Canadian COMPETITION LAW

CANADIAN CONTEST RULES/PRECEDENTS

Do you need contest rules and forms for a Canadian contest/sweepstakes?

We offer a selection of Canadian contest rules and forms for random draw, skill and other common types of Canadian contests (i.e., contest precedents and forms).

For more information see Canadian Contest Forms/Precedents.

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On February 28, 2012, the Supreme Court of Canada awarded compensatory and punitive damages to a contest entrant for misleading claims in a contest mail-out (see: Jean-Marc Richard v. Time Inc. and Time Consumer Marketing Inc.).

The decision is interesting not only that a contest case made it to the Supreme Court, but that our highest court also allowed punitive damages.  The Supreme Court also had interesting comments in this Quebec Consumer Protection Act case regarding the importance of the “general impression” test for evaluating advertising (the “general impression” is also relevant for evaluating whether advertising is false or misleading under the federal Competition Act).

In this case, the plaintiff received an “Official Sweepstakes Notification” that suggested he won USD $833,337.  The prize notification letter included conditional clauses which began “If you have and return the Grand Prize winning entry in time” and information that the recipient would qualify for a $100,000 bonus prize if the entry was validated within five days.  The mailing also included the official rules in small print and an offer to subscribe to Time magazine.  The rules provided that a winning number had been pre-selected by computer and that the holder of the number could receive the grand prize only if the reply coupon was returned by the deadline (otherwise the prize winner would be selected by random draw from all eligible entries with odds of winning of about 1 in 120 million).

The plaintiff returned the coupon and subscribed to Time.  Though he began receiving his magazines, no cheque arrived.   Contacting Time, he was told that he would not be receiving a cheque, his document had not contained the winning entry for the draw and was merely an invitation to participate in the sweepstakes.

The plaintiff commenced proceedings in Quebec Superior Court to declare him the winner of the contest and seeking compensatory and punitive damages in the amount of the prize money.  The Superior Court allowed the action in part, holding that the prize mail-out contravened Title II of the Quebec Consumer Protection Act applied on prohibited business practices and that civil sanctions under the CPA were available.  The lower court judge awarded total damages of $101,000 ($100,000 in punitive damages).

The Quebec Court of Appeal in turn allowed Time’s appeal in part, finding that the CPA had not been violated on a number of grounds, including finding that Time had not failed to clearly disclose that the plaintiff may not be the grand prize winner.  The Court of Appeal also found that there were no false or misleading representations in the prize mail-out, given that, in the Court’s view, it would not mislead a consumer “with an average level of intelligence, skepticism and curiosity.”  The Court of Appeal accordingly set aside the lower Court’s judgment.

On further appeal, the Supreme Court allowed the appeal, set aside the Court of Appeal’s judgment and restored the Superior Court’s judgment in part ordering the defendants to pay the plaintiff $1,000 in compensatory damages and $15,000 in punitive damages (reducing the original punitive damage award from $100,000 to $15,000).  Costs at the Supreme Court were also awarded on a solicitor and client basis “because of the importance of the issues of law”.

The Supreme Court held, among other things, that the Court of Appeal erred in its analytical approach for establishing the general impression of the prize mail-out, which it held needed to be considered together with the literal meaning of the claims in a two-stage analysis.

The Court also held that the correct standard was that of the “average consumer, who is credulous and inexperienced and takes no more than ordinary care to observe that which is staring him or her in the face upon first entering into contact with an entire advertisement”:

“The analytical approach chosen by the Court of Appeal for establishing the general impression conveyed by the advertisement of T and TCM was inconsistent with the test adopted by the legislature.   According to s. 218 C.P.A., which guides the application of all the provisions of Title II concerning prohibited business practices, to determine whether a representation constitutes such a practice, it is necessary to consider the “general impression” given by the representation and, where appropriate, the “literal meaning” of the words used in it.  In the case of false or misleading advertising, the general impression is the one a person has after an initial contact with the entire advertisement, and it relates to both the layout of the advertisement and the meaning of the words used.  It is analysed without considering the personal attributes of the consumer who has instituted proceedings against the merchant.  To be consistent with the legislature’s objective of protecting vulnerable persons from the dangers of certain advertising techniques, the general impression test must be applied from the perspective of the average consumer, who is credulous and inexperienced and takes no more than ordinary care to observe that which is staring him or her in the face upon first entering into contact with an entire advertisement.  Considerable importance must be attached not only to the text, but also to the entire context, including the way the text is displayed to the consumer.  Defining the average consumer as having “an average level of intelligence, scepticism and curiosity” is inconsistent with the letter and the spirit of s. 218 C.P.A.  A court asked to assess the veracity of a commercial representation must engage, under s. 218 C.P.A., in a two‑step analysis that involves — having regard, where appropriate, to the literal meaning of the words used by the merchant — (1) describing the general impression that the representation is likely to convey to a credulous and inexperienced consumer; and (2) determining whether that general impression is true to reality.  If the answer at the second step is no, the merchant has engaged in a prohibited practice.”

On the facts of this case, the Court held that an average consumer would have been under the general impression that they indeed had the winning entry and only had to return it to win the prize.

Importantly, the Court held that the various disclaimers in the mail-out were insufficient to dispel its overall general impression, which was, in its view, “riddled with misleading representations”.

