Canadian COMPETITION LAW

In a recent case that I can only describe as bizarre, the U.S. Federal Trade Commission has announced that it has filed false advertising charges against the marketers of “Your Baby Can Read!”, a learning program for toddlers that, according to the FTC, was “widely touted” on the Internet teach young adults (er babies actually) to read.

In making the announcement, the FTC said:

“The FTC complaint charges Your Baby Can, LLC, its former CEO, and the product’s creator with false and deceptive advertising, for claims in ads and product packaging that the program could teach infants and toddlers to read and that scientific studies proved the claims.  The complaint also charges company principal and product creator Robert Titzer, Ph.D, with making deceptive expert endorsements.  Your Baby Can and Titzer represented that the program taught children as young as nine months old to read; gave children an early start on academic learning, making them more successful in life than those who didn’t use it; and that scientific studies proved these claims, according to the complaint.”

The defendants in this case, it seems, were also industrious marketers, marketing their product in various channels including online (YouTube, Twitter and Facebook), television (infomercials and cable ads on Lifetime, Discovery Kids, Disney DX, Cartoon Network and Nicekelodeon) and retail (including Wal-Mart, Kmart, Walgreens and Toys “R” Us).

With all the recent buzz in Canada around disclaimers, the general impression test and performance claims (including the recent Bell, Nivea, Richard v. Time, Yellow Page Marketing and ongoing Rogers cases), this one caught my eye as a rather perfect storm of allegedly false claims, underlying scientific testing with some expert endorsements thrown in for good measure.

With respect to the performance claims in the “Babies Can Read” case, the FTC took the position that the defendants had failed to provide competent and reliable scientific evidence that babies could in fact read using the company’s program (or that children as young as three or four could learn to read books, as claimed, such as Charlotte’s Web or Harry Potter).  Canada too has a provision in the Competition Act, which requires that performance claims for products be supported by “adequate and proper testing” conducted in advance of the claim (although this provision is presently being challenged in the Rogers case on freedom of speech constitutional grounds).

One small distinction between the “Babies Can Read” case and a common thread running through many of the Canadian cases, however, is that it appears that no disclaimers were used – i.e., this was not a case where “headline” claims of toddler brilliance were made with large swaths of the main claim cut away, contradicted or qualified in disclaimers.  Nope, this was a case where the advertisers said “babies can read!” and the FTC said well, no, they can’t and sued.

Two of the defendants have agreed to settle the FTC’s charges, which includes a $185 million judgment (equal to the company’s gross sales since January, 2008).

Now of course, one might think this is mere puffery or that no average or sensible consumer could possibly believe that, well, babies can read or would conceivably spend $200 for learning materials to teach their babies to read.  Well, surprisingly (not really though) the company apparently sold more than 900,000 copies of its teach toddlers to read materials, ringing up as we said a tidy $185 million in sales.

Given that in Canada the recent Richard v. Time case the Supreme Court of Canada rejected arguments that an average consumer (albeit for Quebec consumer protection legislation) was the appropriate standard for the general impression of advertising opting instead for a “credulous and inexperienced” consumer standard (essentially that consumers are morons), it is not inconceivable that the bar in Canada has (or will soon be) lowered to catch similar seemingly preposterous claims.

This lowest common denominator consumer standard could soon be the law for Competition Act misleading advertising cases as well, as the Competition Bureau has raised it in the ongoing Rogers litigation in Ontario.

In any event, an interesting case, if an astonishing example of the gullibility of consumers.

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