Advertising and Marketing Developments

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Canada: Advertising and Marketing Developments

01/03/2009

Advertising law in Canada encapsulates a multitude of legal issues and is governed by federal and provincial laws, as well as self-regulatory codes and policies. This paper is a summary of the most relevant developments in Canadian advertising law in the last year.

1. National Do-Not-Call List

In September 2008, the Canadian Radio-television and Telecommunications Commission (CRTC) officially launched the National Do Not Call List (DNCL). In general, telemarketers are prohibited from contacting individuals who have registered their telephone number(s) – free of charge – on the National DNCL. There are, however, certain types of organizations that are exempted from the National DNCL Rules, including: (i) Canadian registered charities; (ii) political parties, riding associations and candidates; (iii) newspapers of general circulation soliciting subscriptions; (iv) organizations conducting market research, surveys, or public opinion polls; and (v) organizations with whom a consumer has an “existing business relationship”. Regarding the last exemption, the National DNCL Rules state that an “existing business relationship” will exist where the consumer has: (a) purchased, leased, or rented a product or service in the last 18 months from the telemarketer; (b) a written contract with the telemarketer for a service that is still in effect or expired within the last 18 months; or (c) asked a telemarketer about a product or service within the last six months. Violations of the National DNCL Rules are subject to administrative monetary penalties, including up to C$1,500 per offending call for individuals and up to C$15,000 per offending call for corporations. Full details of the National DNCL can be obtained at: https://www.lnnte-dncl.gc.ca/

2. Gift Cards Update

Following closely in the footsteps of Ontario and Manitoba, several other Canadian provinces have recently enacted legislation to regulate gift cards and prohibit expiry dates. In Alberta, the Gift Card Regulation – made pursuant to the Fair Trading Act – came into force on November 1, 2008 and prohibits expiry dates on gift cards and certificates for which a purchaser has provided consideration. The Regulation allows for a one-time activation fee at the time of purchase, as well as fees for replacing lost or stolen cards and for the customization of cards. Suppliers are required to clearly disclose any terms and conditions that affect the use of the gift card (e.g., restrictions and limitations), both on the card itself and on any packaging or promotional materials associated with the card. In New Brunswick, the Gift Cards Act – which received royal assent and came into force on June 18, 2008 – prohibits expiry dates on gift cards (except as otherwise provided by regulation). In general, suppliers are prohibited from charging fees to the purchaser or holder of a gift card, and must clearly disclose all restrictions, terms and conditions imposed on the use of the gift card. Regulations to the Act are forthcoming. In British Columbia, the Prepaid Purchase Cards Regulation – made pursuant to the British Columbia Business Practices and Consumer Protection Act – came into force on November 1, 2008 and prohibits expiry dates on prepaid purchase cards. Similarly, Saskatchewan's Consumer Protection Amendment Act, 2008 came into force on November 10, 2008 and amends the Consumer Protection Act to prohibit expiry dates on most prepaid purchase cards (except as otherwise provided by regulation). In both provinces, suppliers are prohibited from charging fees in relation to prepaid purchase cards, and are required to provide certain information to consumers at the time such cards are sold, including all restrictions, terms and conditions imposed on the use, redemption, or replacement of the card. Lastly, in Nova Scotia, the Legislature has passed Bill 38, which gives the provincial government the power to make regulations respecting fees, dormancy charges, and expiry dates for gift cards. However, to date, such regulations have not been enacted.

3. The Competition Bureau
A. Environmental Claims – A Guide for Industry Advertisers

With Canadian consumers becoming increasingly concerned about the environmental performance of products and services, many marketers have begun to capitalize on the opportunity for just about anything to be marketed as “green”. From simple packaging changes to products and services that radically reduce materials, energy, and waste, there is no shortage of Canadian companies lining up to develop and promote products that are ecologically preferable. This emerging trend, however, presents unique challenges, not the least of which is developing standards for determining exactly what it means to be “green”. Fortunately, in response to concerns about misleading advertising regarding environmental claims, the Competition Bureau recently introduced its guidance document – Environmental Claims: A Guide for Industry and Advertisers (the Guide). The Guide has two stated objectives:-

To provide users with a practical guide to the application of ISO 14021 (“Self-Declared Environmental Claims”); and
To provide assistance to industry and advertisers regarding compliance with legislation enforced by the Bureau that prohibits false and misleading advertising (including the Competition Act, the Consumer Packaging and Labelling Act, and the Textile Labelling Act).

