Deceptive Marketing Practices (Greenwashing, Ordinary Sales Pricing, Drip Pricing) – Where Are We Now?

Recognizing the critical role of the Competition Act (the “Act”) in promoting dynamic and fair markets, Canada’s Minister of Innovation, Science and Industry, the Honourable François-Philippe Champagne, announced on February 7, 2022 that he would carefully consider ways to modernize and improve its operation. Following this announcement, significant competition law reform has taken place in Canada, including the passage of Bill C-19 on June 23, 2022, the passage of Bill C-56 on December 15, 2023 and the passage of Bill C-59 on June 20, 2024 (collectively, the “Bills”).

The Bills include amendments that touch on virtually all facets of competition policy in Canada, including, without limitation, merger review, abuse of dominance, criminal cartels, competitor collaborations, deceptive marketing, private rights of action and market studies. All provisions of the Bills are now in force, with the exception of a select few amendments which will come into force in 2024 and 2025.

According to the Government’s 2023 Fall Economic Statement, these amendments are “generational changes” that “will help bring Canada into alignment with international best practices to ensure that our marketplaces promote fairness, affordability, and innovation”. We would go further and describe these amendments as the most significant changes to the Act in almost 40 years – changes that fundamentally alter and transform the competition law landscape in Canada!

This blog post summarizes in one place the key changes made to the deceptive marketing practices provisions over the past two years. These changes will, in our view, have a resounding and far-reaching impact on companies doing business in Canada. For example, they will require that companies, among other things, maintain sufficient pricing records to support discount claims; carefully consider when and how prices are disclosed to consumers; and substantiate certain types of environmental claims. Companies that fail to do so could be subject to significant penalties, including large administrative monetary penalties (“AMPs”).

Ordinary Selling Price Provisions

The ordinary selling price (“OSP”) provisions prohibit a supplier from making materially false or misleading representations to the public as to the OSP (i.e., the regular, non-sale price) of a product. The OSP must be supported by one of two tests: either a substantial volume of the product was sold at that price or a higher price within a reasonable period of time (volume test); or the product was offered for sale, in good faith, for a substantial period of time at that price or a higher price (time test).

Under these provisions, the Commissioner of Competition, through the Competition Bureau (the “Bureau”), has historically borne the burden of proving that advertised discounts are not genuine having regard to the volume test and the time test. For example, in its submission to Senator Wetston, the Bureau stated that “[f]or the Bureau to evaluate the truthfulness of a single advertisement, it is required to gather and analyze large volumes of sales and marketing data, and present these analyses to the courts in a compact and meaningful way”. In light of these concerns, the Bureau recommended that the burden of proof regarding ordinary selling price matters be reversed, as currently “the advertiser bears no burden at all to show that the claim that it made represented a genuine discount”.

Consistent with this recommendation, Bill C-59 shifts the burden to suppliers to prove that discounts from their own prices are genuine having regard to the volume tests and/or the time test (i.e., that claimed regular price meets the volume or the time tests). Ultimately, this change reinforces the importance for suppliers to maintain sufficient pricing records to ensure that they can prove that advertised discounts are genuine when the advertised price is compared to their own ordinary prices. Failure to maintain such records could significantly increase risk under the OSP provisions.

Drip Pricing Provisions

Drip pricing involves advertising a price that is not attainable due to additional fees or mandatory charges. Since 2016, the Bureau has taken enforcement action against numerous companies for their drip pricing practices under the general false or misleading representations provision (in section 74.01) of the Act. These cases have resulted in, among other things, the payment of AMPs of more than $12 million.

While the Bureau has acknowledged that this approach has been effective, it has also indicated that “it has required significant resources in order to be ready to prove to the court, in every case, why drip pricing is deceptive”. In light of these concerns, the Bureau recommended that the practice of drip pricing be explicitly recognized as harmful in the Act, which it suggested would allow for more effective enforcement going forward.

Consistent with the Bureau’s recommendation, new drip pricing provisions have been added to the civil (section 74.01(1.1)) and criminal (section 52(1.3)) prohibitions on false or misleading representations and to the civil (section 74.011(3.1)) and criminal (section 52.01(4.1)) electronic messaging provisions. These provisions provide that the making of a representation of a price that is not attainable due to fixed obligatory charges or fees constitutes a false or misleading representation, unless the obligatory charges or fees represent only an amount imposed on a purchaser of the product by or under an Act of Parliament or the legislature of a province. Put differently, these provisions seek to deem drip pricing to be false or misleading. 

Further, the exemption to the drip pricing provisions is limited to “obligatory charges or fees … imposed on a purchaser of the product by or under an Act of Parliament or the legislature of a province” (emphasis added). According to the Bureau, this captures charges or fees that represent federal, provincial or territorial sales taxes and does not capture charges, fees or other costs incurred by or imposed on a business for the purpose of complying with various laws, which are then passed on to customers.

