MATERIALS / MATÉRIAUX · B. The (Legal) Issues of Social Media Advertising Navigating Canada’s federal and provincial advertising laws can present significant challenges and risks

Presented by the Canadian Bar Association’s (CBA) National Competition Law Section and

the Professional Development Committee of the CBA

Présentée par la Section nationale du droit de la concurrence de l’Association du Barreau canadien (ABC)

et le Comité du développement professionnel de l’ABC

MATERIALS / MATÉRIAUX

2012 Competition Law Fall Conference

Conférence annuelle d'automne 2012 en droit de la concurrence

Advertising In The Social Media Space

Dan Edmondstone McMillan LLP

(Toronto)

September 20 - 21, 2012 | 20 et 21 septembre, 2012 Hilton Lac-Leamy | Gatineau, Québec

MBDOCS_6037750.6 1

Advertising In The Social Media Space

Dan Edmondstone and Devin Anderson

McMillan LLP

A. The Landscape

Advertising and marketing are critical components of many business strategies. In an

environment of increased enforcement activity and record fines for misleading advertising,

compliance with the many complex and multi-jurisdictional laws, regulations and codes that

regulate advertising and marketing is more important than ever. Leveraging social media

platforms for advertising purposes further complicates this already complex area of

jurisprudence. Here, we provide an overview of the legal landscape and some of the more

prominent issues applicable to advertising in the social media space.

i. What is Advertising?

Advertising is broadly defined as a “representation to the public”. Importantly, the medium over

which the representation is communicated has no meaningful impact on whether or not it an

“advertisement” for legal purposes. While this cornerstone of advertising law is well understood

in the traditional realm of newspapers, television broadcasts, etc., it is overlooked or

misunderstood with considerable frequency online and particularly so in social media. This is at

least partly attributable to the rapidly changing landscape of online social platforms and the

novelty of two-way dialogue between advertiser and audience. Advertising online subjects the

advertiser to the same legal rules applicable to traditional media. Ultimately, the same

fundamental standard applies: advertising must not be false or misleading in a material respect.

ii. Which Advertisements Present a Problem?

In determining whether an advertisement is false or misleading in a way that is material,

provincial consumer protection statutes and the federal competition legislation typically employ

a “general impression” test. That is, the adjudicator will seek to determine the impression that the

advertisement had on its audience. As discussed below, the potential reach of social media

campaigns can complicate the application of the general impression test.

Unfortunately, the determination of whether a representation to the public is false or misleading

(especially “misleading”) is simpler than in practice.

MBDOCS_6037750.6 2

The recent Supreme Court of Canada decision in Time may, or may not, change how

advertisements are to be evaluated.

While the impact of this decision to matters outside of Quebec is not yet clear, it may influence

the courts.

iii. Who Cares?

The consequences of running afoul of advertising laws in Canada can be severe. In addition to

the loss of goodwill that accompanies mere allegations of misconduct, findings of false or

misleading advertising expose the advertiser to a range of potential penalties, including

imprisonment for up to five years and fines in the court’s discretion and the civil equivalent, an

administrative monetary penalty of up to $10 million. The availability of private rights of action

and the accompanying costs of defending class actions compounds the risk of missteps in this

area. The sources and complexities of the more prominent penalties for false or misleading

advertisements are discussed below.

a. Statutory Penalties

Currently, advertising on social media platforms is not specifically regulated in Canada. Instead,

laws of general application establish broad themes that govern how to advertise online, so as to

establish the “legal risks” of this activity. Supplementing this legislation are voluntary industry

codes that have been used to promote certain standards of advertising and address specific issues

in a certain industry. The federal laws applicable to online advertising in Canada consist of the

Competition Act, R.S.C. 1985, c. C-34 (the “Competition Act”), and the Personal Information

Protection and Electronic Documents Act, 2000, c.5 (“PIPEDA”).

1) Competition Act

The Competition Act sets out a criminal and civil regime that makes it an offence to engage in

false or misleading advertising. In addition, the act prohibits specific types of marketing

practices that may be harmful to consumers.