The Guide discourages the use of unsubstantiated and vague environmental claims such as “eco-friendly” and “environmentally friendly”. In effect, such claims should only be used if they detail the exact environmental benefit in such a way that it can be verified in relation to the specific product. The problem for green marketers, however, becomes how to incorporate such lengthy “qualified” claims into advertising copy. Through the use of commentary and practical examples, the Guide provides guidance on the proper use of certain common environmental claims, including for example: “biodegradable”; “recyclable”; “recovered energy”; and “reduced energy consumption”. In addition, it also discusses the issue of comparative claims and addresses the use of symbols for different environmental claims, including “natural” objects and the Mobius loop. Overall, green marketers must ensure that all environmental claims are true not only in relation to the final product, but also in relation to all relevant aspects of the product's life cycle. In effect, “green” companies need to be mindful of the potential for one impact to be increased in the process of decreasing another, and must ensure that there is an overall net positive impact on the environment. There will be a one-year transitional period (ending June 2009) during which companies will be encouraged to adopt and implement the provisions of the new environmental claims regime. Regarding enforcement, the Bureau has suggested that it will be primarily concerned with “egregious” environmental claims that are likely to mislead consumers.

B. Unsubstantiated Claims

The Competition Tribunal recently ordered Imperial Manufacturing Group (IMG) to cease making claims that its chimney cleaning products, among other things, reduce creosote and prevent chimney fires. IMG attempted to challenge the Competition Act's adequate and proper testing provision on the basis that it infringes the Canadian Charter of Rights and Freedoms. However, the Tribunal rejected the argument that the provision – which is intended to protect consumers from the harm caused by unsubstantiated claims – is unconstitutional. The Tribunal ordered IMG to stop making performance claims that are not supported by adequate and proper tests. In addition, IMG was ordered to pay a C$25,000 administrative monetary penalty and C$40,000 costs, as well as to publish a corrective notice in a national English and French newspaper. In order to avoid similar scrutiny, manufacturers must ensure that adequate and proper scientific testing is available to substantiate all claims.

4. Proposed Legislative Amendments - Canada Consumer Product Safety Act

With the mandate of protecting the public by preventing dangers to human health and safety that are posed by consumer products in Canada, the Government of Canada has introduced proposed amendments to the Canada Consumer Product Safety Act. It is anticipated that Bill C-6 will bring Canadian laws up to speed with the world by introducing new rigorous standards for both domestic and imported consumer products in Canada.

If implemented, highlights of the new legislation would include:

A general prohibition against the manufacture, importation, advertisement or sale of consumer products that are a danger to human health or safety (defined as an existing or potential hazard that is posed by a consumer product during or as a result of its normal or foreseeable use and that may reasonably be expected to cause death or injury);
A requirement for the mandatory reporting by suppliers of serious product-related incidents, including near-misses, defects and incorrect or insufficient information on product labels or instructions;
The power to inspect – for the purpose of verifying compliance or preventing non-compliance – any place (other than a dwelling-house) in which the Minister believes on reasonable grounds that a consumer product is manufactured, imported, packaged, stored, advertised, sold, labeled, tested or transported;
Dramatically increased fines (up to C$5 million and two years imprisonment on indictment) for violations; and
The power for the federal government to order recalls of any unsafe consumer products that pose a danger to human health or safety.

Bill C-6 would apply to those consumer products that can reasonably be expected to be obtained by individuals to be used for non-commercial purposes, but would not include certain products already covered under other Acts (e.g., cosmetics, firearms, explosives, vehicles and pest control products).

5. Product of Canada / Made in Canada

In response to consumer concerns about the globalization of the food supply and the accuracy of labelling policies, the Canadian government has introduced new guidelines for manufacturers and advertisers of food products. Under the previous guidelines, two basic criteria had to be met before manufacturers could use Canadian content statements: (i) the last substantial transformation of the goods had to have occurred in Canada; and (ii) at least 51% of the total direct costs of producing or manufacturing the goods had to be Canadian. With the goal of providing increased certainty and clarity for consumers, the 'Canadian Food Labelling Initiative' redefines the terms 'Product of Canada' and 'Made in Canada', when used in food labelling or advertising. The new guidelines, which took effect on December 31, 2008, include the following definitions:
“Product of Canada”: means that “all or virtually all” of the contents of a food product are Canadian. This means that all of the significant ingredients in a food product must be Canadian in origin and that non-Canadian material is negligible (less than 2% of the product).

