On March 18, 2020, the Commissioner of Competition (the “Commissioner”) issued an open letter to the executive members of the Canadian Bar Association’s Competition Law Section regarding the impacts of the COVID-19 pandemic on the Competition Bureau’s (the “Bureau”) enforcement processes. In this letter, the Commissioner stated that “the Bureau may … need to prioritize urgent marketplace issues that require immediate action to protect Canadians”. While the Commissioner did not provide specific examples of “urgent market issues”, a subsequent statement issued by the Bureau suggests that these issues include, among other things, deceptive marketing practices relating to COVID-19 and, in particular, false, misleading or unsubstantiated performance claims about a product’s ability to prevent, treat or cure the virus.

Continue Reading A Refresher on Performance Claims

Many have expressed concern that retailers are now incentivized to unilaterally increase the prices for products critical to the COVID-19 response. Canada’s competition enforcer, the Competition Bureau, does not have clear jurisdiction to regulate prices or otherwise directly prevent price gouging. However, the Ontario government is now expressly prohibiting price gouging for “necessary goods” (as defined). In particular, through an emergency prohibition order made under the Emergency Management and Civil Protection Act on March 27, 2020, certain persons are prohibited from selling “necessary goods” at “unconscionable prices”.

Continue Reading Ontario Implements Price Gouging Measures: What You Need to Know

In response to the COVID-19 virus, Canada’s federal government has restricted non-essential travel and closed the US border. Canada’s provincial governments have enacted highly restrictive measures including mandating the closure of facilities providing recreational programs (i.e. gyms), libraries, public and private schools, licensed childcare centres, bars and restaurants, theaters, cinemas and concert venues, and the list goes on. Some provinces have also banned gatherings of more than 5 people and prohibited all non-essential businesses. The status quo is likely to continue for weeks, if not months. While both federal and provincial governments have implemented measures to support businesses during this time, including tax deferrals, increased credit availability, and wage subsidies to help prevent layoffs, these programs, regrettably, may not be enough to keep some businesses afloat.

Continue Reading Refresher on the Failing Firm Defence

Canada’s antitrust/competition, marketing and foreign investment laws continue to apply despite the global health and economic crisis arising from COVID-19. However, the enforcement of these laws are being significantly impacted by the COVID-19 response. These developments are fast moving and change almost daily.

Fasken’s Antitrust/Competition & Marketing Group continues to monitor these developments very closely. Below we outline developments in: (i) transaction planning and merger review, (ii) communication and coordination with competitors, (iii) changes in priority for competition enforcement, (iv) national security and Investment Canada Act reviews and (v) investigative and adjudicative delays. We also offer practical strategies for businesses moving forward.

I. Transaction Planning and Merger Review

Globally, many agencies, including the European Commission, have encouraged merging parties to delay originally planned filings where possible. Other agencies have amended their procedures, including the U.S. Federal Trade Commission (the “FTC”), which will no longer grant early terminations for Hart-Scott-Rodino filings. To date, the Competition Bureau (the “Bureau”) has done neither. However, the Bureau, whose staff are working remotely, has warned of delays in its merger review process due to difficulties reaching third-party market contacts, such as customers, suppliers and competitors.

The Bureau has non-binding service standards within which it endeavours to complete its review of a proposed transaction. Proposed transactions are designated as either “non-complex” or “complex” and are assigned a corresponding service standard, which is 14 days for “non-complex” transactions and 45 days for “complex” transactions (except where a supplementary information request (a “SIR”) is issued, in which case it is 30 days from the date the SIR is responded to). Merging parties should expect that the Bureau may not be able to meet its service standards in the current environment and should plan accordingly. Planning should include earlier engagement with the Bureau. Transaction agreements should also account for longer delays with appropriate protections.

Substantively, forward-looking analyses in merger review will be more challenging given the unpredictable and fast moving changes to the economy. We expect the “failing firm” and “flailing firm” defenses to gain more prevalence, particularly in sectors heavily impacted by COVID-19. In light of excess capacity and declining demand in many sectors, companies are expected to maximize available efficiencies, including through mergers and acquisitions. In instances where there is excess capacity and/or declining demand at the time of the merger, there may be increased scope for merging parties to use the efficiencies defence in Canada.

II. Communication and Coordination with Competitors

Globally, some agencies have suspended laws that would otherwise prohibit collusion between competitors to address unprecedented health and economic challenges. These suspensions aim to enhance the output, supply and distribution of much needed medical and food supplies during the COVID-19 pandemic. For example:

  • The European Competition Network, made up of the European Commission and the European Union’s national competition agencies, released a joint statement noting that it “will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply” due to the COVID-19 pandemic, and that the “extraordinary situation may trigger the need for companies to cooperate in order to ensure the supply and fair distribution of scarce products”.
  • The United Kingdom’s Competition and Markets Authority (the “CMA”) has published guidance regarding its priorities and approach to enforcement during the COVID-19 pandemic. The CMA stated that so long as coordination between competitors is undertaken solely to address concerns arising from the current crisis and does not go further or last longer than what is necessary, the CMA will not take action. Some examples given by the CMA include businesses coordinating to ensure essential goods and services are available to the public and that there is no shortage of these goods, to ensure fair distribution of scarce products or to provide new services such as food delivery to vulnerable customers. The CMA has specifically advised supermarkets that they will not face enforcement action for cooperating, or even rationing products, where necessary to protect consumers during the COVID-19 outbreak.
  • In a joint statement by the U.S. Department of Justice and the FTC, both agencies committed to accounting for “exigent circumstances” in evaluating efforts to address the spread of COVID-19, including competitor collaborations. For example, they make explicit their recognition that businesses may need to temporarily combine production, distribution or service networks to facilitate production and distribution of COVID-19-related supplies that they may not otherwise manufacture or distribute. This joint statement also made clear that these sorts of efforts, which are limited in duration and necessary to assist patients, consumers and communities affected by COVID-19 and its aftermath, would be examples of “exigent circumstances”. In addition, the agencies stated their aim of providing individuals and businesses that are responding to the COVID-19 emergency with expeditious guidance about how to ensure their efforts comply with U.S. antitrust laws (i.e., within 7 days of such requests).