Section 52 is a criminal provision which makes it an offence for a person to knowingly or

recklessly make or permit the making of a representation to the public, in any form whatsoever,

that is false or misleading in any material respect. Penalties for an offence range from a fine of

MBDOCS_6037750.6 3

up to $200,000 and/or imprisonment of up to one year on summary conviction, to a fine in the

discretion of the court and/or imprisonment of up to 14 years upon indictment.1

Section 74.01(1)(a) is a civil provision which, without regard to intention, makes it an offence

for a person to make or permit the making of a representation to the public, in any form

whatsoever, that is false or misleading in a material respect. Administrative monetary penalties

(“AMPs”) for such an offence in the first instance range from up to $750,000 in the case of

individuals and up to $10,000,000 in the case of corporations. In addition, subsequent offences

can lead to an increase in AMPs of up to $1,000,000 for individuals and $15,000,000 for

corporations.2

In addition to administrative monetary penalties, the Commissioner has the authority to ask the

court to order "restitution." It is not clear how a court would determine when restitution is

appropriate, or in what amount. Advertisers on social media faced with the prospect of paying

even a small amount of restitution per customer may decide that they face greater risk from a

restitution order than they do from the administrative monetary penalty.

2) PIPEDA

The purpose of PIPEDA, which is administered by the Office of the Privacy Commissioner (the

“OPC”), is to regulate the collection, use and disclosure of personal information collected by

private sector organizations.

1 Competition Act, R.S.C. 1985, c. C-34, at s 52(5).

2 Ibid, at s 74.1.

The Bell Settlement: In June 2011, Bell Canada settled a complaint brought by the

Commissioner of Competition that alleged that complex pricing details can mislead consumers,

where pricing is disclosed in the "headline," but additional mandatory charges apply. A consent

agreement was filed with the Competition Tribunal under which Bell Canada was obligated to make

certain changes to its advertising and pay an administrative monetary penalty of $10 million,

which is the maximum available under the civil misleading advertising provisions of the

Competition Act.

MBDOCS_6037750.6 4

This legislation may be particularly relevant to online advertising campaigns that have contests

and promotions or collect information for their membership networks since it places certain

responsibilities on organizations that collect personal information.3 The extent to which this Act

applies and provides a legal framework for online advertising, and in particular certain forms of

behavioural advertising, has been the subject of several recent findings, consultations and reports

from the OPC.

For example: On July 16, 2009, the OPC first reported its findings into the complaint against

Facebook Inc. filed by the Canadian Internet Policy and Public Interest Clinic: see PIPEDA

Case Summary 2009-008 - Online: <http://www.priv.gc.ca/cf-dc/2009/2009_008_0716_e.pdf> .

On July 6, 2010, the Assistant Privacy Commissioner of Canada noted specific issues with

respect to behavioural advertising and its ongoing investigation of Facebook. She referred to the

OPC’s consultation process (launched in the Spring of 2010) on online tracking, profiling and

targeting and cloud computing and whether PIPEDA is adequate to address this “new privacy

challenge”. On September 22, 2010, the OPC issued a statement indicating that changes

Facebook had implemented in response to the OPC’s investigation into certain aspects of its

collection and use of personal information were reasonable and met the expectations set out

under Canadian privacy law. That said, the OPC was also quick to add that “our work with

Facebook is not over”. Several additional complaints against Facebook’s privacy policies are

subject to further investigation. Of particular concern are complaints regarding Facebook’s

invitation feature and “like” buttons. See “Privacy Commissioner Completes Facebook review”

online at <http://www.priv.gc.ca/media/nr-c/2010/nr-c_100922_e.cfm>.

Compliance with PIPEDA is governed by the general principles set out in Schedule 1 of the Act.

Organizations are responsible for the personal information they control (including information

that has been transferred to a third party) and organizations must designate an individual or

individuals to be accountable for ensuring that the organization operates in compliance with

PIPEDA. Organizations are also required to obtain the individual’s consent when collecting,

using or disclosing their personal information.

3 “Personal Information” is defined under the act as information about an identifiable individual that does not include the

name, title or business address or telephone number of an employee of an organization . PIPEDA,SC 2000, c 5 at s 2(1).

MBDOCS_6037750.6 5

See Appendix “A” for a summary of remedies/risks.