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CANADIAN CONTEST LAW TIPS

The following are some key legal tips for operating a successful and legal contest in Canada:

CRIMINAL CODE

Avoid the illegal lottery offences of the Criminal Code (e.g., include a bona fide “no purchase necessary” entry option and skill element, such as a time-limited, multiple-step mathematical question for potential winners as a condition of awarding prizes).

SHORT RULES (MINI RULES)

Include short rules / mini-rules with all of the required Competition Act disclosure requirements for point-of-purchase materials (e.g., print and in-store marketing, social media and Internet sites, packaging and labeling, television and radio spots, etc.).

For more information, see: Canadian Contest Forms & Precedents.

LONG RULES (OFFICIAL RULES)

Ensure that precise long rules (i.e., the official contest rules) are included that reflect the details of the contest, anticipate potential contingencies (e.g., technical problems) and set out the terms of the contest as clearly as possible – for example, eligibility requirements, how to enter, prize descriptions, number and value of prizes, draws and award of prizes, odds of winning and indemnifying and releasing the contest sponsor and any co-sponsors or prize sponsors.

Contests are contracts, and so they should be as accurate, clear and precise as possible in the event issues arise.

For more information, see: Canadian Contest Forms & Precedents.

WINNER RELEASE FORMS

Consider using winner release forms for contest winners.

While not required by law in Canada, winner release forms are almost always used by contest sponsors to have winners confirm that they have complied with all contest rules and release the sponsor from legal liability. Signing and returning winner releases is also commonly included in contest rules as a condition of awarding a prize.

Winner release forms are particularly important for contests in which there may be higher risk (e.g., where the contest involves high value prizes or a trip prize). For trip contests, sponsors are generally advised to use winner releases for both winners and any travel companions (and guardian releases for any minor companions).

For more information, see: Canadian Contest Forms & Precedents.

FALSE OR MISLEADING ADVERTISING

Ensure that advertising and marketing materials are not false or misleading (i.e., comply with the general civil and criminal misleading advertising sections of the Competition Act, under sections 74.01 and 52).

In this regard, contests in Canada must comply not only with stand-alone contest provisions of the Competition Act (under section 74.06) but also with the general misleading advertising sections of the Competition Act.

It is particularly important to ensure that the marketing materials also matches the contest rules and that all material aspects of the contest (e.g., number and type of prizes, prize values, how to enter and win and any conditions/limitations) are accurately described in the short rules, long rules and marketing materials.

CANADIAN FEDERAL ANTI-SPAM LAW (CASL)

Comply with Canada’s federal anti-spam legislation (CASL).

CASL is often relevant when running contests in Canada, including if electronic distribution lists will be used to market the contest, the contest will include the collection of e-mails for marketing unrelated to administration of the contest, if entrants’ e-mail addresses will be shared with third parties (e.g., related entities or affiliate marketers) or entrants are either required or incentivized (e.g., through additional entries) to “share” the contest with friends or family.

Given the potentially severe penalties for violating CASL, which include AMPs of up to CDN $10 million, it is very important for contest sponsors to ensure that they comply with CASL for any electronic marketing related to promotional contests open to Canadians.

For more information about contests and CASL, see: Contests and CASL and CASL Compliance Errors.

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CASL Compliance Checklists and Precedents: For information about the CASL compliance checklists and precedents we offer, see: CASL Compliance Checklists and Precedents.

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INTELLECTUAL PROPERTY CONSENTS

Consider whether consents are needed (and if necessary obtained) to reproduce third-party intellectual property – for example, trade-marks, logos, etc. – or to transfer ownership in contest materials – for example, where contestants create original material as part of the contest.

Contest rules in Canada commonly include rights (e.g., a licence) for the sponsor to use information and content contributed by entrants and if entrants will be contributing original content (e.g., photographs, essays, etc.) it is also a good practice for sponsors to include guidelines relating to their rights to use (or reject) any entrant contributed content.

For more information, see: Guidelines For Consumer Generated Content Contests.

U.S. LEGAL ADVICE IF OPEN IN THE U.S.

Seek U.S. legal advice if the contest will be open to U.S. residents or limit the contest to only Canadian residents.

SOCIAL MEDIA PLATFORM RULES

Comply with social media sites’ terms of use if using social media to promote or host a contest (e.g., Facebook’s Promotions Rules).

Also ensure that appropriate disclosures are made in all social media marketing (i.e., include short rules).

For more information, see: Contests and Social Media.

OTHER COMPETITION LAW
AND ADVERTISING LAWS

Consider whether other competition or advertising law rules may apply to a contest. For example, in addition to the stand-alone contest provision (section 74.06), the Competition Act also contains provisions governing deceptive prize notices, general misleading advertising (sections 52 and 74.01) and telemarketing that involves prizes.

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SERVICES AND CONTACT

We are a Toronto based competition and advertising law firm offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law. We also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.

Our experience includes advising clients in Toronto, across Canada and the United States on the application of Canadian competition and regulatory laws and we have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal and pricing and distribution matters. For more information about our competition and advertising law services see: competition law services.

To contact us about a potential legal matter, see: contact

For more information about our firm, visit our website: Competitionlawyer.ca

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