Canada’s Competition Act (the “Act”) does draw a distinction between criminal collusion and civilly reviewable agreements or arrangements that prevent or lessen competition substantially. Criminal collusion, which includes horizontal agreements between competitors to fix prices, allocate markets/customers or limit output as well as big-rigging, is per se unlawful, meaning such agreements are deemed illegal without any proof of anticompetitive effects. Other forms of competitor collaborations, such as research and development agreements or joint purchasing agreements, are presumptively legal, absent proof of anticompetitive effects.

As a practical matter, competitor collaborations that would be presumptively legal and viewed as particularly helpful under the circumstances are those that would support the delivery of affordable goods and services to address health and food supply needs of Canadians. In particular, collaborations aimed at increasing output of products and services, addressing supply or distribution issues, and driving efficiencies, would likely be viewed as pro-competitive.

Canada has not implemented any suspension of its laws against competitor collaborations nor has the Bureau released guidance akin in scope to that of the above agencies. However, the Bureau did remind the public that “Canada’s competition laws accommodate pro-competitive collaborations between companies to support the delivery of affordable goods and services to meet the needs of Canadians”. The Bureau further noted that it is “committed to a reasonable and principled enforcement of Canada’s competition laws, and [that it] will work closely with [its] partners in federal, provincial and municipal governments, along with the business and legal communities, to navigate these exceptional circumstances for the benefit of all Canadians”.

III. Changes in Priority for Competition Enforcement

Not surprisingly, the Bureau has stated that “investigations that may involve face-to-face interviews with Immunity/Leniency applicant witnesses, the operationalization of solicitor-client protocols, meetings with complainants, and plea or other settlement negotiations may suffer some delays”.

The Bureau has also emphasized that it may need to prioritize urgent marketplace issues that require immediate action to protect Canadians – an approach that may have implications on its ability to address other ongoing matters. While the Bureau did not provide specific examples of “urgent market issues”, such issues may include the following.

a) Deceptive Marketing Claims

The Bureau will likely focus on deceptive marketing practices relating to COVID-19 and, in particular, false, misleading or unsubstantiated performance claims about a product’s ability to prevent, treat or cure the virus. It bears noting that “health-related products and their marketing claims” were a Bureau priority before the COVID-19 crisis. For example, the Bureau recently sought a temporary order preventing Nuvocare Health Sciences Inc. from making unsubstantiated weight loss and fat burning claims in the marketing of certain natural health products. Given the current climate, it will be even more important for businesses to exercise caution when making health-related claims concerning COVID-19 and to ensure that such claims are supported by adequate and proper testing conducted before any such claims are made.

b) Refusal to Deal (Supply)

Suppliers generally have wide contractual freedom to supply their products or services to whomever they wish. Even suppliers with considerable market power can generally unilaterally refuse to supply their products or services for legitimate business reasons.

Refusals to supply critical products or services in the response against COVID-19 may be subject to greater regulatory scrutiny. Businesses should memorialize their valid business reasons for any refusals to supply, particularly any pro-competitive and efficiency enhancing rationales. Further, any refusals to supply should be made unilaterally and not in coordination with competitors.

c) Unilateral Price-Gouging

The COVID-19 pandemic has also impacted the price of various goods and services across the country. For example, many retailers are incentivized to increase the prices of hand sanitizers and masks because consumers are willing to pay more for these products. The Act does not regulate prices or otherwise prevent price gouging. Retailers are generally able to charge whatever prices they choose. That being said, Canada’s Emergencies Act allows the Federal Government to take measures regarding “the regulation of the distribution and availability of essential goods, services and resources”, which could be used to address price gouging for at least some products and services – something that has already been done across much of the United States.

Further, consumers may make price gouging complaints to the Bureau. Although it does not have clear jurisdiction over unilateral price-gouging, the Bureau may choose to engage on the issue.

IV. National Security and Investment Canada Reviews

The Investment Review Division (“IRD”), which is responsible for enforcing the Investment Canada Act, has not requested delays in filing or amended its processes. However, IRD staff is working remotely, which is expected to lead to delays.

Substantively, new national security issues are expected to emerge. Indeed, from the perspective of critical infrastructure, supply chains and supply, national security suddenly means fighting scarcity and disease.

There is a limited but important implication for businesses considering merger and acquisition activity at this time: COVID-19 has created conditions in which even close allies and friends may need to compete for critical resources, particularly in the health field. Scarcity of supply of products like medical protective equipment, ventilators and associated manufacturing inputs means that Canadian regulators will cast a keen eye over any deal that would make the mass acquisition of such goods more difficult. Mitigation in the form of supply guarantees will be in order.

As such, even if a deal involves a purchaser from a Canadian-friendly state, if the transaction may result in control of critical infrastructure falling out of Canadian hands, resulting in short supply of vital goods or services to Canadians, a deal could be blocked.

V. Investigative and Adjudicative Delays

Adjudicative bodies that hear competition matters have released practice directions outlining the impact of the COVID-19 pandemic on their respective operations. These delays are expected to delay Bureau investigations and the enforcement and adjudication of competition disputes.

a) Competition Tribunal

Canada’s main adjudicative body for competition disputes, the Competition Tribunal (the “Tribunal”), remains open for business. However, its members and employees are working remotely and its premises are closed to the public until further notice. According to the Tribunal’s Notice Regarding the COVID-19 Pandemic, there will be no in-person hearings until at least April 17, 2020. This notice contemplates the possibility of further postponements. The Tribunal will, however, continue to hear urgent matters by telephone conference.