B. The (Legal) Issues of Social Media Advertising

Navigating Canada’s federal and provincial advertising laws can present significant challenges

and risks to the unprepared. Advertising on social media platforms adds a further degree of

complexity. Among the most topical legal issues in the social media space are:

(i) the tendency of such campaigns to transcend legal jurisdictions;

(ii) maintaining audience privacy, particularly in the context of targeted campaigns;

(iii) managing liability;

(iv) advertising to minors;

(v) clandestine endorsements; and

(vi) the anticipated impact of Canada’s new anti-spam legislation on social media

advertising.

MBDOCS_6037750.6 6

i. Jurisdiction

Little can be done to prevent the spread of advertisements across legal jurisdictions. conflicting

laws across country and even provincial boundaries demand that the intended reach of social

media campaigns be actively managed in order to mitigate the risk of unwanted liability. Most

often seen in the context of contests and promotions, advertisers can exercise some control over

the jurisdiction issue by informing users in a prominent manner of any geographic restrictions

that should be adhered to.

ii. Privacy and Online Behavioural Advertising

Targeted or behavioural campaigns, when correctly orchestrated, present advertisers with a

superb opportunity to develop meaningful relationships with consumers. However, the requisite

exchange of personal information demands careful compliance with privacy legislation.

In its review of social media advertising, the OPC concluded that advertising is a “legitimate

primary purpose” for the collection of personal information. However, the OPC also observed

that social media campaigns are “more intrusive” than traditional advertisements and

consequently demand enhanced explanations about the collection and use of personal

information to users. This is expected to becoming increasingly evident with the onset of

increasingly capable facial recognition algorithms running on social media platforms.

Regardless of the technological developments on the horizon, some general requirements

regarding the collection of personal information through advertisements in the social media

space include:

Knowledge and consent are required for the collection, use and disclosure of personal

information. The form of consent must be shaped by both the sensitivity of the

personal information being collected and the reasonable expectations of the

individual.

The purposes for the collection must be identified at or before collection.

Consent to the collection of personal information cannot be a condition of the supply

of a product or service unless it is required for legitimate core purposes.

MBDOCS_6037750.6 7

Collection must be limited to what is reasonably required to fulfill the purpose of the

campaign and may only be retained for as long as is reasonably necessary.

Personal information must be protected by reasonable security safeguards.

iii. Controlling the Message and Managing Liability

The interactive nature of advertising in the social media space demands that companies

proactively control user contributions. A recent decision by Australia’s Advertising Standards

Board found that comments made by users on a brand’s Facebook page are to be treated as

comments made by the advertiser itself and judged according to the same standards. While such

a strict rule is not in effect in Canada, advertisers should approach the interactive component of

social media with caution.

iv. Advertising to Minors

Websites targeted at minors are increasingly becoming commercialized, with an estimated 98%

of children’s websites permitting advertising and over two-thirds of websites designed for

children relying on it as a primary source of revenue.4 As early adopters of technology and heavy

users of the internet, advertisers have found it efficient to target minors, whose buying power

increases exponentially over time and whose opinions also tend to shape the buying patterns of

their families.5 Parents also tend to accept their children being exposed to commercial content in

online video games if there is some educational value to be gained.6

4 Valerie Steeves and Cathy Wing, “Young Canadians in a Wired World: Phase II Trends and Recommendations”,

A Media Awareness Network Report (November 2005), online:

<http://www.mediaawareness.ca/english/research/YCWW/phaseII/upload/YCWWII_trends_recomm.pdf> at 16. 5 Sandra L. Calvert, “Children as Consumers: Advertising and Marketing” (2008) 18 The Future of Children Journal 1 at

207. 6 An estimated 60 percent of the top 25 paid apps in the iTunes App Store’s education channel were intended for toddlers

and preschoolers. Elizabeth S. Moore, “It’s Child’s Play: Advergaming and the Online Marketing of Food to Children”, A

Skittles: Skittles briefly changed its home page to include a collage of content from Twitter,

Facebook, Wikipedia, Youtube and Flickr, where users could add their own messages and interact

online. The majority of the social media feeds were harmless. However, several Twitter posts

included explicit sexual comments and derogatory remarks about the brand. The interactive site

was promptly taken offline.

