Canadian COMPETITION LAW

SWEEPING CANADIAN COMPETITION ACT
AMENDMENTS (BILL C-59) PASSED JUNE 20, 2024

On June 20, 2024, Bill C-59 was passed (the Fall Economic Statement Implementation Act, 2023), which introduced the third of three significant rounds of amendments to Canada’s federal Competition Act in two years (together with Bill C-19 and Bill C-56). This new round of amendments to the Competition Act completes a sweeping overhaul of the Competition Act across virtually all key provisions of Canada’s competition legislation. These amendments are also the most significant changes to Canadian competition law since the modern Competition Act came into effect in 1986 replacing the former Combines Investigation Act.

The Bill C-59 amendments, among other things, strengthen the Competition Bureau’s powers to enforce key deceptive marketing provisions of the Competition Act (e.g., relating to drip pricing, performance claims and ordinary selling price (OSP) claims), strengthen private party rights to seek Competition Tribunal remedies (e.g., for civil deceptive marketing and violations of the civil agreements provisions of the Act), introduce new penalties (e.g., administrative monetary penalties for violating the civil agreements provisions of the Act and for reprisal actions penalizing individuals for complying with the Act) and introduce a new clearance regime for environmental protection related agreements. Canada’s Competition Act merger review regime was also substantially overhauled, eliminating the efficiency defence, introducing market share presumptions and a more restrictive remedial test for restoring competition.

These amendments, together with those enacted in June 2022 and December 2023 (Bill C-19 and Bill C-56), increase the potential competition law risk for companies, trade and professional associations and other entities, particularly those without credible and effective competition law compliance programs and that have not reviewed their business practices to reflect Canada’s new competition laws. For the Competition Bureau’s summary of the June 20, 2024 Bill C-59 amendments to the Competition Act, see: Guide to the June 2024 amendments to the Competition Act (June 25, 2024).

Our blogs will be updated to reflect these amendments.

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OVERVIEW OF PRODUCT PERFORMANCE CLAIMS
UNDER THE COMPETITION ACT

“Businesses should not make any performance claims unless they can back them up. The Competition Act prohibits any representation in the form of a statement, warranty or guarantee of the performance, efficacy or length of life of any given product, not based on adequate and proper testing. The onus is on advertisers to prove that the representation is based on an adequate and proper test. The test must have been concluded before the representation is made and the data must be readily available upon request by the Bureau.”

Competition Bureau,
Ensuring Truth in Advertising, Misleading Advertising and Labelling

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“[i]n summary, and in respect of this case, I conclude that a ‘proper and adequate’ test depends on the claim made as understood by the common person; must be reflective of the risk or harm which the product is designed to prevent or assist in preventing; must be done under controlled circumstances or in conditions which exclude external variables or take account in a measurable way for such variables; are conducted on more than one independent sample wherever possible; results need not be measured against a test of certainty but must be reasonable given the nature of the harm at issue and establish that it is the product itself which causes the desired effect in a material manner; and must be performed regardless of the size of the seller’s organization or the anticipated volume of sales.”

Canada (Commissioner of Competition) v. Imperial Brush Co.

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In addition to the general criminal and civil misleading advertising provisions of the Competition Act (sections 52 and 74.01), the Act also sets out certain misleading advertising related criminal offences (under Part VI of the Act – Offences in Relation to Competition), which are subject to fines and imprisonment, and reviewable matters (under Part VII.1 of the Act – Deceptive Marketing Practices), which are subject to administrative monetary penalties (AMPs) and other civil remedies.

These include provisions relating to bait and switch selling (section 74.04), deceptive prize notices (section 53), deceptive telemarketing (section 52.1), double ticketing (section 54), drip pricing (sections 52(1.3) and 74.01(1.1)), misleading or unauthorized use of tests and testimonials (section 74.02), multi-level marketing (section 55), ordinary selling price (OSP) claims (subsections 74.01(2), (3)), promotional contests (section 74.06), pyramid selling schemes (section 55.1) and sale of products above an advertised price (section 74.05).

GENERAL COMPETITION ACT PRODUCT PERFORMANCE CLAIM
PROVISION (SECTION 74.01(1)(b))

The Competition Act also includes a standalone civil provision that prohibits product performance claims that are not based on an “adequate and proper test” (section 74.01(1)(b)). In this regard, the Competition Act prohibits representations made to the public, in the form of a statement, warranty or guarantee, of the performance, efficacy or length of life of a product that is not based on an adequate and proper test, the proof of which lies on the person making the claim.

Some of the types of performance claims that may fall under this provision include claims relating to the performance of a product (e.g., speed, reliability, sales performance, etc.), comparative advertising (e.g., where one firm’s product’s performance is being compared to a competitor’s product) and claims relating to preferences or perceptions. In the context of online and social media marketing, the performance claims section can also apply to, among other things, performance claims made by influencers (for more information, see testimonials/endorsements).

While product performance claims themselves are not prohibited, any testing or verification must be conducted before a claim is made (i.e., it is not sufficient to be able to substantiate a performance claim after it has been made). Also, the onus, if challenged, is on the person making the claim to prove that the performance claim is based on an adequate and proper test.

ENVIRONMENT-RELATED PERFORMANCE CLAIM PROVISIONS
(SECTIONS 74.01(1)(b.1) and 74.01(1)(b.2))

In addition to the above standalone general product performance claim provision (section 74.01(1)(b)), as a result of amendments to the Competition Act passed on June 20, 2024 under Bill C-59, two specific new provisions can now apply to environment-related performance claims.