Though no paper filings will be accepted for the time being, the Tribunal’s secure e-filing system remains fully operational and parties are urged to continue to file documents by electronic transmission through the Tribunal’s secure e-filing application.

b) The Federal Court of Canada

The Federal Court of Canada (the “Federal Court”) has jurisdiction to hear certain competition matters. It is primarily used by the Bureau for the issuance of section 11 orders under the Act, an evidence gathering tool for the production of records, written returns of information under oath and, at times, oral examinations under oath.

Through a Practice Direction and Order (COVID-19) and an updated Practice Direction and Order (COVID-19), the Federal Court has implemented a 33-day suspension period, from March 16, 2020 – April 17, 2020 (the “Suspension Period”). All Federal Court hearings scheduled to be heard during the Suspension Period are adjourned without any future date being designated. Further, all hearings that were scheduled to proceed by way of a telephone conference and all general sittings of the Federal Court falling within the Suspension Period are also cancelled. Matters that the Federal Court deems urgent or exceptional will proceed on a case-by-case basis.

Significantly, the running of all timelines under orders and directions of the Federal Court made prior to March 16, 2020 are extended for the duration of the Suspension Period. This includes section 11 orders requiring parties to attend an oral examination and to produce records and written information. The extended timelines will likely delay the Bureau’s evidence gathering activities related to its ongoing investigations. Depending on the way in which the COVID-19 pandemic evolves, further extensions to the Suspension Period are foreseeable which will, in turn, further delay the Bureau’s investigations.

The Federal Court is not closed but has only maintained skeleton staff which will not be monitoring registry counters. As such, parties are exempted from filing any required paper copies of filings and are urged to instead use the Federal Court’s e-filing portal or email to file documents.

c) Warrants for Search and Seizure/Investigative Delays

In light of superior courts across Canada and the Federal Court suspending all regular operations and Bureau officials working from home, previously planned search and seizures by the Bureau are also likely to be delayed. This will impact and delay the progression of Bureau investigations.

d) Class Actions

The suspension of regular operations at superior courts across Canada is also expected to impact ongoing competition class actions. This includes certification hearings, settlement approval hearings and related interlocutory motions.

Fasken’s Antitrust/Competition & Marketing Group will continue to monitor these developments and will keep you apprised, including through a series of blog posts on many of the topics discussed above.

 

Introduction

Following up from Part 1 of our article on the interaction of between privacy and competition law in the economy, Part 2 surveys how competition law enforcers in the United States, European Union, and Canada have addressed both competition and privacy concerns as it relates to data.

A number of significant mergers have taken place within the digital economy in the past few years. Notable highlights include Microsoft’s acquisition of LinkedIn, Facebook’s acquisition of WhatsApp, and more recently Salesforce’s acquisition of Tableau Software. Each also highlights the important nexus between competition and data privacy concerns. Consolidation in this market is only expected to continue, so the question becomes when and how should competition law authorities intervene?

United States

In the US, the Federal Trade Commission (“FTC”) is the authority responsible among other things for the enforcement of antitrust laws and the review of proposed mergers. The FTC also contains the Bureau of Consumer Protection, which enables it to address both competition and privacy concerns. This past year, both the FTC and the Government Accountability Office have called on congress for a federal privacy law. On January 1, 2020, the California Consumer Privacy Act came into effect, which grants California residents new rights to know what personal information about them businesses hold, to access and delete such information, and to opt-out of a sale by the business of their personal information.

The matter of Nielsen Holdings N.V. and Arbitron Inc. demonstrates the FTC’s ability to identify the importance of data in merger and acquisition review. By way of background, Nielsen and Arbitron competed in the supply of syndicated cross-platform audience measurement services to media companies and advertisers. The FTC found that access to data posed a significant barrier to entry and obtained a consent order “requiring divestiture of assets to Arbitron’s cross-platform audience measurement services business, including audience data with individual-level demographic information and related technology, and intellectual property.”

European Union

In the EU, the European Commission (“EC”) and its Directorate General for Competition are responsible for the administration of competition law. In regard to privacy matters, the General Data Protection Regulation is regulated by the European Data Protection Board. European authorities have had to deal with data implications on several occasions.

In 2016, the EC approved the acquisition of LinkedIn by Microsoft, subject to several conditions. Both companies retained large datasets comprised primarily of personal information. The EC found that the combination of Microsoft’s and LinkedIn’s datasets would act as a barrier to entry. The EC’s commitments included granting competing professional social network service providers access to Microsoft Graph, a gateway for software developers which is used to build applications and services that can, subject to user consent, access data stored in the Microsoft cloud, such as contact information, calendar information, emails etc. Software developers can potentially use this data to drive subscribers and usage to their professional social networks. Interestingly, the FTC did not find anticompetitive implications in this transaction.

In 2019, Germany’s antitrust regulator, the Bundeskartellamt, found Facebook had abused its market power based on the extent of collecting, using and merging data in a user account and imposed on Facebook far-reaching restrictions in the processing of user data. Andreas Mundt, President of the Bundeskartellamt, commented on the barrier of task switching stating that in the operation of its business model, Facebook must take into account that its users practically cannot switch to other social networks.

Canada

In Canada, the Competition Bureau (“the Bureau”) is the federal agency that is responsible the administration and enforcement of competition laws. The federal body responsible for privacy issues is the Office of the Privacy Commissioner. As such, Canada has separated issues that combine both competition and privacy issues between two federal bodies.

The Bureau has long acted in competition matters involving data. Two recent abuse of dominance investigations involving Google and the Toronto Real Estate Board (“TREB”) highlight some of the developing issues that have informed the Bureau’s consideration of competition issues in this area.

