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.
Overview of Performance Claims
Performance claims are ubiquitous in today’s economy. They are used to market a wide range of products, such as the length of life of batteries, the fuel efficiency of automobiles and the ability of miracle drugs to cure virtually any ailment – a claim that is particularly relevant in light of recent events.
As recognized by the Bureau in The Deceptive Marketing Practices Digest – Volume 2, honest performance claims benefit competition because they allow consumers to make better informed purchasing decisions and encourage businesses to make better performing and longer lasting products. However, where the claims are false, misleading or unsubstantiated, they can undermine a properly functioning marketplace, which harms consumers, businesses and the Canadian economy more generally. For this reason, Canada’s competition legislation has, for the last 85 years, included provisions requiring that advertisers substantiate any performance claims they make.
Today, the Competition Act requires that performance claims, which include representations about the performance, efficacy or length of life of a product, be based on adequate and proper tests. The onus is on the party making the representation to prove that the representation is based on an adequate and proper test and that the test was conducted before the representation was made.
Failing to ensure that performance claims are based on adequate and proper tests can have serious consequences, including administrative monetary penalties, restitution and reputational harm. Importantly, the fact that a performance claim is later proven to be true is no defence to an otherwise unsubstantiated claim.
Adequate and Proper Tests
Each of the Bureau, the Competition Tribunal (the “Tribunal”) and the courts have discussed the need for adequate and proper tests and, in particular, what must be satisfied to establish that such testing has taken place. The key points are summarized below:
- Testing is required. Court have consistently rejected evidence that has been presented as an alternative to testing, such as evidence of consumer use over a long period of time; information in technical books, bulletins and manuals; studies or sales of similar products; and a company’s belief in the superiority of its product or service.
- Testing does not require absolute certainty and does not necessarily need to meet the standards typically required for studies published in peer-reviewed scholarly journals. Rather, testing should establish that the results are not mere chance or a one-time effect, by establishing that the product causes the desired effect in a material manner.
- Testing must be “fit, apt, suitable or as required by the circumstances” – stressing the importance of considering the entire context surrounding a performance claim. For example, claims relating to the performance of a company’s snow tires should not be based on driving tests conducted in Florida.
- Testing should be done under controlled circumstances, controlling for external variables. Subjectivity should be eliminated as much as possible.
The bottom line is that advertisers have significant freedom in the types of performance claims that can be made, provided that the claims are backed-up with adequate and proper testing conducted before any such claims are made.
Health-Related Performance Claims
In its 2019-20 Annual Plan, the Bureau stated that it intends to “[p]rioritize high-impact and consumer-focused enforcement cases” that “[f]ocus on key areas important to all Canadians including the digital economy, telecommunications, health and bio-sciences and infrastructure”. It also stated that it intends to support Canadian health care by, among other things, “[pushing] for … [t]ruth in the advertising of health … products and services”.
Consistent with these priorities, the Commissioner filed an application with the Tribunal earlier this month for a temporary order preventing Nuvocare Health Sciences Inc. and Ryan Foley (its President and Chief Executive Officer) from making unsubstantiated weight loss and fat burning claims in the marketing of certain natural health products. In particular, the Commissioner has alleged that the respondents’ claims that the products in question will “cause weight loss, burn fat, release fat, block fat, target belly fat, cut appetite, block carbohydrates, decrease emotional eating or increase metabolism” are not supported by adequate and proper testing. If granted, the temporary order would prevent the respondents from making any performance claims that are not based on adequate and proper tests for such period that the Tribunal considers sufficient to meet the circumstances of the case.
Implications for Businesses
While recent events will likely result in some shift in the Bureau’s ongoing priorities, it is clear that health-related products and their marketing claims will continue to be a top priority for the Bureau – including claims suggesting that a product will provide a cure for the COVID-19 virus. As a result, it will be particularly 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. Failure to do so could result in a lengthy, time consuming and expensive investigation by the Bureau, as well as subsequent enforcement proceedings.
If you have questions about the performance claims – including the need for adequate and proper testing – 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.