MBDOCS_6037750.6 8

Currently, online advertising to children is not specifically regulated in Canada. Instead, laws of

general application establish broad themes that govern how to advertise and market to minors

online, so as to establish the “legal risks” of this activity. Supplementing this legislation are

voluntary industry codes that have been used to promote certain standards of advertising and

address specific issues.

v. Clandestine Endorsements

The use of online endorsements to develop brands is becoming a prominent issue among

advertising authorities. Whether providing products to bloggers or paying Twitter users to

broadcast promotional messages, there is a risk that advertisers may run afoul of advertising

rules by failing to properly disclose their affiliation with such campaigns. While the Canadian

authorities have not pursued these types of clandestine campaigns with the same vigour as those

in Europe and the US, the requirement to be truthful in advertising remains applicable.

Kaiser Family Foundation Study (July 2006), online: < http://www.kff.org/entmedia/upload/7536.pdf > at 2 [Child’s

Play]; Tessa Wegert, “App Craze Among Kids a Challenge for Advertisers”, ClickZ (10 June 2010) online:

<http://www.clickz.com/clickz/column/1721828/app-craze-among-kids-challenge-advertisers >

Status Update: A recent social media advertising campaign gave consumers the chance to win

£1,000 if they allowed the agency to take control of their Facebook status updates. The campaign

was cancelled after one of the status updates generated on a 14-year-old girl’s Facebook page

contained a reference to an adult movie.

Just Do It... until the authorities make you stop: The UK’s Advertising Standards Authority

recently weighed in on the issue of clandestine celebrity endorsements when it required Nike to

end a popular Twitter campaign. The watchdog concluded that messages on the personal accounts

of two soccer players broke rules for not clearly indicating that the messages were ads – even

though they displayed the “gonike.com” URL.

MBDOCS_6037750.6 9

vi. Impact of Canada’s New Anti-spam Legislation

While Canada's Anti-Spam Act (“CASL”) was passed in late 2010, progress with the associated

regulations has been slow. It is now expected that CASL will not come into force until at least

mid-2013. When it does, however, it is expected to have significant impact on social media

advertising.

One of the main goals of CASL is to regulate a broadly defined category of "commercial

electronic messages" (“CEMs”) which include e-mails, tweets, text messages, social media

posts, and, subject to some limited exceptions, all other forms of electronic communication,

when they are used for commercial purposes. In general, the law prohibits sending CEMs unless

express, "opt-in" consent is obtained from intended recipients prior to sending CEMs.

Once the law is in force, requests for consent to send CEMs will be governed by the same rules.

The law, as it is currently drafted, also stipulates minimum information disclosure requirements

for all CEMs, and for requests for consent to send CEMs. CASL will require that every CEM

include an unsubscribe mechanism that can be "readily performed". To enforce these new rules,

CASL confers on the Canadian Radio-television and Telecommunications Commission

regulatory powers which include the power to impose strong penalties for non-compliance (up to

$10-million for organizations).

C. Preparing for Future Developments in Social Media

Although there is currently no legislation or industry code that specifically regulates the practice

of advertising on social media platforms in isolation, there are at least three emerging best

practices which may be of value in framing advertising campaigns on existing and future social

media platforms: (i) truth in advertising; (ii) transparency; and (iii) control over the subject

representation.

a. Truth in Advertising

Advertisements on social media platforms, like those on traditional media, must not be false or

misleading in a material respect. Although there is a tendency to approach the rapidly evolving

online advertising as distinct from other media, the applicable laws apply equally to any

representation made to the public.

MBDOCS_6037750.6 10

b. Transparency

Advertisers using social media platforms should ensure that their policies regarding the

collection, use and disclosure of information are clearly explained and readily accessible.

Prominent notice, for example in the form of pop-ups, should be given at every instance where

personal information is being retained. Additionally, advertisers are generally considered to be

responsible for and should communicate security and privacy measures that ensure that

reasonable safeguards are in place to protect the confidentiality and integrity of personal

information. In particular, privacy notices should specify what type of information is being

collected, the purpose for which it is being retained (and any additional secondary uses), who the

information will be shared with, the duration for which the information will be kept and how it

will be stored.

c. Maintaining Control

The interactive nature of social media presents a challenge when it comes to maintaining control

of the representations. As noted above, the environment in Australia has evolved such that the

advertiser is responsible for all components of the interaction with consumers. While such a

strict approach has not been definitively established in Canada, maintaining control over the

message should be a paramount concern in the social media space.