In 2016, the Bureau announced that it had discontinued its abuse of dominance investigation into Google’s alleged anti-competitive conduct relating to online search and search advertising services. In its investigation, the Bureau considered a number of developing issues related to the competitive significance of data, including:

  • Zero pricing for online search services, which generate significant amounts of valuable data;
  • Platforms and multi-sided markets that intermediate between users and advertisers on the basis of data; and
  • Network effects, where the search engine gathers and analyzes data from users who click on ads and links. Increased user counts can therefore lead to improvements in the search algorithms to display more relevant search results and ads, thus attracting more users and advertisers.

In 2018, the Supreme Court of Canada ruled in favour of the Bureau and dismissed TREB’s application to appeal over the restrictions imposed by TREB on real estate brokers’ and consumers’ access to historical sales data and novel real estate services. TREB argued that the restrictions were designed to protect consumer privacy to comply with federal privacy law and requirements of the Ontario real estate regulator. The Bureau’s decision in the matter touched on many issues related to data, such as:

  • market power, including through the control of access to data;
  • the assessment of innovation and dynamic competition enabled by data;
  • the role of qualitative evidence; and
  • the existence and exercise of intellectual property rights over a database.

Conclusion

Competition law enforcers generally have a good grasp on the implications of data as it relates to competition law issues. However, several jurisdictions lack modern data privacy regulations all together, or in some cases, have divided authority for competition and privacy matters to different agencies. As data privacy issues become more prevalent, policy makers should be aware of these potential legislative and organizational challenges to effectively address both competition and privacy concerns as they relate to data.

On 13 February 2020, the Minister of Trade, Industry and Competition (South Africa) brought the long-awaited buyer-power and price discrimination provisions into effect. These provisions were introduced through a suite of amendments made to the Competition Act (the “Act”) in early 2019. They may be summarized as follows:

  • the price discrimination provisions prohibit dominant sellers from discriminating in the prices they charge to small and medium businesses, and firms owned or controlled by historically disadvantaged persons (referred to in the regulations, explained below, as “the designated class”), if the effect is to impede the ability of such firms to participate effectively, and
  • the buyer power provisions prohibit dominant buyers in certain sectors from requiring or imposing unfair prices or trading conditions on sellers in the designated class.

In conjunction with bringing these provisions into effect, the Minister has also published the final regulations to assist with the interpretation of these provisions.

We have summarized the main features of these regulations below, and the impact that they will have on dominant firms’ conduct in the market towards small and medium sized businesses, as well as businesses owned or controlled by historically disadvantaged persons.

Price Discrimination Regulations

  • Critically, the regulations provide that in order to establish a contravention, the differential in price must impede the effective participation of “a firm or firms” in the designated class of purchasers. An effect on all or a substantial number of buyers in the designated class does not appear to be required, although practical enforcement by the authorities may focus on conduct that impedes participation by a number of firms.
  • The factors for determining when price discrimination is likely to impede effective participation by firms in the designated class include:
    • The extent of the difference in respect of price or other factors outlined in section 9(1)(c) of the Act relative to other purchasers in the same market or in markets in which the purchaser in the designated class is a potential competitor;
    • The significance of the input in the cost structure of the purchaser in the designated class of purchaser or as a driver of sales in the downstream market for the purchaser in the designated class of purchaser;
    • The duration and timing of the price differential;
    • The likelihood that the differential treatment would result in the purchaser in the designated class of purchaser facing decreased demand for its goods or services in the downstream market; and
    • The likelihood that the differential treatment would result in decreased investment by the purchaser in the designated class.
  • The regulations suggest that firms owned or controlled by historically disadvantaged persons should only qualify for protection under the relevant section if they purchase less than 20% of the relevant goods or services supplied by the dominant seller. This provision seeks to filter out complaints by large firms owned or controlled by historically disadvantaged persons, focusing the section’s scope on protecting smaller firms with limited negotiating power.

Buyer power regulations

  • As with the price discrimination regulations, the buyer power regulations appear to set a low threshold for the effect required to establish a contravention. The language setting out the elements of a contravention refer to the effect on “the supplier”, rather than suppliers in the designated class in the aggregate.
  • The buyer power regulations suggest application of the relevant prohibition only to dominant buyers in the following industries:
    • Agro-processing, which is defined as “the processing of raw materials and intermediate products derived from the agricultural sector, including agriculture, forestry and fisheries”.
    • Grocery wholesale and retail, which is defined as, “the wholesale or retail of food, pet food, drinks, cleaning products, toiletries and household goods”.
    • Ecommerce and online services sector, which is defined as, “the online sale of goods or services to businesses or consumers”. ‘Ecommerce’ is defined as including “the sale, or facilitation of sale, of goods supplied by third party businesses” and ‘online services’ is defined to include “(a) the provision or facilitation of a service using contracted individuals or other businesses to supply the service that forms the basis for an online sale; and (b) online e-commerce market places, online application stores and so-called ‘gig economy’ services”.
  • “Price” is broadly defined to include “discounts, rebates, commissions, allowances or credit”, with the net being cast even more broadly by the definition of “trading conditions” to include “any explicit terms contained in contractual arrangements as well as any implied or actual trading terms implemented by the buyer outside of the supply contract”.
  • Factors to be taken into account when determining whether a price will be unfair include:
    • The prices paid to other suppliers of like goods or services, in particular those outside the designated class, and whether such prices are higher;
    • The magnitude of any differences in prices to other suppliers of like goods or services;
    • Whether reductions in the existing purchasing price are directly or indirectly required from, or imposed on, the supplier;
    • Whether reductions to an existing purchasing price are retrospective, unilateral or unreasonable;
    • Whether costs are directly or indirectly imposed on or required from the supplier which reduce the net price received by the supplier; or
    • Whether the direct or indirect imposition or requirement of costs is retrospective, unilateral or unreasonable.
  • Factors to be taken into account when determining whether a trading condition will be unfair include whether the trading condition:
    • unreasonably transfers risks or costs onto a firm in the designated class of suppliers;
    • is one-sided, onerous or not proportionate to the objective of the clause (such as unduly long payment terms); or
    • bears no reasonable relation to the objective of the supply agreement.
  • Like the price discrimination regulations, the buyer power regulations restrict application of the relevant provisions to firms owned or controlled by historically disadvantaged persons only if such firms supply less than 20% of the dominant buyer’s requirements of the goods or services in question.

