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 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.