The first new performance claim provision (section 74.01(1)(b.1)) captures representations to the public for the purposes of, directly or indirectly, promoting the supply or use of a product or any business interest in the form of a statement, warranty or guarantee of a product’s benefits for protecting or restoring the environment or mitigating the environmental, social and ecological causes or effects of climate change that is not based on an adequate and proper test (the proof of which lies on the person making the representation).

This performance claim provision may apply to environmental performance claims relating to a specific product and includes the same testing requirement (adequate and proper test) to substantiate claims as the general performance claim provision of the Competition Act (section 74.01(1)(b)). For this reason, existing case law with respect to what constitutes an adequate and proper test should remain helpful in interpreting this new provision.

The second new performance claim provision (section 74.01(1)(b.2)) captures representations to the public for the purposes of, directly or indirectly, promoting the supply or use of a product or any business interest with respect to the benefits of a business or business activity for protecting or restoring the environment or mitigating the environmental and ecological causes or effects of climate change that is not based on adequate and proper substantiation in accordance with internationally recognized methodology (the proof of which lies on the person making the representation).

This performance claim provision may apply to environmental performance claims relating to the benefits of a business or business activity in general (for example, that a brand, compared to a particular product, is “carbon neutral” or “net zero”). This second new performance claim provision has also introduced a new testing requirement for substantiating these types of environmental claims (“adequate and proper substantiation in accordance with internationally recognized methodology”). The Competition Act does not define “internationally recognized methodology”. As such, it will remain to be seen how the Competition Bureau and the Competition Tribunal interpret this new testing standard.

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On July 4, 2024, the Bureau announced that it had received a large number of requests for guidance on the interpretation of the new greenwashing related performance claim provisions of the Competition Act and would develop guidance on an accelerated basis. See: Competition Bureau statement regarding guidance on Competition Act’s new greenwashing provisions.

ENFORCEMENT OF COMPETITION ACT
PERFORMANCE CLAIM PROVISIONS

False performance claims can be challenged by the Competition Bureau in courts (a provincial court or Federal Court) or before the federal Competition Tribunal, which is an administrative tribunal. False performance claims may also be challenged by private plaintiffs in misleading advertising claims commenced under section 52 of the Competition Act (i.e., based on the theory that inaccurate performance claims are either literally false or misleading).

The federal Competition Tribunal in the Imperial Brush case set out a non-exhaustive list of factors relevant to determining whether testing is “adequate and proper”. Testing also does not need to be 100% reliable or the best scientific testing that could have been performed (i.e., it has been held that testing does not need to meet a test of certainty).

The key requirements of the performance claim provision of the Competition Act were also summarized by the Ontario Superior Court of Justice in Canada (Competition Bureau) v. Chatr Wireless Inc., 2013 ONSC 5315 (CanLII), which adopted a number of the reasons from the Competition Tribunal in the Imperial Brush case:

“The burden of proving adequate and proper testing lies upon the respondents by virtue of the express wording of s. 74.01(1)(b) of the Competition Act.  The adequate and proper test must be made prior to the representation to the public. … The phrase ‘adequate and proper test’ is not defined in the Competition Act.  Whether a particular test is ‘adequate and proper’ will depend on the nature of the representation made and the meaning or impression conveyed by that representation.  Subjectivity in the testing should be eliminated as much as possible.  The test must establish the effect claimed.  The testing need not be as exacting as would be required to publish the test in a scholarly journal.  The test should demonstrate that the result claimed is not a chance result …”

PENALTIES

Some of the potential penalties for violating the civil deceptive marketing practices provisions under Part VII.1 of the Competition Act include Competition Tribunal or court orders to stop the conduct, publish a corrective notice, pay restitution to consumers and orders to pay AMPs.

Following 2022 amendments to the Competition Act, the maximum AMPs for civil deceptive marketing increased: (i) for individuals, up to the greater of $750,000 ($1 million for each subsequent order) and three times the value of the benefit derived from the deceptive conduct; and (ii) for corporations, up to the greater of $10 million ($15 million for each subsequent order) or three times the value of the benefit derived from the deceptive conduct or, if the latter amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenues.

In addition, as a result of June 2024 amendments to the Competition Act (under Bill C-59), starting on June 20 2025, private parties will also be able to seek leave from the Competition Tribunal to commence proceedings under the civil deceptive marketing practices provisions (Part VII.1) with the only leave requirement for standing being that the proceedings are in the “public interest”.

The potential penalties for violating the general criminal misleading advertising section of the Competition Act (section 52) include, on indictment, a fine in the discretion of the court and/or imprisonment for up to 14 years and, on summary conviction, a fine of up to $200,000 and/or imprisonment for up to one year.

The Competition Bureau has challenged performance claims in many industries, including in relation to weight loss products (e.g., diet patches, skin care cream, sauna belts, weight loss devices and natural products, etc.), clothing (e.g., alleged therapeutic benefits of some types of clothing), fuel saving devices, chimney cleaning products, UV ray protection, anticorrosion devices, disease cures (e.g., cancer, AIDS, etc.) and claimed therapeutic benefits of tanning, among many others.

Based on the potential penalties and consistent Competition Bureau enforcement, companies, agencies and others making product performance claims should ensure that the required statutory tests are met before performance claims are made.

Written advisory opinions are also available from the Competition Bureau in relation to proposed performance claims, as well as other types of proposed advertising and marketing claims. For more information, see Competition Bureau Advisory Opinions.

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SERVICES AND CONTACT

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