General comment

The regulations are very slim, but provide important guidance for a novel area of competition law in South Africa. Read with the Competition Commission’s draft guidelines on buyer power and price discrimination, which are likely to be finalized soon, there is sufficient understanding of what Government and the regulators would like to achieve through these provisions whilst, at the same time, leaving sufficient room for organic development of the law through practice and case law.

On January 22, 2020, Josephine Palumbo, the Deputy Commissioner of the Deceptive Marketing Practices Directorate at the Canadian Competition Bureau (the “Bureau”), spoke at the Canadian Institute’s 26th Annual Advertising and Marketing Law Conference. During her remarks, titled Honest Advertising in the Digital Age, Ms. Palumbo identified the Bureau’s current enforcement priorities as they relate to advertising and marketing in the digital economy. Among other things, these priorities include (a) influencer marketing; (b) fake online reviews; (c) dishonest information about data privacy; and (d) dishonest price claims.

To help businesses better understand how the Competition Act (the “Act”) applies to their online advertising and marketing practices, we are publishing a series of four blogs discussing the enforcement priorities identified above. In particular, each of the blogs will describe the conduct in question, identify the provisions of the Act applicable to the conduct in question and provide some general guidance on what businesses can do to help ensure that their advertising and marketing practices comply with the Act. This is the fourth and final blog, which deals with dishonest price claims.

Overview of Dishonest Price Claims

Consumers are always looking for a bargain – something that is recognized by both the Bureau and retailers across the country. For example, the Bureau has stated as follows in The Deceptive Marketing Practices Digest – Volume 4:

Price matters. Consumers try to maximize the value of quality received for money paid. Price allows consumers to weigh the value of products or services, or compare competing ones. It can indirectly indicate quality differences between competing products or brands, or tip the balance between two otherwise equal products.

Given the importance that consumers place on price, dishonest price claims in the digital economy have been – and continue to be – a priority for the Bureau. In particular, the Bureau’s focus has been primarily on “drip pricing” and ordinary price claims.

Drip Pricing

Drip pricing occurs when a business offers consumers an attractive price that is not available because additional non-optional fees are added to the advertised price later in the purchasing process. This may result in consumers paying significantly more than expected for the product or service in question.

Drip pricing may raise concerns under the false or misleading representations provisions. In summary, these provisions prohibit a business from making a representation to the public (which can include a single person), in any form whatever, that is false or misleading in a material respect. Whether a representation is material depends on whether or not it will influence a customer’s buying decision. Representations relating to price are typically considered material.

During her remarks, Ms. Palumbo noted that, “[a]s more and more consumers make purchases online, hidden fees are increasingly an area of concern”. In fact, since 2016, the Bureau has successfully resolved six cases involving hidden fees, including cases involving StubHub, Ticketmaster and four of the largest car rental companies in Canada (i.e., Avis/Budget, Discount, Enterprise and Hertz). The settlements reached in these civil cases resulted in total penalties of almost $12 million and required the companies in question to, among other things, make changes to their websites and/or mobile applications to ensure compliance with the Act.

As stated by Ms. Palumbo, “[t]hese cases are really important for us because they send a message to all digital advertisers that Canada’s competition watchdog is on guard for anyone who tries to use misleading pricing schemes and deceptive claims to attract consumers”. These misleading pricing schemes and deceptive claims include, but are not limited to, “drip pricing”.

Ordinary Price Claims

The Act includes civil provisions that prohibit businesses from making any materially false or misleading representations to the public, in any form whatsoever, as to the ordinary selling price (“OSP”) of a product without satisfying what has become known as the “volume test” or the “time test”.

  • Volume Test: the business has sold a substantial volume of the product at the advertised regular price (or a higher price) within a reasonable period of time before or after making the representation. In the Bureau’s view, “substantial volume” means at least 50% of sales and “reasonable period of time” generally means 12 months.
  • Time Test: the business has offered the product for sale at the regular price (or a higher price) in good faith for a substantial period of time recently before or immediately after making the representation. In the Bureau’s view, “substantial period of time” generally means at least 50% of the time during a 6-month period.

As with “drip pricing”, OSP claims have been – and continue to be – a priority for the Bureau. While most of the Bureau’s enforcement action in this area has involved bricks-and-mortar retailers (such as Hudson’s Bay Company, Michaels, Sears and Suzy Shier), it did commence an inquiry in 2015 into Amazon’s marketing practices. Following its inquiry, which focused on the promotion and sale of 12 movies in Blu-ray format, the Bureau concluded that Amazon had relied on list prices provided by suppliers without verifying that those prices were prevailing market prices; that the OSP claims being made by Amazon created the general impression that Amazon’s prices were lower than prevailing market prices; and that the claims did not meet the requirements of either the time test or the volume test. In order to resolve these concerns, Amazon voluntarily implemented specific policies and procedures to ensure its practices do not contravene the Act. It also agreed to pay a $1 million penalty and $100,000 towards the Bureau’s costs.

Given the prevalence of OSP claims in the digital economy – which the Bureau has described as a “powerful marketing tool“ – it would not be surprising to see additional enforcement action in this area in the near future.