D. Online Behavioural Advertising

While “social media” does not strictly speaking include online behavioural advertising, the two

have grown together and will continue to do so as technology evolves. There have been well

known issues raised with social media platforms such as Facebook harvesting data of its users

for this purpose.

Under the federal privacy law, PIPEDA, the Privacy Commissioner has asserted that information

involved in online tracking and targeting for the purpose of serving behaviourly targeted

advertising to individuals will generally constitute “personal information”. For planning

purposes, businesses should take account of this position. Whether or not a court will agree with

this position will unfold in future enforcement activities.

MBDOCS_6037750.6 11

In late 2011, the Privacy Commissioner issued guidelines with respect to this issue. These

guidelines advise that opt-out consent for online behavioural advertising could be considered

reasonable provided that:

individuals are made aware of the purposes for the practice and the manner that is clear

and understandable (i.e. not buried in a privacy policy);

individuals are informed of these purposes at or before the time of collection;

individuals are able to easily opt-out of the practice;

the opt-out is immediate and persistent;

information collected and used is limited to non-sensitive information;

information collected and use is destroyed or de-identified as soon as possible.

As social media evolves, the manner in which online behavioural advertising is carried out will

similarly evolve. The dealings between the Privacy Commissioner and Facebook Inc. illustrate

that this evolution will not always be smooth.

E. Geospatial Advertising

While not unique to social media, capitalizing on geospatial or location-based information

typically provided by smart phones is an attractive way to provide consumers with

geographically relevant advertisements. At the forefront are platforms such as Facebook’s

Spaces and the more established Foursquare, which enable consumers to volunteer their location

to others. In July 2012, Foursquare began testing “Promoted Updates” that serve advertisements

for businesses like retailers and restaurants to Foursquare users based on their location.7 In 2009,

Twitter launched a feature called “Tweet with your location” which allowed users to post their

location along with their tweets. Users must opt-in to activate the feature, but the collection of

this data raises important privacy and security issues. In the same year, Google launched

Latitude, a feature that allows Google Account users to show their location to chosen individuals

7 http://www.nytimes.com/2012/07/26/business/media/foursquare-to-test-paid-ads-advertising.html?_r=2

MBDOCS_6037750.6 12

by importing mobile phone location data into Google Maps. Following up on this in 2011,

Google introduced a feature to allow Latitude users to record a history of the places they visited

and the time spent at each place.

Location-based advertisements raise a host of potential issues including consumer consent,

privacy, and even personal security. From a legal perspective, complying with privacy laws is of

paramount importance when engaging in location-based advertising campaigns. Privacy

legislation like the Personal Information Protection and Electronic Documents Act (as discussed

in greater detail above) is currently undergoing review, for example, and courts have been

grappling with new causes of action to deal with new privacy concerns, such as the tort of

intrusion upon seclusion.

F. Conclusion

Advertising and marketing on social media platforms exposes the advertiser to risks that

generally exceed those of advertising on the traditional media. These risks are largely attributable

to a misunderstanding of the application of the established laws to the novel online space and the

relinquishing of control that typically accompanies social media campaigns. By carefully

considering the legal ramifications of social media advertising initiatives and staying abreast of

investigative and enforcement actions taken by the authorities, advertisers can go a long way in

mitigating the likelihood of missteps in this complex area of the law.

MBDOCS_6037750.6 13

Richard v. Time Inc.8

In this case, brought pursuant to Quebec’s Consumer Protection Act, a contestant in a Time Inc.

contest sued Time over his receipt of a “Official Sweepstakes Notification”. The notification

contained phrases such as

“[o]ur Sweepstakes are now final: Mr. Jean Marc Richard

has won a cash prize of $833,337.00”, “[w]e are now

authorized to pay $833,337 in cash to Mr. Jean Marc

Richard”, “[a] bank cheque for $833,337 is on its way to [an

address]”9

and the like.