“Made in Canada”: means that the last substantial transformation of the product occurred in Canada. If “Made in Canada” is printed on the label, the claim must be qualified to indicate that it is manufactured in Canada from imported ingredients (e.g., “Made in Canada from imported ingredients”) or a combination of imported and domestic ingredients (e.g., “Made in Canada from domestic and imported ingredients”).

The new guidelines apply to foods sold at all levels of trade. If non-compliance is identified by the Canadian Food Inspection Agency (CFIA) during an inspection and/or when responding to a complaint, “appropriate action” (which can escalate to monetary fines and/or prosecution) will be taken by CFIA to promote compliance. When assessing “Made in Canada” or “Product of Canada” claims, CFIA has indicated that it will take a case-by-case approach, balancing all factors and taking into consideration the nature of the product and consumer expectations.

6. Quebec Consumer Protection Act Update

New provisions of the Quebec Consumer Protection Act concerning “distance” contracts recently came into force. The amendments add new requirements for what were formally called “remote-party” contracts (i.e., agreements entered into between a merchant and a consumer without the parties being in each other’s presence). Under the new provisions, an offer is deemed to be made if the merchant’s proposal comprises all the essential elements of the intended contract. An obligation is placed on the merchant to disclose certain information before entering into a distance contract with a consumer. Further, the consumer must have the opportunity to accept or decline the proposal and correct any related errors. In addition, the consumer may cancel the agreement within 7 days if certain conditions are not satisfied (e.g., disclosure), or prior to the performance of the merchant’s principal obligation if this obligation is not performed within 30 days following the conclusion of the agreement. While these changes are significant when compared to the scant framework that previously existed for remote party contracts under the Quebec Consumer Protection Act, they will not be unfamiliar to consumers who conduct remote sales outside of Quebec Indeed, these changes were introduced in an attempt to harmonize Quebec’s regulatory regime with those of the other provinces which have adopted the Internet Sales Contract Harmonization Template, approved on May 25, 2001, by the federal and provincial ministers responsible for consumer affairs.

7. Automobile Advertising Updates

A. Cost of Credit Disclosure

On April 1, 2007, Manitoba amended its Consumer Protection Act to include new cost of credit disclosure requirements. These requirements mirror (imperfectly) the disclosure requirements in Alberta, Ontario, BC and Saskatchewan. In May 2008, the Manitoba Motor Dealers Association (MMDA) published guidelines which interpret these new requirements. The MMDA takes the position that the required information must be prominently displayed in the body of lease and purchase finance ads. They have published sample ads where the required information appears to be displayed in 20 point type.

A quick review of these ads indicates that they are neither user-friendly nor attractive. Until a court or regulator has determined the meaning of prominently displayed, Manitoba ads should include a disclosure box in the body copy which clearly sets out the following information:

For Lease Ads:

that the agreement is a lease
the term of the lease
any payment required at lease inception
the timing and amount of the payments
any other amount particular to the lease (excess wear and tear?)
the APR
the kilometer limit and the charge for excess kilometers For Purchase Finance
Ads
that the agreement is a purchase
the cash price
the timing and amount of each payment
the term of the loan
the APR
the cost of credit

There are several interesting and/or unresolved issues. The APR does not require equal prominence as it does in other provinces. The MMDA does not address Manitoba's requirement to prominently disclose the total cost of the transaction. What does “any other amount that a lessee might have to pay (that a purchaser) would not” mean? What additional lease/financing information should be included in the fine print?