General Guidelines for Business

While by no means exhaustive, the following guidelines will help businesses avoid the use of dishonest price claims:

  • Fully and clearly disclose all material information in an advertisement. The failure to disclose material information could raise issues under the Act.
  • Consider both the literal meaning of and the general impression created by an advertisement. Both must be true – issues could arise if either is false or misleading.
  • Ensure that the advertised price reflects the ultimate price that consumers will pay. Do not bury additional non-optional fees or charges in fine-print disclaimers or add them to the advertised price later in the purchasing process – especially when doing so will result in consumers paying significantly more for your products and services.
  • Do not confuse “regular price” or “ordinary price” with “manufacturer’s suggested list price” or a like term. They are often not the same.
  • Do not use the terms “regular price” or “ordinary price” in an advertisement unless a substantial volume of the product has been sold at that price within a reasonable period of time or the product has been offered in good faith for sale at that price for a substantial period of time. This requires businesses to actively monitor the volume of sales made at regular prices and the time periods during which those prices were charged.
  • Do not run a “sale” for a long period of time or repeat it every week. Doing so could impact your ability to make OSP claims.
  • In the event two or more prices appear on a product, charge the lowest price.
  • Ensure that your employees responsible for advertising and marketing are aware of their obligations under the Act.
  • Ensure that legal advice is sought when questions or concerns arise.

If you have questions about the advertising and marketing provisions in the Act – whether related to the digital economy or otherwise – you can reach out to any member of Fasken’s Antitrust/Competition Marketing group. Our group has significant experience advising clients on all aspects of Canadian competition law.

The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Antitrust/Competition Marketing group.

On January 22, 2020, Josephine Palumbo, the Deputy Commissioner of the Deceptive Marketing Practices Directorate at the Canadian Competition Bureau (the “Bureau”), spoke at the Canadian Institute’s 26th Annual Advertising and Marketing Law Conference. During her remarks, titled Honest Advertising in the Digital Age, Ms. Palumbo identified the Bureau’s current enforcement priorities as they relate to advertising and marketing in the digital economy. Among other things, these priorities include (a) influencer marketing; (b) fake online reviews; (c) dishonest information about data privacy; and (d) dishonest price claims.

To help businesses better understand how the Competition Act (the “Act”) applies to their online advertising and marketing practices, we are publishing a series of four blogs discussing the enforcement priorities identified above. In particular, each of the blogs will describe the conduct in question, identify the provisions of the Act applicable to the conduct in question and provide some general guidance on what businesses can do to help ensure that their advertising and marketing practices comply with the Act. This is the third blog, which deals with dishonest information about data privacy.

Data Privacy and the Role of the Bureau

Data privacy is concerned with the collection, use, disclosure and maintenance of personal data. Specifically, it is concerned with ensuring that (a) individuals have control over their own personal data and (b) informed consent is obtained before businesses collect and use that personal data.

The first step in obtaining and maintaining informed consent is often the use of a privacy policy. A privacy policy is also a way for  businesses to meet certain of their disclosure obligations under the Personal Information Protection and Electronic Documents Act (“PIPEDA”) or substantially similar provincial legislation.

Unfortunately, privacy policies are often lengthy and legalistic documents that may not promote  the goals of informed consent or proper disclosure. Additionally, if any part of a business’ privacy policy is materially false or misleading, issues could potentially arise under certain deceptive marketing provisions in the Act. For example, in the Bureau’s 2017 white paper, Big data and innovation: Implications for competition policy in Canada (the “2017 Big Data Paper”), the Bureau noted that deceptive practices can interact with personal data and privacy in many ways, including “false or misleading representations about the type of data collected, the purposes for which the data are collected, how the data will be used, maintained and erased … and failing to adequately disclose information necessary for consumers to make informed choices”.

As identified by the Bureau in its 2018 report, Big data and innovation: key themes for competition policy in Canada, there is a danger that false or misleading privacy policies may lead consumers to consent to the collection and use of their data in ways that they would not have otherwise consented to if properly informed. These types of concerns fall squarely within Bureau’s mandate to ensure truth in advertising and protect consumers.

Josephine Palumbo affirmed the Bureau’s commitment to data privacy in her recent remarks, stating (a) that “[t]he collection of data is an area where the principles of deceptive marketing are especially relevant”; (b) that “the era of Big Data means [the Bureau] will need to devote more attention to false claims that mislead consumers into giving away their personal data”; and (c) that “when firms make false or misleading statements about the type of data they collect, why they collect it, and how they will use, maintain and erase it, [the Bureau] will take action”. In fact, the Bureau is already taking action in the area. For example, earlier this year it was reported that the Bureau was investigating an allegation that the federal Liberal, Conservative and New Democrat parties had made deceptive statements to the public through their respective privacy policies.

The Law

Both privacy and competition laws have a role to play when it comes to data privacy and the use of privacy policies.

Federal and provincial privacy laws, including PIPEDA, set out the privacy obligations that businesses must adhere to when they collect, use or disclose personal information in the course of their commercial activities. Businesses that collect personal information must be aware of and comply with their obligations under this legislation. Failure to do so could result in significant fines.

Privacy policies may also raise concerns under the false or misleading representations provisions of the Act. In summary, these provisions prohibit a business from making a representation to the public, in any form whatever, that is false or misleading in a material respect. Representations regarding how a business will treat an individual’s personal data will almost certainly be considered material.

In considering whether a representation is false or misleading in a material respect, businesses must consider both the literal meaning of the representation and the general impression conveyed by the representation – including in the context of privacy policies. For example, even if a privacy policy fully and accurately describes a business’ data practices (and is therefore literally true), concerns could potentially still arise if the policy creates a false or misleading general impression. In this regard, the 2017 Big Data Paper states as follows:

Fundamentally, companies are putting themselves at risk when they collect information that consumers would not expect to be collected in the normal course of business and only disclose this material information in terms and conditions that are likely to be overlooked by consumers. Consumers form a general impression about the type of data being collected and how their data will be used; companies should ensure that such general impression corresponds with the data being collected and how the data are, in fact, used. The collection and use of data that go beyond what consumers would reasonably expect increases the likelihood of deception.