However, these banner headlines were preceded by the phrase, in much smaller print

“If you have and return the prize winning entry on time and correctly answer a skill testing question, we will officially announce that,”10

and

“[i]f you have and return the grand prize winning entry in time and correctly answer a skill testing question, we’ll confirm that”.11

Based on the language, the court concluded that it was impossible to conclude that Time had

made an unconditional offer to pay the prize to Mr. Richard. However, with regard to moral and

punitive damages, the court noted that the document was specifically designed to mislead the

recipient and it contained misleading and even false representations contrary to the Consumer

Protection Act. Article 219 of the Consumer Protection Act provided that “No merchant,

manufacturer or advertiser may, by any means whatsoever, make false or misleading

representations to a consumer”. The court determined that under the Consumer Protection Act,

the general impression left with the consumer is important, along with the literal meaning of the

words used.

8 Richard v. Time Inc., 2012 SCC 8.

9 Ibid at para 7.

10 Ibid at para 10.

11 Ibid at para 11.

MBDOCS_6037750.6 14

As well, the court noted that the average consumer in Quebec would be a francophone, and that

this document was written entirely in English. The court awarded moral damages of $1,000, and

punitive damages of $100,000.

The Court of Appeal of Quebec reversed the trial court decision. Time Inc. was given the benefit

of the actual words in the document, which set out that the offer was to enter a sweepstakes and

be granted a prize if the winning number was yours.

On the core issue of the entitlement to the Grand Prize, the Court of Appeal found that “they

could not conclude that the advertisement might give the average Quebec consumer the general

impression that the recipient was the Grand Prize winner. The Court of Appeal stated (in

translation):

“With respect, I see eye-catching text in the documentation sent to the

[appellant], but I do not see misleading, under-handed or deceitful statements. I

even suspect that the [appellant], a well informed businessman who worked

locally and internationally in both French and English, understood the

sweepstakes and his chance of winning perfectly well from the very start.”

The Court of Appeal held that the proper interpretation for misleading advertising purposes was

the meaning of the advertisement to the average consumer, in this case a francophone consumer.

The Court of Appeal found that Time Inc. was not guilty of false or misleading statements in the

circumstances. It did not believe that the documents led the addressee to believe that he was the

winner of $833,337. The court stated that the average consumer understands that, regardless of

their language, “money doesn’t fall from the sky”. “Who would believe they won this amount of

money from a lottery but they did not know the existence of it and for which they did not buy a

ticket?”.

The matter was appealed to the Supreme Court of Canada. The Supreme Court of Canada

characterized the Court of Appeal’s analysis as saying “it is, in a word, up to consumers to be

suspicious of advertisements that seem too good to be true.” The decision deals in significant

detail in matters of statutory interpretation relating to the Consumer Protection Act of Quebec.

This analysis focuses on the possible impact of this decision on the law of misleading advertising

more generally.

MBDOCS_6037750.6 15

While the Supreme Court’s analysis of the Consumer Protection Act will be important for the

law of Quebec, it may also have an impact on cases both private and public under the

Competition Act’s misleading advertising provisions. The decision deals with the “general

impression” test, and how the notional consumer is to be defined in the administration of this

analysis. These concepts, though arising under the QCPA, apply under the Competition Act as

well. While it is not a certainty that the reasoning in this case will be adopted in future

Competition Act cases, it will be certainly argued by the government and private plaintiffs in

injunction or damages claims based on allegedly false or misleading advertising.

The relevant provision of the QCPA, section 218, required that an advertising representation is to

be evaluated based on “the general impression it gives, and, as the case may be, the literal

meaning of the terms used therein [being taken] into account”. This wording is very close to

subsections 52(4) and 74.03(5) of the Competition Act: subsection 52(4) provides:

“In a prosecution for a contravention of this section, the general impression

conveyed by a representation as well as its literal meaning shall be taken into

account in determining whether or not the representation is false or misleading in

a material respect.”

The QCPA wording was based on a predecessor to the Competition Act provision.

