Canadian COMPETITION LAW

On September 7, 2011, the federal Competition Bureau announced that it had reached a settlement with Nivea’s Canadian distributor, Beiersdorf Canada Inc., relating to allegedly false or misleading performance claims in its advertising.

In particular, the Bureau took issue with claims that suggested that the use of skin cream could lead to weight loss.  Under the terms of the consent agreement negotiated with the Bureau, Beiersdorf has agreed to pay an “administrative monetary penalty” or “AMP” of Cdn. $300,000 (“AMPs” are essentially civil fines), refund Canadian customers and remove its products from Canadian shelves.

In making its announcement, the Bureau said:

“A Bureau investigation determined that Beiersdorf made a number of deceptive claims about its “My Silhouette” product. The misleading representations were displayed on the package and on Nivea’s Web site. The representations stated that:

use of the product could lead to a “reduction of up to 3 centimetres on targeted body parts, such as thighs, hips, waist and stomach”;

My Silhouette “contains a highly effective natural Bio-Slim Complex for a slimmer looking and more defined silhouette”; and

My Silhouette “combines high performance active ingredients for a dual effect of slimming & reshaping.”

Beiersdorf’s representations also created the misleading impression that use of the product could make the skin more toned and elastic.

““Beiersdorf misled consumers by claiming a person could slim down by simply applying a skin cream,”” said Melanie Aitken, Commissioner of Competition. ““Unfortunately, consumers who purchased My Silhouette learned the hard way that there was no such easy fix.””

Under the terms of the consent agreement registered with the Competition Tribunal today, Beiersdorf is also required to publish a corrective notice on Nivea’s Canadian Web site and in major Canadian newspapers, and to pay $80,000 to cover costs associated with the Bureau’s investigation.”

Under the Canadian Competition Act, false or misleading product performance claims can violate both the “general” criminal or civil misleading advertising provisions under sections 52 and 74.01 of the Act and specific product performance provisions.

In this regard, in addition to the “general” misleading advertising sections of the Act, the Act also prohibits false performance claims – in particular, section 74 of the Act prohibits representations to the public about the “performance, efficacy or length of life of a product that is not based on an adequate and proper test”.

This section can be particularly relevant to advertising and marketing of products where the speed, efficiency or other performance is a key marketing component.  While performance claims themselves are not prohibited, any product testing or verification must be conducted before a claim is made and the onus, if challenged, is on the person making the claim to show that it is based on an “adequate and proper test”.

As such, while performance claims are a common and potentially legitimate way to distinguish products from competitors, it is important that proper testing be performed (or appropriate statistics or support are obtained) before performance claims are made.

In this regard, in recent case law, the Canadian Competition Tribunal has set out a non-exhaustive list of factors that are relevant to determine whether product testing is “adequate and proper” and in addition, to meet this standard, testing does not need to be 100% reliable or the best scientific testing that could have been performed (i.e., does not need to meet a test of certainty).

In more general terms, this recent case against Nivea’s Canadian distributor shows that the enforcement of the misleading advertising and deceptive marketing provisions of the Competition Act remains a top enforcement priority for the Bureau.

Since the Act was amended in 2009 to provide for, among other things, significantly increased penalties for misleading advertising (of up to $10 million for corporations), recent misleading advertising cases brought by the Bureau have involved misleading or allegedly misleading claims relating to failing to adequately disclose additional fees (through the use of fine print disclaimers), additional undisclosed conditions (including to qualify for rebate programs), false product performance claims, falsely claiming that products are certified and deceptive telemarketing, among other types of advertising and marketing claims.

(See Competition Bureau, News Releases: “Competition Bureau Reaches Agreement with Bell Canada Requiring Bell to Pay $10 Million for Misleading Advertising” (June 28, 2011); “Competition Bureau Requires Whirlpool to Reimburse Customers for Misleading Rebate Program” (December 1, 2010); “Zellers Agrees to Take Action to Correct Misleading Promotion” (June 29, 2010); “Reitmans Agrees to Correct Misleading Smart Set Promotion” (May 13, 2010); “Competition Bureau Takes Action Against Rogers Over Misleading Advertising” (November 19, 2010); “Competition Bureau Takes Action Against Spa Retailers For False Energy Efficiency Claims” (July 29, 2010); “Five Alberta Individuals Sentenced in Deceptive Telemarketing Scheme” (August 30, 2011); and “Toronto Company Receives Record $15 Million Fine” (December 18, 2009).)

The Bureau has also in the past several years, since the Act was overhauled, obtained or sought record fines for misleading advertising and deceptive telemarketing, including a $10 million AMP obtained (negotiated) against Bell, a record $15 million obtained against a telemarketing firm and having sought a $10 million penalty against Rogers in Ontario.

(See Competition Bureau News Releases: “Competition Bureau Reaches Agreement with Bell Canada Requiring Bell to Pay $10 Million for Misleading Advertising” (June 28, 2011); “Toronto Company Receives Record $15 Million Fine” (December 18, 2009); and “Competition Bureau Takes Action Against Rogers Over Misleading Advertising” (November 19, 2010).)

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