takeaways

  • The general impression a promotion creates is fundamental to an assessment of whether it is materially false or misleading. Someone within an advertiser’s organization should be assigned to assess the general impression of each promotion. If possible, consult with experts, conduct research or focus groups or “test-run” your promotion on a limited group of consumers before wide release.
  • Keep an eye on your target audience. Whether or not a representation is misleading will be determined from the perspective of the average person to whom it was directed. While not assuming that s(he) is “ignorant, unthinking and credulous”, the Canadian courts have not endowed the average consumer with particular intelligence or inquisitiveness either. Overall, the average consumer is, well, really average. It is also important to remember that people who respond to a particular promotion may not necessarily be the group the marketer had in mind when the promotion was created. Consider whether your promotion may be appealing to a particularly vulnerable group (e.g., elderly, uneducated).
  • A big print false or misleading statement will not be saved by small print qualifiers or disclaimers. Courts have reiterated that a regular consumer will not read all of the contractual terms and disclaimers related to a promotion, even if readily available. Saying that full disclosure is available may not be a defence and courts will likely be very critical of terms and conditions that are trying to clarify something that is unclear or misleading from the general presentation. Also, consumers make their decisions (and form a general impression) very quickly and things like font type, colour and size may affect the general impression a promotion creates.
  • Just because you have based your promotion on a promotion that was published in a reputable magazine or advertised by a celebrity, does not necessarily mean it is ok. Each promotion should be assessed independently and tested on the general impression it creates.

If you receive inquiries or complaints from consumers about a particular aspect of a promotion, there is a good chance the promotion could be found to be materially false or misleading. At what point inquiries or complaints reach a level sufficient to set off alarm bells is very fact-specific, but all should be addressed promptly and effectively. Also, if you feel that something may be unclear, the promotion likely merits a closer look. In the Stucky case, the accused anticipated that a particular aspect of one of his promotions could result in customer complaints or inquiries sufficient to warrant a response and prepared a script in advance to deal with the matter. While the judge ultimately had reasonable doubt as to whether this aspect of the promotion was materially false or misleading, he did observe that this pre-emptive action was “something of a two-edge sword”. Had the case been considered under the civil misleading advertising provision, the outcome may very well have been different, given the lower, “balance of probabilities” standard of proof.

[1] The criminal misleading advertising offence is contained in subsection 52(1) of the Competition Act and the general civil prohibition on misleading advertising is found in subsection 74.01(1)(a) of the Competition Act. In addition to the general misleading advertising prohibitions, the Competition Act also contains specific civil provisions (e.g., the use of tests and testimonials, warranty representations, misleading ordinary price claims, promotional contests) and specific criminal provisions (e.g., deceptive telemarketing, deceptive notice of a winning price, pyramid selling).

[2] The Competition Bureau is a federal investigative and enforcement agency responsible for enforcing the Competition Act. The Competition Bureau investigates both criminal and civil matters, although in criminal cases, it must refer the case to the Attorney General who determines whether to prosecute it.

[3] Although the bulletin indicates that the Bureau will make every effort to arrive at the choice of track as quickly as possible, there is no statutory requirement limiting the amount of time the Bureau may take to decide which adjudication route to follow. However, the choice of proceeding along the civil track (once made) will preclude the laying of criminal charges against the same party based on the same or substantially similar set of facts. If the Bureau decides to initially proceed under the criminal track, it may subsequently switch to the civil track to expedite the matter. However, the adjudication route may not be changed once charges have been laid or an application has been filed with the Competition Tribunal.

[4] The Competition Act allows for significant administrative monetary penalties (“AMP”) to be levied for violations of the civil misleading advertising provisions against corporations and individuals. The maximum corporate AMP is $10 million per count for a first time violation and $15 million for subsequent violations. For individuals, the AMP is $750,000 for a first time violation and $1 million for subsequent violations. It is also not uncommon for companies to enter into consent agreements with the Competition Bureau and to publish retraction notices. Criminal provisions attract a discretionary fine and/or up to 14 years imprisonment on indictment or a fine of up to $200,000 and/or one year imprisonment on summary conviction. Canadian courts have been very clear about imposing liability not just on corporations, but also on individuals involved.

[5] R. v. Stucky, 2006 CanLII 41523, [2009] O.J. No. 600 (O.C.A.), [2009] S.C.C.A. No. 186.

[6] Mr. Stucky appealed the Ontario Court of Appeal’s decision to the Supreme Court of Canada, which granted leave to appeal on April 16, 2009. However, Mr. Stucky ultimately abandoned the appeal (notice of discontinuance was filed on September 2, 2009).