The Supreme Court analyzed a number of cases and learned articles focused on the QCPA. The

Supreme Court stated that “general impression” does not mean “instant impression” but that it is

“that of the first impression”. It is the impression “a person has after an initial contact with the

entire advertisement, and it relates to both the layout of the advertisement and the meaning of the

words used.” Interestingly, the Supreme Court stated that the test is similar to the one that must

be applied under the Trade-marks Act to determine whether a trademark causes confusion. The

fact that the documents in question (a direct mail advertisement) were in the possession of the

consumer for a lengthy period of time and that he was able to read them carefully on several

occasions before sending in the official entry certificate - and in fact did so - was not relevant to

the Supreme Court’s analysis.

On the question of “who is the consumer”, the Supreme Court used the same phrase that of the

Court of Appeal and that of most decisions under the Competition Act: the “average consumer”.

The average consumer, a legal fiction, is an imaginary consumer to whom a level of

MBDOCS_6037750.6 16

sophistication is attributed. For the purposes of this case, this was done by the Supreme Court

with a view to the purposes of the QCPA. Existing Quebec authority held that the average

consumer should be deemed to be “credulous and inexperienced”. The Court of Appeal held that

an average consumer also has “an average level of intelligence, skepticism and curiosity”. The

Supreme Court stated “in conformity with the objective of protection that underlies such

legislation [i.e., consumer law], the courts have assumed that the average consumer is not very

sophisticated.” The Court then went on to use prior decisions involving trademarks as a good

example of this interpretive approach.

The standard for determining whether a trademark causes confusion is that the average

consumers for such purposes are “ordinary hurried purchasers” and that “the standard is not that

of people ‘who never notice anything’ but of persons who take no more than ‘ordinary care to

observe that which is staring them in the face’”12

.

The Supreme Court analyzed a long line of Quebec cases that used terms such as “credulous”

and “inexperienced” to describe the notional consumer. It stated that these cases relied on the

Imperial Tobacco Products Limited13

case, a 1971 decision under the predecessor of the

Competition Act. The Supreme Court concluded:

“Thus, in Quebec consumer law, the expression “average consumer” does not

refer to a reasonably prudent and diligent person, let alone a well informed

person. To meet the objectives of the CPA, the Courts view the average

consumer as someone who is not particularly experienced at detecting the

falsehoods of subtleties found in commercial representations.”

The Supreme Court then explicitly rejected the “average consumer” as someone having “an

average level of intelligence, skepticism and curiosity” as “inconsistent with the letter and the

spirit” of the QCPA.

12 Mattel, Inc. v. 3894207 Canada Inc. [2006] S.C.R. 772.

13 R. v Imperial Tobacco Products Ltd., [1971] 5 WWR 409, 3 CPR (2d) 178 (Alta SC AD), quoting Federal Trade

Commission v. Sterling Drug Inc., 317 F (2d) 669 (2nd Cir 1963) at 674: “It is therefore necessary in these cases to

consider the advertisement in its entirety and not to engage in disputatious dissection. The entire mosaic should be viewed

rather than each tile separately. The buying public does not ordinarily carefully study or weigh each word in an

advertisement. The ultimate impression upon the mind of the reader arises from the sum total of not only what is said but

also of all that is reasonably implied.”

MBDOCS_6037750.6 17

The Quebec caselaw analyzed by the Supreme Court in this case relies upon the “credulous man”

test adopted in the Imperial Tobacco case. Under the Combines Investigation Act and its

successor, the Competition Act, this test has evolved significantly. The Court of Appeal for

Ontario, in its 1975 decision in R. v. Viceroy Construction Company (1975), 23 CPR (2d) 281,

adopted the “average purchaser” test. This decision and its later decision in R. M. Lowe Real

Estate Limited (1978), 39 CPR (2d) 366, the Court used the “average purchaser” test14

. The

level of sophistication imputed to the “average purchaser” under the Competition Act analysis

varies with respect to the type of product and the target audience. These later cases under the

Competition Act were not argued in this matter.