Greenwashing Claims

“Greenwashing” involves making environmental (i.e., “green”) claims that leave consumers with the false or misleading impression that a product or service is “environmentally friendly” when, in fact, it is not. In Canada, greenwashing – as a form of misleading advertising – is largely governed by the civil and criminal false or misleading advertising provisions in the Act.

Greenwashing is not a new issue for the Bureau, which has investigated many instances of potential greenwashing in the past. That said, greenwashing claims have become increasingly prevalent in recent years. For example, a global sweep of over 500 websites by the International Consumer Protection Enforcement Network and the UK Competition and Markets Authority in 2020 found that over 40% of these websites appeared to be using green advertising tactics that could be considered misleading and therefore may be in contravention of applicable consumer protection laws.

In response to the increasing prevalence of environmental advertising, many jurisdictions around the world are revisiting their legislation, policies and guidance relating to the regulation of environmental claims. Consistent with this focus on environmental claims, the recent amendments to the Act have added two civil provisions intended to address unsubstantiated environmental claims.

  • Representations Relating to Product: This provisions prohibits a person from making a representation to the public in the form of a statement, warranty or guarantee of a product’s benefits for protecting or restoring the environment or mitigating the environmental, social and ecological causes or effects of climate change that is not based on an adequate and proper test, the proof of which lies on the person making the representation.
  • Representations Relating to Business or Business Activity: This provisions prohibits a person from making a representation to the public with respect to the benefits of a business or business activity for protecting or restoring the environment or mitigating the environmental and ecological causes or effects of climate change that is not based on adequate and proper substantiation in accordance with internationally recognized methodology, the proof of which lies on the person making the representation.

(a) Adequate and Proper Tests

Environmental claims relating to a product must be supported by adequate and proper tests. In the context of the Act’s long standing performance claim provision, each of the Bureau, the Competition Tribunal and the courts have discussed what could satisfy such testing in the circumstances of the matters before them. These principles include: 

  • Testing is required. Courts have rejected evidence that has been presented as an alternative to testing, such as evidence of consumer use over a long period of time 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.
  • Testing should be done under controlled circumstances, controlling for external variables. Subjectivity should be eliminated as much as possible.

The application of these and other principles in the context of environmental claims is a matter to be determined. 

(b) Adequate and Proper Substantiation

Environmental claims relating to a business or business activity must be supported by “adequate and proper substantiation in accordance with internationally recognized methodology”. Although the phrases “adequate and proper testing” and “adequate and proper substantiation” differ somewhat, we can reasonably expect the aforesaid performance claim principles to be applied in some capacity to the new greenwashing provision.

What is less clear at this time is how the phrase “internationally recognized methodology” will ultimately be interpreted, as this is a new concept in the Act and the Bureau has not yet provided any guidance on how it will be interpreted.    

Importantly, as with environmental claims relating to products, advertisers can continue to make environmental claims with respect to the benefits of a business or business activity for protecting or restoring the environment or mitigating the environmental and ecological causes or effects of climate change. However, any such claims must be properly substantiated using an internationally recognized methodology. 

(c) Upcoming Guidance

On July 4, 2024, the Bureau announced that it “will develop guidance [on the greenwashing provisions] on an accelerated basis in consultation with a broad range of stakeholders”. To inform this process, the Bureau will launch a public consultation in the coming weeks to gather views and input. Prior to the start of this consultation, interested stakeholders can provide comments on any of the recent amendments to the Act – including the new greenwashing provisions – through a Guidance Feedback Form available on the Bureau’s website.

Increased Financial Penalties

The amendments have significantly the size of AMPs that can be awarded against both individuals and corporations found to have breached the civil deceptive marketing practices provisions, including the provisions relating to OSP claims, drip pricing and environmental claims. In particular:

  • Individuals: Maximum allowable AMPs have been increased from $750,000 (for a first violation) to the greater of (1) $750,000 (for a first violation) or (2) three times the value of the benefit derived from the deceptive conduct, if that amount can be reasonably determined.
  • Corporations: Maximum allowable AMPs have been increased from $10 million (for a first violation) to the greater of (1) $10 million (for a first violation) or (2) three times the value of the benefit derived from the deceptive conduct, or, if that amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenues.

The penalties under the criminal track (which include imprisonment for a term not exceeding 14 years and/or a fine in the discretion of the court) have not been changed.

If you have questions about the amendments to the deceptive marketing practices provisions or would like to discuss your competition law compliance policies, you can reach out to any member of Fasken’s Competition, Marketing & Foreign Investment 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 Competition, Marketing & Foreign Investment group.