The Pitfalls of False Advertising
In Canada, false advertising is a civil and criminal violation that may lead to significant monetary
penalties as well as imprisonment. The rules and regulations relating to false or misleading
advertising and deceptive marketing practices (which we will refer to here as “False
Advertising”) are contained in the Competition Act (the “Act”) and are enforced by the
Competition Bureau Canada (“CBC”). The Act provides two regimes to address false
advertising:
Criminal regime: Under the criminal regime, the general provision prohibits all materially false
or misleading representations made knowingly or recklessly. Other provisions specifically
forbid deceptive telemarketing, deceptive notices of winning a prize, double ticketing, and
schemes of pyramid selling. The multi‑level marketing provisions prohibit certain types of
representations relating to compensation.
Civil regime: Under the civil regime, the general provision prohibits all materially false or
misleading representations. Other provisions specifically prohibit performance representations
that are not based on adequate and proper tests, misleading warranties and guarantees, false
or misleading ordinary selling price representations, untrue, misleading or unauthorized use of
tests and testimonials, bait and switch selling, and the sale of a product above its advertised
price. The promotional contest provisions prohibit contests that do not disclose required
information.
In addition, Ad Standards is the advertising industry's non-profit self-regulating body that has
created its own Canadian Code of Advertising Standards (the “Code”) with criteria for
acceptable advertising. Ad Standards adjudicates complaints about false advertising. As a
corrective measure, Ad Standards may report the Code violation to Competition Bureau Canada
and make public declarations against a company found to be in violation of the Code (name and
shame).
False advertising can happen through any medium including email, flier, TV ad or even during a
phone conversation with a client; it is prohibited to knowingly or recklessly make a
representation to the public in any form that is false or misleading in a material respect.
For these reasons, it is imperative that all Questrade employees involved in marketing and
advertising familiarize themselves with the guidelines contained in this guidebook.
How can Questrade avoid false advertising?
The key to avoiding false advertising is sticking to accuracy and clarity. When assessing the
truthfulness and accuracy of your advertising claim, focus on how the message’s general
impression will be perceived by the public. Ask yourself: how will the average, common person
understand what I am trying to say?
The following guidelines will assist you in answering the above question:
•
Stay true to your advertised pricing. Avoid hidden or additional charges.
Example: In the Canada (Commissioner of Competition) v. Hertz Canada Ltd. case,
consumers were charged non-optional fees in addition to the prices initially advertised by
the car rental company. It was concluded that Hertz engaged in a reviewable conduct. The
initial price advertised created the general impression that consumers could rent cars at
prices that were not in fact attainable because of the additional non-optional fees.1
•
Clearly disclose all material information in the advertisement. Don’t leave out bits of
information that a consumer would want to know before taking up your offer.
Example: The travel agency Wholesale Travel Group Inc. was charged with false or
misleading advertising after making representations offering vacation packages at
"wholesale prices" while charging consumers a price higher than the cost incurred by the
company in supplying those vacation packages.2
•
Keep the language simple enough for an ordinary person to understand. Simple folks
can easily misunderstand big words and technical phrases. If possible, your ad should not
use investment terminology that is hard to understand.
1
2
Canada (Commissioner of Competition) v. Hertz Canada Ltd. 2017 CarswellNat 1793, 2017 CarswellNat 2077
R. v. Wholesale Travel Group Inc.1991 CarswellOnt 117, 1991 CarswellOnt 1029, [1991] 3 S.C.R. 154, [1991]
S.C.J. No. 79, 130 N.R. 1, 14 W.C.B. (2d) 208, 30 A.C.W.S. (3d) 660, 38 C.P.R. (3d) 451, 49 O.A.C. 161, 4 O.R. (3d)
799 (note), 67 C.C.C. (3d) 193, 7 C.R.R. (2d) 36, 84 D.L.R. (4th) 161, 8 C.R. (4th) 145, J.E. 91-1635, EYB 199167633
•
Try not to rely on disclaimers. The overall impression of your ad should be clear and
straightforward on its own. If you need a supplementary notice or disclaimer to qualify your
message or clarify what you mean, then you’re probably doing something wrong. However,
if you must rely on a disclaimer, the following guidelines should be observed:
o
Ensure that the disclaimer is being added to clarify the claim it relates to and not to
contradict.
o
The disclaimer should be easily understood by most customers.
o
Don’t use the disclaimer for pricing.
o
Avoid fine print disclaimers. The more important the information, the larger a
disclaimer should be.
o
If using a disclaimer online, make sure it appears on the same screen and close to
the claim to which it relates.
o
Disclaimers should be viewable regardless of the technology (e.g. mobile devices,
computer, and television).
•
Only make performance claims that have been objectively proved by proper and
adequate testing:
o
If the claim in the ad is one of a comparative nature (e.g. “Best FX trader!”), testing
must objectively compare the Questrade service/product to those over which you are
claiming superiority.
Example: In 2013, Chatr Wireless published advertisements which stated that its
cellular service had fewer dropped calls than competitors and that its customers
would have "no worries about dropped calls". Testing was performed in some
markets but not against all competitors, rendering claims that were not supported by
"prior adequate and proper testing". The Court stated that Chatr had engaged in
false or misleading anti-competitive representations by making "performance claims
in the absence of prior adequate and proper testing". 3
3
Canada (Commissioner of Competition) v. Chatr Wireless Inc. 2013 ONSC 5315, 2013 CarswellOnt 11612, [2013]
O.J. No. 3748, 236 A.C.W.S. (3d) 606, 288 C.R.R. (2d) 297
o
A client’s testimonial or your own opinion on the matter don’t count as testing.
