The Ontario Superior Court of Justice recently rendered its highly-anticipated decision (Commissioner of Competition) v. Chatr Wireless Inc., 2014 ONSC 1146 relating to the legal requirement under the Competition Act to conduct adequate and proper testing prior to making performance claims to the public.
By way of background, Rogers Communications and Chatr Wireless (the "respondents") had actively marketed their Chatr Wireless service as having "fewer dropped calls" than that of other wireless telecommunication carriers. While the Court found that the "fewer dropped calls" claims were ultimately substantiated by "post-claim" testing, the Court held that, at the time the claims were first published by the respondents, they had not completed an "adequate and proper test" of the claims, as required under section 74.01(1)(b) of the federal Competition Act.
While Rogers Communications and Chatr Wireless asserted the defence of due diligence, the Court was not satisfied that the respondents had taken all reasonable steps to prevent the conduct from occurring or that they "reasonably believed in a mistaken set of facts that, if true, would have meant that they had adequately and properly tested the claim". Among other findings, Justice Marrocco concluded that the respondents made a "deliberate decision" to make the claims based on results inferred from technological facts that suggested the superiority of their networks (such as higher cell site density, indoor transmission systems, low-frequency spectrum and seamless handoffs) rather than on proper testing. Justice Marrocco further noted that, while the respondents had an ongoing drive test programme in place (implemented in 2005, at a cost of $20 million), they choose not use the programme, despite the fact they "knew it was necessary to test performance claims before making them". After considering a number of other factors, the Court was not persuaded, on the evidence, that the respondents were duly diligent.
In assessing the quantum of the administrative monetary penalty ("AMP") to be imposed, the Court expressed that the purpose of AMPs is not to punish or deter others from making unsubstantiated performance claims and that a higher AMP may have been warranted had the claims ultimately proved to be false or misleading. Many of the factors to be considered under Section 74.1(5) in determining the amount of any AMP under the Competition Act were in the Court's view mitigated by the fact that the untested performance claims proved to be true and substantiated. In fact, Justice Marrocco concluded that, since the claims in issue were ultimately found to be substantiated, there was no adverse effect on consumers, and any harm inflicted on the competitors targeted by Chatr's advertising campaign was found to be "appropriate". In the circumstances, the Court was of the view that a $500,000 AMP was appropriate.
Finally, Justice Marrocco denied the Commissioner of Competition's request for a prohibition order that the respondents not engage in substantially similar reviewable conduct for a period of 10 years. The reputational harm inevitably suffered by the respondents was taken into account in denying the prohibition order sought, as was the fact that a number of the new wireless carriers had used the commencement and existence of the application (in some cases in ways commented on unfavourably by the Court) to try to obtain a competitive advantage. Justice Marrocco further concluded that it would be reasonable to think that "genuine Canadian corporations", such as the respondents, would take care to avoid such risk of reputational harm in the future and that the "prospect of future proceedings" would therefore encourage competition.
The decision serves as an important reminder of the need for advertisers to ensure that any claims as to the "performance, efficacy or length of life" of a product or service must be substantiated by an adequate and proper test before the claim is made. "Post-claim" substantiation will not be sufficient to meet the requirements of s. 74.01(1)(b).
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