Misleading Advertising

The criminal prohibition against misleading advertising in para. 52(1) of the Competition Act applies only where a person "knowingly or recklessly make[s] a representation to the public that is false or misleading in a material respect." It is not necessary to prove that any person was deceived or misled.

The penalties for contravening section 52 are: on indictment, a fine in the discretion of the court or a term of up to five years or both; or on summary conviction, a fine of up to CDN$200,000 or a jail term of up to one year, or both.

Deceptive Telemarketing

Under section 52.1 of the Competition Act, telemarketing is defined as the practice of using "interactive telephone communications" for the purpose of promoting directly or indirectly any product or business interest.

Section 52.1 sets out certain "fair and reasonable" disclosure requirements, including disclosure of the identity of the person on behalf of whom the communication is made, the nature of the product or business interest being promoted, the price of any product being promoted and any material restrictions applicable to that product's delivery. Furthermore, under section 52.1(3), it is an offence to engage in a number of deceptive telemarketing practices such as making a false or misleading representation or demanding payment prior to delivery of products which are offered at prices grossly in excess of their fair market value. It is also an offence to conduct a telemarketing contest, lottery or game, without making an adequate and fair disclosure of the number and approximate value of the prizes and any other fact known by the telemarketer that materially affects a participant's chances of winning.

Pursuant to section 53, the circulation of a deceptive notice of winning a prize (via electronic or regular mail, or otherwise) for the purpose of promoting a business interest, is an offence.

All offences relating to deceptive telemarketing are strict liability offences and therefore a due diligence defence is available to the accused. Conviction on indictment under section 52.1 can carry a fine in the discretion of the court and/or imprisonment for a maximum term of five years. On summary conviction, sentencing can include a maximum fine of CDN$200,000 and/or imprisonment for a term not exceeding one year.

Multi-level Marketing

Sections 55 and 55.1 of the Competition Act were enacted to protect consumers from deceptive practices common to multi-level marketing plans, including exaggerated representations relating to compensation received by a typical participant, recruitment bonuses, inventory loading and inadequate or non-disclosed product return polices.

The term "multi-level marketing plan" is defined for the purposes of section 55 and 55.1 as a plan for the supply of a product where a participant in the plan receives compensation for the supply of a product to another participant, who in turn receives compensation by supplying a product to other participants.

In itself, multi-level marketing is not illegal. It does, however, become an offence under the Competition Act when exaggerated representations are made by a multi-level marketing plan operator or plan participant to prospective participants with respect to: (a) compensation actually received by typical participants in the plan; or (b) compensation likely to be received by typical participants in the plan.

A multi-level marketing plan is also illegal when it incorporates various deceptive marketing practices so as to become a "scheme of pyramid selling" as defined in section 55.1 of the Competition Act.

The penalties for violating sections 55 or 55.1 include a fine in the discretion of the court and/or imprisonment for a maximum term of five years on conviction on indictment or, on summary conviction, a maximum fine of CDN$200,000 and/or imprisonment for a maximum term of one year.

The Civil Marketing Law Regime

Sections 74.01(1) and (2) of the Competition Act make the following conduct reviewable: (a) representations that are false or misleading in a material respect; (b) representations in the form of statements, warranties or guarantees that are not based on adequate and proper tests; (c) misleading ordinary price claims; and (d) representations in the form of warranties, guarantees or promises to replace, maintain or repair an article, where the warranty, guarantee or promise is materially misleading or there is no reasonable prospect that it will be carried out. Other reviewable offences under the Competition Act's civil regime include bait-and-switch selling and the supplying of a product at a price higher than it is advertised.

Provisions under the civil regime are "strict liability" contraventions and therefore a due diligence defence is available to the accused.

If a court determines that a person has engaged in conduct contrary to section 74.01 (1) and (2), it may order the person not to engage in such conduct, to publish a corrective notice and/or to pay an administrative monetary penalty.

Contests

Contests are subject to the Criminal Code (section 206) as well as the Competition Act. Anyone running a promotional contest in Canada must be careful to ensure that the general structure and rules for a contest do not run afoul of the Criminal Code's prohibition on illegal lotteries. The three elements of an illegal lottery, addressed by the Criminal Code in section 206, are consideration, prize and chance.

Persons found guilty of violating section 206 of the Criminal Code are liable to imprisonment for a term not exceeding two years.

Section 74.06 of the Competition Act is a civil provision that requires persons who conduct promotional contests to disclose the number and approximate value of prizes, the area or areas to which they relate and any important information relating to the chances of winning such as the odds of winning. The section also requires that the distribution of prizes cannot be unduly delayed and that participants be selected or prizes distributed on the basis of skill or on a random basis. If a court determines that a person has engaged in conduct contrary to section 74.06, it may order the person not to engage in such conduct, to publish a corrective notice and/or to pay an administrative monetary penalty.