The Supreme Court rejected the Court of Appeal’s inclusion of “an average level of skepticism”

and “an average level of curiosity”, stating that it assumes that

“the average consumer must take concrete action to find the “real message”

hidden behind an advertisement that seems advantageous. This analytical

approach can only weaken the general impression test, since a skeptical person

will be inclined not to believe an advertisement solely on the basis of the general

impression it conveys. Similarly, a consumer with “an average level of curiosity”

will not be so stupid or naïve as to rely on the first impression conveyed by a

commercial representation but will be curious enough to consider the impression

more closely.”15

With respect, the Supreme Court’s analysis is flawed. One can only determine what the

appropriate “general impression” test is by viewing an advertisement in its contest as would the

consumer to whom it is directed. The Supreme Court’s reasoning makes the “general

impression” a much harsher test for the advertiser. It makes the advertiser responsible to ensure,

effectively, that no consumer will be misled. The Court of Appeal’s inclusion of skepticism and

curiosity did not undermine the general impression, rather it was part of the general impression.

14 See also: R. v. International Vacations Ltd. (1980), 59 C.C.C. (2d) 557 (Ont. C.A.).

15 Richard v. Time, 2012 SCC 8 at para. 76.

MBDOCS_6037750.6 18

The Supreme Court concluded:

“With respect, we find it hard to understand how a credulous and inexperienced

consumer could deduce [all the details of the offer including the contest rules]

after reading the Document for the first time. The first sentence that leads off the

page is the following one:

OUR SWEEPSTAKES RESULTS ARE NOW FINAL:

MR. JEAN-MARC RICHARD HAS WON

A CASH PRIZE OF $833,337.00!”

The Supreme Court stated that it was unreasonable to assume that the average consumer would

be particularly familiar with the special language rules of such a sweepstakes and would clearly

understand all the essential elements of the offer made to the appellant in this case. It is not clear

that there was any evidence before the Court on this issue.

The Supreme Court’s formulation of the general impression test for the purposes of the QCPA

was based on the legislative purposes of the QCPA, summed up as “caveat venditor – let the

seller beware”. By contrast, the purpose of the Competition Act is defined as follows:

“The purpose of this Act is to maintain and encourage competition in Canada in

order to promote the efficiency and adaptability of the Canadian economy, in order

to expand opportunities for Canadian participation in world markets while at the

same time recognizing the role of foreign competition in Canada, in order to

ensure that small and medium-sized enterprises have an equitable opportunity to

participate in the Canadian economy and in order to provide consumers with

competitive prices and product choices.”

The Supreme Court engaged in a lengthy analysis of the various provisions of the QCPA, as to

whether they allowed for damages – both compensatory and punitive – in cases where a contract

is and is not formed with a consumer. The Court stated that “the purpose of the [Q]CPA is above

all to purge business practices in order to protect consumers as fully as possible.”

For purposes of the QCPA, the Court found that where certain violations are committed, it is no

defence that the consumer suffered no prejudice. It should be noted that damages under the

Competition Act, including for violations of the misleading advertising provisions, only arise

where actual harm has been suffered by the plaintiff.

MBDOCS_6037750.6 19

The larger question for advertisers, and for the law of misleading advertising, is whether the

Time reasoning will be applied to cases under the Competition Act. Despite the different

legislative purposes of the Competition Act and the QCPA, the language with respect to

misleading advertising is very similar. Nevertheless, there are reasons to think that the tests

under the two statutes should not be the same. These reasons include that the Competition Act

has much broader purposes than the QCPA, and that there are forty years of cases defining the

general impression test and, no Competition Act cases after 1975 were before the Supreme Court.

While there are good arguments that the reasoning in the Time case, and in particular the

standard of average consumer under the QCPA should not apply to cases under the Competition

Act, it is at present an entirely open question. Even if this approach does not translate to the

Competition Act however, it may encourage more cases under the QCPA (and similar consumer

protection statutes) in other provinces.

For instance, under the Ontario Consumer Protection Act, 200216

, the making of false,

misleading or deceptive representations is deemed to be a “unfair practice”. Similar to the

Quebec statute, damages (including punitive damages) are available.

Thus, if the Supreme Court’s reasoning is applied to other consumer statutes, then a right to

nominal damages without the need to show prejudice to the consumer may become the basis for

future class actions. These types of class actions exist now of course, but this decision will likely

encourage more.

16 S.O. 2002, c. 30.