Example: In 2014, the Bureau challenged Bell Canada’s marketing practices related
to testimonials made by its employees, which failed to disclose that they were made
by employees rather than independent customers on some of its mobile apps. The
testimonials included giving Bell’s apps “5-star” ratings and other positive reviews. It
was concluded that the testimonials created the materially false or misleading
general impression that they were made by independent and impartial consumers.4
o
Your ad must not discredit, disparage or attack other companies or their products in
an unfair manner. Also, don’t exaggerate the relevancy of competitive differences.
Example: In the Bell Canada v. Cogeco Cable Canada GP Inc. case, evidence
supported the fact that Bell offered a higher maximum download and upload speeds,
while Cogeco Cable’s advertising campaign used the phrase "best Internet
experience in your neighborhood". An order was granted to restrain Cogeco Cable
from stating, publishing or otherwise representing that it offers the "best Internet
experience in your neighborhood".5
•
If you decide to publish a testimonial:
o
Try to use only well-known testers (e.g. consumer, influencer, expert, or
organization). It’s always better to use someone whose representations carry greater
weight.
o
Ensure that the endorsement is only for the product or range of products, which the
tester has actually been exposed to (e.g. a client who only uses Questrade for
foreign exchange service should not provide a testimonial for all of Questrade’s
services and products).
o
Ensure that the terms and conditions of the Questrade product have not materially
changed since it was last tested.
o
Ensure the tester is an impartial third-party with no undisclosed
relationship/connection to Questrade (e.g. shareholder, employee, or supplier).
4
5
Testimonials and the Competition Act Practical Law Canada Practice Note 6-622-8485.
Bell Canada v. Cogeco Cable Canada GP Inc. 2016 ONSC 6044, 2016 CarswellOnt 14895, 272 A.C.W.S. (3d) 395
o
Ensure you have the tester’s written permission to publish his or her testimonial
before publication.
Example: In the Canada (Commissioner of Competition) v. Strategic Ecomm Inc.
case, the company providing past client testimonials without the client’s explicit
consent. The Court ruled that the defendants engaged in a reviewable conduct and
the company had to pay an administrative monetary penalty, discontinue the
conduct, and provide notice of the agreement to the public.6
FAQ
What has to be proven to establish misleading advertising?
The following elements are necessary in order to establish misleading advertising:
•
•
•
•
•
a representation is made;
to the public;
to promote a product or business interest;
the representation is false or misleading;
the representation is material.
The criminal provision uses the same standard with the exception that the representation is
made “knowingly or recklessly”.
What is a representation?
A representation is broader than simple advertising and may comprise printed, oral, broadcast,
and visual representation of claims. The Bureau understands that any form of representation is
subject to the Competition Act.
What does “material” mean?
If a representation is able to influence consumers to buy or use the product or service
advertised, it is deemed material. However, it is not necessary to demonstrate that anyone has
actually been deceived or misled.
6
Canada (Commissioner of Competition) v. Strategic Ecomm Inc. 2006 CarswellNat 6427
What does “false or misleading” mean?
A representation must literally be false or misleading to be deemed prohibited under the Act. In
this regard, the courts consider both the literal meaning and the “general impression” conveyed
by the representation when analyzing its content.
In addition, the entire context of the representation must be considered when determining
whether it is false or misleading, including words, phrases, photographs, illustrations.
What are the penalties for misleading advertising?
The penalties under the criminal regime are:
•
Fine up to $200,000 and/or imprisonment up to one year in summary conviction
(summary convictions are considered less serious offences with smaller fines and
shorter prison sentences);
•
Monetary fines on an indictable offence (more serious offences) are at the discretion of
the court and may lead to up to 14 years in prison
•
The penalties under the civil regime include an order to: cease the activity;
•
publish a notice and/or pay an administrative monetary penalty (“AMP”).
o
On first occurrence, individuals can be charged an AMP of up to $750,000 and
corporations are liable to penalties of up to $10,000,000.
o
For subsequent occurrences, the penalties increase to a maximum of $1,000,000
for individuals and $15,000,000 for corporations.
o
In situations where a person has made materially false or misleading
representations about a product to the public, the court may also make an order
for restitution, requiring the person to compensate consumers who bought such
products, and an interim injunction to freeze assets in certain cases.
Are performance claims prohibited?
The case law is clear that in order for a representation to be found truthful and not misleading,
thorough and up-to-date testing and comparisons must be conducted. Moreover, the party
making the representation has the onus to prove that adequate and proper testing was
conducted. The general impression made by a representation, as well as its literal meaning,
should be considered when determining whether the claim is false or misleading.
What are the implications for advertisers using influencer marketing?
Influencers are usually personalities recognized by only a niche of a group of consumers that
use various online platforms to create and share informative content with the public.
The Competition Act provisions apply to influencer marketing as they do to any form of
marketing. According to the Competition Bureau, in order to avoid liability for representations
made through influencers, the advertisers should:
(i)
Ensure that the influencers clearly disclose material connections in each post;
(ii)
Ensure that the representations are not false or misleading;
(iii)
Verify that influencers are not making performance claims on the company’s behalf
unless the claims are based on an adequate and proper test.
For additional information, please see Advertising Dos and Don’ts from the Competition Bureau
at https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03133.html