B. Quebec

The Quebec Consumer Protection Office has recently tabled a sweeping set of proposed changes to the Consumer Protection Act which, if enacted, will have a major impact on automotive advertising in Québec. These are still in embryonic form. They are subject to a long industry consultation process and will not be enacted for months (at a minimum). Following are a few of the proposed changes:

Price advertising to include freight/PDI, excise tax, new tire duties but not GST and QST.
New disclosure requirements for financing ads including: cash price, the number, timing and amount of the periodic payments, the total obligation, the amount of any deferred payment, the APR.
New disclosure requirements for lease ads including: cash price; all required pre-inception payments; the number, timing and amount of the periodic payments; wear and tear and kilometer limits and the charges if these limits are exceeded; the maximum total obligation.
Prohibition against charging for excess mileage before the end of the lease;
Requirement to label new and used cars with the dealer's name and address and, in the case of used cars, the retail value, the year of manufacture and warranty details.

C. Ontario Update

The draft Ontario Motor Vehicle Dealers Act, 2002 Regulations have been released and will be proclaimed in force on April 1, 2009. The Regulations – which apply to automobiles, trucks or other vehicles propelled or driven otherwise than by muscular power – will impact Ontario automobile advertisements in the following ways:

1. If an advertisement indicates the price of a vehicle, then that price must be set out (in a clear, comprehensible and prominent manner) as the total of:

the amount the buyer would be required to pay for the vehicle; and
all other charges payable (e.g. freight and PDI, fees, levies and taxes).

“Taxes” does not include GST or PST if the advertisement clearly indicates that such "taxes" are excluded. In addition, if such an ad is placed jointly by two or more registered motor vehicle dealers, then the ad must state that the price for the vehicle may be less than the price in the ad (e.g. “Dealer may sell for less”). Similarly, if an amount of any “charge” varies between the dealers, then the ad must (in a clear, comprehensible and prominent manner) set out: (i) that a buyer may be required to pay an amount in addition to the advertised price; and (ii) what the charge is for.

2. An advertisement must not indicate the price of a vehicle, unless the vehicle is available from the dealer: (i) at that price; and (ii) during the time frame to which the advertisement applies.

3. If an advertisement indicates the price of a vehicle of which there are a limited number available, then the advertisement must (in a clear, comprehensible and prominent manner), indicate the number of vehicles available. Presumably, when an advertisement runs for several days, it will be acceptable to state the number of vehicles available when the advertisement is placed (as this number will diminish as vehicles are sold).

4. If an advertisement indicates that an extended warranty is included with the purchase of the vehicle, it must (in a clear, comprehensible and prominent manner) indicate: (i) the term of the warranty; and (ii) the maximum individual claim limits, if any.

The Ontario Motor Vehicle Industry Council (OMVIC) has indicated that the Regulations – pursuant to section 2(21) – do not apply to automobile manufacturers. This interpretation would mean that the requirements noted above would not apply to a national advertisement (with no dealer tags) that is placed by an automobile manufacturer.

8. ACTRA Commercials Agreement

After 17 months of negotiation, a settlement regarding ACTRA's National Commercial Agreement (NCA) has been reached, averting a threatened strike. The NCA is the industry standard collective agreement that governs the production of English-language commercials in Canada. The settlement between ACTRA and the Joint Producers (the Association of Canadian Advertisers and Institute of Communication Agencies) covers many new aspects, however two key elements include:

Measures to enhance compliance with the NCA: Engagers who wish to engage ACTRA Performers in the production of their commercials shall sign a Letter of Adherence. Once a Letter of Adherence has been signed, all commercials created by that Engager or any company that it now or in future may control will be covered by the NCA.

Expanded new media opportunities: The single most significant change to the NCA is the issue of payment for new media – defined as digital, electronic, or any other type of delivery platform, including, but not limited to, commercials delivered via internet podcasts, mobile phones, and other digital electronic media. The temporary experimental rate card for a 4-hour session call will be half the current session fee. If the session goes over, the performer will receive the full session rate and all applicable additional fees. The special rates for new media will not increase along with the general rate increase. This experimental rate card will be monitored to consider whether or not this model is successful.

Conclusion

The last year has been full of changes and challenges for advertising and marketing lawyers in Canada. While most basic principles governing advertising law are similar in Canada and the US, there are many important differences; and Quebec, with its Civil Code and French-language rules, adds layers that must be considered when embarking on a North American advertising campaign.

By: Brenda Pritchard, Susan Vogt and Daniel Cole
Gowling Lafleur Henderson LLP

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