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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“When navigating the digital marketplace, consumers often rely on the opinions shared by influencers. To make informed purchasing decisions, consumers must know if these opinions are independent or an advertisement. Ensuring truth in advertising in Canada’s digital economy is a priority for the Competition Bureau.”

(Commissioner of Competition)

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OVERVIEW OF PRODUCT TESTIMONIALS AND ENDORSEMENTS
MADE UNDER THE COMPETITION ACT

Testimonials and endorsements (i.e., where a brand uses an expert, celebrity, influencer or other person to endorse their product on social media or in other media) are a consistently popular marketing tool and increasingly scrutinized by regulators, including the Canadian Competition Bureau and the U.S. Federal Trade Commission (FTC).

While the Competition Act, which is the primary legislation governing misleading advertising in Canada, does not contain any specific provisions relating to, for example, the disclosure of material connections between a brand and endorser, testimonials/endorsements that are false or misleading can violate the Competition Act.

This is because the general criminal and civil misleading advertising provisions of the Competition Act (sections 52 and 74.01) broadly prohibit materially false or misleading claims to promote a product or any business interest.

In the context of influencer marketing, this can include, among other things, where an influencer has not actually used the product/service being promoted, product claims don’t reflect the influencer’s actual experience, unsubstantiated performance claims are made about the product or, often most importantly for enforcement agencies, where the material connection between a brand and the influencer is not clearly disclosed to consumers.

Such material connections can include, among other things, where the person making the endorsement/testimonial is being paid to make the endorsement, is an employee of the brand or has received free product to make the endorsement.

Importantly, both the Canadian Competition Bureau and the U.S. Federal Trade Commission have made it clear that potential liability rests not only with an endorser/influencer that makes false or misleading claims but can also result in liability for a brand or agency that is involved in making the claim.

In this regard, based on the potential risk to a company or brand that an influencer violates the Competition Act or other laws (e.g., federal anti-spam law (CASL)), some companies enter into influencer agreements with influencers marketing their products.

False testimonials/endorsements have been one of the Competition Bureau’s key advertising-related enforcement priorities over the past several years, with the Bureau both taking enforcement action and issuing compliance guidance for companies.

Some of the compliance guidance issued by the Competition Bureau includes its Influencer Marketing Guidelines and Deceptive Marketing Practices Digest.

In one case, the Competition Bureau commenced enforcement against Bell Canada whose employees allegedly made misleading endorsements about one of their employer’s apps without disclosing that they were in fact employees of the company (see Bell Canada reaches agreement with Competition Bureau over online reviews).

In addition to the Competition Act, other laws and rules can apply to false or misleading testimonials/endorsements, including the FTC Act in the United States, which is enforced by the U.S. Federal Trade Commission, and in Canada, Advertising Standards Canada’s Canadian Code of Advertising Standards.

The following are some of the key Canadian testimonial/endorsement laws and guidelines and compliance tips for influencer marketing campaigns.

KEY CANADIAN TESTIMONIAL/ENDORSEMENT
LAWS AND GUIDELINES

False or misleading testimonials/endorsements: In Canada, testimonials/endorsements can be challenged under the general civil or criminal misleading advertising provisions of the Competition Act (sections 52 and 74.01) where they are either literally false or misleading. A testimonial/endorsement may be false or misleading where, for example, the person giving the testimonial is not real, has not used the product or has not disclosed a material connection (e.g., they are being paid, are an employee of the company/brand or have received free product for giving the testimonial/endorsement and have not disclosed these connections).

Performance claims about a product or business (or business activity): In addition to the general civil and criminal misleading advertising provisions, the Competition Act also includes specific provisions that require that performance claims be substantiated prior to being made (e.g., that product performance claims be supported by “adequate and proper testing”). Claims made by influencers about the performance of a product or service that is not adequately substantiated can violate the general performance claims provision of the Competition Act (section 74.01(1)(b)). In addition to this general product performance claim provision, 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 about a product or business (or business activity). For more information, see: Green Claims.

Standalone testimonials provisions: The Competition Act also includes a standalone testimonials provision (section 74.02), which prohibits using testimonials unless the person publishing the testimonial can show that it was previously made or published or approved and permission to make/publish it was given in writing. Any testimonial must also generally accord with what has been actually said.

Canadian Code of Advertising Standards: Advertising Standards Canada’s Canadian Code of Advertising Standards also includes a testimonials rule, which provides that testimonials, endorsements or other representations of opinion or preference must comply with all of the following: reflect the genuine, reasonably current opinion of the individual(s), group or organization making the representation; be based on adequate information about or experience with the identified product or service; and not be deceptive. The ASC has also issued a specific Interpretation Guideline for testimonials and endorsements (Interpretation Guideline #5 – Testimonials, Endorsements, Reviews), which imposes specific disclosure requirements. These include requiring the disclosure of any material connection between an endorser, reviewer, influencer or person making the claim and the entity that makes the product available to the endorser; clear and prominent disclosure of any material connection; and for disclosures to be in close proximity to the claim about the product or service.

POTENTIAL COMPETITION ACT
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 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 also commonly negotiates civil consent agreements (i.e., settlements) with parties, which can include remedies not expressly set out under the Competition Act such as the requirement to adopt a competition law compliance program, or seeks a prohibition order under the criminal provisions of the Competition Act.

The enforcement of the criminal and civil deceptive marketing provisions of the Competition Act is also an ongoing priority for the Competition Bureau, particularly false or misleading price claims, performance claims and ordinary selling price claims.

LEGAL TIPS FOR TESTIMONIALS/ENDORSEMENTS
TO COMPLY WITH THE COMPETITION ACT

Some legal compliance tips for testimonials/endorsements in Canada, including in the context of influencer marketing, include:

1. Do ensure that any material connection is disclosed (e.g., where an influencer has been paid or has received free product).  For example: #ad, #[company name]sponsored, “I’ve partnered with [company name] to … or “[company X] gave me this [product] to try”.

2. Do ensure that any material connection is prominently disclosed (e.g., top left and “above the break” online, at the beginning of videos, clearly in graphics, with a readily understandable hashtag, etc.).

3. Don’t use testimonials from people who haven’t used the product.

4. Don’t make claims that look like testimonials when there is no customer/user – i.e., fictional “customers” endorsing a product.

5. Don’t use the results of product performance tests and/or testimonials in advertising unless authorized to use them.

6. If authorized to use a product performance test, don’t distort user statements or test results and also ensure they’re relevant to the product.

7. Ensure that any performance claim made in connection with a testimonials/endorsement can be supported by the applicable test under the performance claim provisions of the Competition Act before the claim is made.

8. Consider using an influencer agreement if using influencers to market a product or brand to reduce the risk if the influencer violates the Competition Act or other laws (e.g., federal anti-spam law (CASL)).

9. If unsure, obtain legal advice – false and misleading testimonials/endorsements are an enforcement priority for both the Canadian Competition Bureau.

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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.

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