The 2017 Big Data Paper also includes the following examples of situations that could lead to privacy policies being considered  false or misleading:

  • Collecting data that is not linked to the functionality of the good or service being used

For example, as considered in a recent complaint investigated by the U.S. Federal Trade Commission (the “FTC”), a simple flashlight app may be collecting personal location data in order to sell it to third-party organizations. As the collection of location data has no connection to the operation of the mobile app, consumers may not be aware that they need to take steps to protect their personal information.

  • Misleading public representations that do not accord with the actual functionality of the product or service

For example, the FTC has recently taken action against Snapchat regarding numerous inconsistencies between the company’s representations regarding data privacy and the actual functionality of the Snapchat app. These inconsistencies include the app’s marketing, which highlights the idea that “snaps” would disappear forever after expiring, despite the fact that there were many ways in which third-parties could save or access these snaps after expiry.

Failing to ensure that your privacy policy complies with the false or misleading representations provisions of the Act can have serious consequences, including administrative monetary penalties, restitution and reputational harm – and in some cases criminal fines and jail time. For example, administrative monetary penalties for making false or misleading representations contrary to the civil provisions of the Act have ranged from $10,000 to $10 million.

Best Practices for Business

While by no means exhaustive, the following guidelines will help businesses avoid making false or misleading representations regarding their data practices:

  • Ensure privacy policies comply with all applicable requirements under PIPEDA and other privacy legislation.
  • Ensure privacy policies are accessible and use clear language (consider the Ontario Privacy Commissioner’s tips for better online privacy policies).
  • Ensure that the use and collection of data is undertaken in compliance with the company’s privacy policy, and make certain that any changes to the collection or use of data are immediately reflected in public representations.
  • Where the type of data collected or the use of that data may not fall within a customer’s reasonable expectation (for instance, where the data collection is incidental and not required for use of the product or service), be particularly clear regarding data practices and do not rely on a lengthy and legalistic privacy policy.
  • Ensure that any marketing or public representations regarding the use or functionality of a product or service do not misrepresent the actual functionality of the product or service, or the company’s data privacy practices.

If you would like assistance reviewing your privacy policy or have questions about the advertising and marketing provisions in the Act – whether related to the digital economy or otherwise – you can reach out to any member of Fasken’s Antitrust/Competition Marketing group. Our group has significant experience advising clients on all aspects of Canadian competition law.

The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Antitrust/Competition Marketing group.

On February 11th, the Competition Bureau published its Strategic Vision for 2020-24. Titled “Competition in the Digital Age”, this document outlines how the Bureau plans to deliver the benefits of competition to Canadians over the next four years in today’s rapidly changing digital economy.

The Strategic Vision includes three key themes or pillars, namely (1) protecting Canadians through enforcement, (2) promoting competition in Canada, and (3) investing in the organization. Numerous action items and desired outcomes are set out for each of these themes.

Some Initial Observations

Our initial observations on the Strategic Vision are set out below:

  1. The Strategic Vision is generally consistent with both the Bureau’s 2019-20 Annual Plan and prior speeches by the Commissioner of Competition, such as his speech titled “No River too Wide, No Mountain too High: Enforcing and Promoting Competition in the Digital Age” (which was discussed in our prior blog post titled “Commissioner Points to More Active Enforcement, Greater Transparency and Refined Approach to Efficiencies Defence”).
  2. It’s interesting to compare the 2020-24 Strategic Vision with the 2015-18 Strategic Vision published by the Commissioner’s predecessor, John Pecman. In this regard, the 2020-24 Strategic Vision gives considerably greater emphasis to enforcement and enforcement capabilities, and comparatively less emphasis to compliance through education and advocacy.
  3. The 2020-24 Strategic Vision contains the very clear statement that over the next four years “enforcement will be our main focus”. Substance is added to this priority through the following:
    • the reference to timely and evidence-based enforcement action that focuses “on sectors of the economy that matter most to Canadians”, including “online marketing, telecommunications, financial services, health and infrastructure”;
    • the Commissioner’s intention to invest in enforcement capability, both technological (including new intelligence-gathering tools such as advanced analytical models, algorithms, automated processes and artificial intelligence capabilities) and personnel;
    • plans to establish a Digital Enforcement Office that will provide specialized technological assistance to support the Bureau’s work in the digital economy; and
    • plans to host an annual Digital Enforcement Summit Series (which extends a 2019 initiative).
  4. The 2020-24 Strategic Vision contains several references to the challenges posed by the digital economy. This, combined with the plans to enhance enforcement capabilities described above, is consistent with the priorities specified in the letter that the Minister of Innovation, Science and Economic Development sent to the Commissioner of Competition on May 21, 2019.
  5. Increased focus on enforcement may suggest comparatively less focus on both compliance work (including competition advocacy) and international engagement (which the Strategic Vison indicates will be “focussed”).

Implications for Business

Given the very clear statements that active enforcement will be a priority for the Bureau over the next four years, particularly in sectors such as online marketing, telecommunications, financial services, health and infrastructure, businesses should be aware of and ensure that their practices comply with the Competition Act. Failure to do so could result in lengthy Bureau investigations and costly proceedings before the Competition Tribunal or the courts, which, in turn, could lead to jail time, fines, reduced sales, damaged reputation and class actions.

To the extent not already done, businesses should consider putting in place new corporate compliance programs or updating their existing programs. These programs, which can be tailored to meet a business’ specific needs, offer numerous benefits, such as reducing the risk of non-compliance with the Competition Act; triggering early warnings of potentially illegal conduct; reducing the exposure of employees, management and the business to criminal or civil liability; and assisting businesses to qualify, in certain circumstances, for a reduced sentence or other lenient treatment where a contravention of the Competition Act has occurred.

The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Antitrust/Competition Marketing group.

On January 22, 2020, Josephine Palumbo, the Deputy Commissioner of the Deceptive Marketing Practices Directorate at the Canadian Competition Bureau (the “Bureau”), spoke at the Canadian Institute’s 26th Annual Advertising and Marketing Law Conference.

