This post has been prepared in collaboration with Chris Cole of Crowell & Moring law firm. Chris Cole is the Co-Chair of Crowell’s Advertising & Product Risk Management Group in Washington, D.C.
In less than three months, Canada will introduce a private right of action arising from false or misleading representations made in electronic messages. These provisions target false or misleading advertisements in, for example, email and social media and arguably capture website advertising based on the law’s broad definition of “electronic message.” Government-initiated enforcement of these provisions has already taken place through Canada’s Competition Bureau since 2014, which has led to Consent Agreements against Avis, Budget (following a contested application), Amazon, Hertz, and Dollar Thrifty. Even more concerning, the law applies statutory penalties to each violation. The closest United States analog to such a law would be the Telephone Consumer Protection Act, which carries penalties for violation of up to $1500 per violation.
The new private right of action is expected to give rise to significant class action litigation in Canada, including against US and global businesses that engage in digital advertising in Canada. It is also expected to be an attractive method of challenging a competitor’s representations regarding a product or service. Driving these incentives will be the law’s statutory penalties of $200 per occurrence (not to exceed $1 million per day).
The following outlines the nature of this private right of action and take-aways for businesses that advertise in Canada.
Nature of the Provisions
The new provisions will apply to businesses that engage in any of the following activities for the purpose of promoting, directly or indirectly, any business interest or the supply or use of a product:
|Canadian Competition Act Sections||Activity Governed||Examples of Activity Governed||Materiality Qualifier|
|74.011(2)||Sending (or causing to be sent) in an electronic message a representation that is false or misleading in a material respect||Body of email; text messages||Yes|
|74.011(1)||Sending (or causing to be sent) a false or misleading representation in the sender information or subject matter information of an electronic message||Email subject line; email sender information||No|
|74.011(3)||Making (or causing to be made) a false or misleading representation in a locator||Uniform resource locator (e.g., www.blog.com); other metadata||No|
The language in these provisions is technology-neutral. They seek to apply to new forms of electronic communication and emerging technologies. For example, the provisions capture not only email but social media, text messaging and image messaging. They also arguably capture website advertising. The following definitions in Canada’s Competition Act demonstrate this breadth of application:
- “Business” is defined to include nearly any commercial business, as well as fundraising by charities and other not-for-profit entities;
- An “electronic message” includes a message sent by any means to telecommunication, including a text, sound, voice or image message;
- “Sender information” means the part of an electronic message, including data relating to source, routing, addressing or signaling, that identifies (or purports to identify) the sender or the origin of the message;
- “Subject matter information” means the part of an electronic message that purports to summarize the contents of the message or to give an indication of them; and
- A “locator” is a name or information used to identify a source of data on a computer system, and includes a uniform resource locator.
Other noteworthy features of these provisions include the following:
- Materiality Is Not Necessary: For some of these provisions (e.g., sender information, subject matter information and locator), the plaintiff is not required to prove that a representation is false or misleading in a material respect. A “material” representation is generally regarded as one that it so germane or essential that it could affect the decision to purchase. The omission of materiality is designed, in part, to address messages that use bold claims (e.g., in a subject line) to draw attention, but then moderate such claims in the body of the message. As a practical matter, the omission of materiality means that any misrepresentation, however insignificant, may be captured.
- Sending the Electronic Messages Will Suffice: The plaintiff is not required to prove that the representation was made to the public—only that it was sent. Further, an electronic message is considered to have been sent once its transmission has been initiated. It is immaterial whether the address to which an electronic message is sent exists, or whether the message reaches its intended destination.
- Those Who “Permit” Are Also Captured: Persons captured by these provisions include those who make or send false and misleading representations, directly and indirectly, as well as persons who permit a false or misleading representation to be made or sent. Thus, for example, a branded advertiser could be held liable for the actions of affiliate marketers on their behalf.
Private Right of Action
The private right of action is available to those alleging to have been “affected” by an act or omission that constitutes conduct contrary to these provisions. Affected persons may apply to a court for damages, namely:
- compensation in an amount equal to the actual loss or damage suffered, or expenses incurred, by the plaintiff; and
- $200 for each occurrence of the conduct, not exceeding $1,000,000 for each day on which the conduct occurred.
The meaning of “occurrence” is a matter for determination by the courts. If “occurrence” is interpreted to capture each electronic message that is sent, the daily maximum of $1,000,000 could easily be triggered. For example, it is not uncommon for US and global businesses to send electronic messages to vast distribution lists that include Canadian consumers. This is particularly significant when assessing exposure to class action litigation.
With less than three months before the private right of action is triggered, US and global businesses that engage in any digital marketing in Canada should be proactive to ensure compliance with these provisions. In particular, these businesses should take the following steps:
- Consider any form of digital marketing utilized by employees or agents of the advertiser, including the use of social media, third-party agencies and affiliate marketers;
- Implement or update a comprehensive due diligence program for anyone participating in digital marketing for, or on behalf of, the business. This is particularly important due to the availability of a due diligence defense for businesses alleged to have contravened these provisions of the Competition Act;
- Avoid potentially misleading phrases in the subject line of an email or electronic message. As noted, materiality is not an element of these provisions. Bolder claims may be used in the body of an email or electronic message (where materiality is an element), though not without a close look; and
- US and global companies should ensure that their digital promotions in Canada are available to Canadian consumers as advertised. A “one-size-fits all” approach can lead to inadvertence and exposure.
US and global businesses should also monitor electronic representations made by competitors. Businesses should consider making use of these provisions to challenge a competitor’s potential misrepresentation(s) regarding a product or service.