During her remarks, titled Honest Advertising in the Digital Age, Ms. Palumbo identified the Bureau’s current enforcement priorities as they relate to advertising and marketing in the digital economy. Among other things, these priorities include (a) influencer marketing; (b) false online consumer reviews; (c) dishonest information about data privacy; and (d) dishonest price claims.

To help businesses better understand how the Competition Act (the “Act”) applies to their online advertising and marketing practices, we are publishing a series of four blogs discussing the enforcement priorities noted above. In particular, each of the blogs will describe the conduct in question, identify the provisions of the Act applicable to the conduct in question and provide some general guidance on what businesses can do to help ensure that their advertising and marketing practices comply with the Act. This is the second blog, which deals with false online consumer reviews.

Overview of False Online Reviews

Online reviews have become an increasingly important source of information to consumers when making purchasing decisions. In fact, according to recent studies, 82% of consumers read online reviews for local businesses and 91% of consumers say that positive reviews make them more likely to engage with a particular business. Ms. Palumbo, in her recent remarks, acknowledged the growing importance of online reviews:

Authentic consumer reviews on digital platforms benefit both consumers and businesses, providing unbiased product information to help consumers make informed decisions, and rewarding businesses that provide a superior product or service. This helps to promote healthy competition in the workplace.

The Bureau also recognizes the issues that can arise when companies post reviews that are not truthful, authentic or genuine – a practice that has come to be known as “astroturfing”. The Bureau’s Deceptive Marketing Practices Digest – Volume 1 describes astroturfing as the practice of creating commercial representations that masquerade as the authentic experiences and opinions of impartial consumers, such as fake consumer reviews and testimonials. According to Ms. Palumbo’s recent remarks, the Bureau has observed an “increase in organized efforts by companies to fraudulently boost their own ratings or lower the ratings of their competitors”.

Astroturfing can occur in a number of different ways. For example, companies may encourage or compensate their employees to post positive reviews without disclosing their connection with the product or service being advertised or provide incentives to customers to leave positive reviews. With respect to this latter point, recent studies have found that 67% of consumers have now been asked to provide a review for a local business – with 24% of these consumers being offered a discount, gift or cash in return. Companies may also engage “search engine optimization” firms who pay third parties to post positive reviews about a company or negative reviews about the companies’ competitors. Regardless of the practice used, astroturfing gives inferior businesses an unfair advantage and ultimately erodes consumer confidence in the authenticity of online reviews, at a cost to both consumers and businesses.

The Bureau has been active in its efforts to educate Canadian consumers about astroturfing. In its Don’t Buy Into Fake Online Endorsements publication, the Bureau sets out the following signs of astroturfing:

  • A product or service has suddenly received great reviews;
  • The reviewer only recently created a user profile and has been actively providing feedback on a handful of products over a short period of time;
  • The reviewer’s tone is overly positive and makes it out to be “the best thing ever”; and
  • On the contrary, a fake review from a competitor may discredit the product while suggesting another.

False online reviews may raise concerns under the general false or misleading representations provisions of the Act. In summary, these provisions prohibit a business from making a representation to the public, by any means whatever (including online), that is false or misleading in a material respective. Whether a representation is material depends on whether or not it will influence a customer’s buying decision. Given the recent studies about the weight consumers place on online reviews when making buying decisions, it is likely that false online reviews could be found to influence a customer’s buying decision.

Failing to comply with these provisions can have serious consequences, including administrative monetary penalties (“AMPs”), restitution and reputational harm – and in criminal cases, fines and/or jail time. AMPs for making false or misleading representations contrary to the civil provisions of the Act have ranged from $10,000 to $10 million.

Astroturfing as an Enforcement Priority

Enforcement against astroturfing has been – and continues to be – a priority for the Bureau. In October 2015, the Bureau announced that it had entered into a Consent Agreement with Bell Canada to resolve concerns that certain Bell employees were encouraged to post positive reviews and ratings on certain mobile apps. The Bureau concluded that these reviews and ratings created the general impression that they were made by independent, impartial consumers, rather than by Bell employees. The results of these reviews allegedly affected, for a time, the overall ratings for the mobile apps. In resolving the Bureau’s concerns, Bell agreed to enhance its corporate compliance program with a specific focus on prohibiting ratings and rankings by its employees and contractors, and also agreed to pay an AMP of $1.25 million.

Since 2015, the Bureau has released numerous publications warning businesses about astroturfing and, in her recent remarks, Ms. Palumbo once again emphasized that “the Bureau is vigilant on this front, because Canadians need to know they can trust online user reviews.” Businesses should also be aware that the Bureau actively encourages Canadian consumers to report fake online reviews to the Canadian Anti-Fraud Centre.

Best Practices for Businesses

While by no means exhaustive, the following best practices will help businesses avoid the use of astroturfing:

  • Implement a corporate compliance program that includes a policy prohibiting the public posting of ratings, rankings or reviews of the company’s own products or services. Ensure employees are aware that non-compliance could result in disciplinary action up to and including termination of employment.
  • Never encourage, compensate or reward employees for posting reviews about the company’s own products or services or for posting negative reviews about a competitor’s own products or services.
  • Exercise caution when engaging third party “reputation enhancement firms”.
  • When in doubt, consider whether a review creates the general impression that it represents the authentic experiences and opinions of an impartial consumer.

Finally, businesses should remember that competition laws do not stop at the border, particularly when it comes to the digital economy. The Bureau coordinates and collaborates with global antitrust agencies, including the Organisation for Economic Co-operation and Development, and other antitrust and competition agencies, including the U.S. Federal Trade Commission.

If you have questions about the advertising and marketing provisions in the Act – whether related to the digital economy or otherwise – you can reach out to any member of Fasken’s Antitrust/Competition Marketing group. Our group has significant experience advising clients on all aspects of Canadian competition law.

The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Antitrust/Competition Marketing group.