Contents
- New Guidelines for "Made in Canada" and "Product of Canada" Claims
- Québec Amends the Consumer Protection Act
- Eye on the Competition Bureau: Recent Decisions and Consent Agreements
- Pharmacies Told Not to Sell Unauthorized Natural Health Products
- Save the Earth...and be Sued?
- Health Canada Considers Changes to Precautionary Labelling of Priority Allergens
- Buy Now, Pay Later Offers and the Québec Consumer Protection Act
- Injunction Against Rogers' "Canada's Most Reliable Network" Claim Upheld on Appeal
- The Physiological Effect of Colour
- Bring on the HST
- Gift Card Update - PEI
- Alberta Privacy Update
New Guidelines for "Made in Canada" and "Product of Canada" Claims
The Competition Bureau has published its new Enforcement Guidelines Relating to "Product of Canada" and "Made in Canada" Claims. The Guidelines apply to non-food products and describe the Bureau's approach to assessing such claims under the Competition Act, the Consumer Packaging and Labelling Act and the Textile Labelling Act.
The Guidelines confirm there is no requirement to indicate the country of origin for consumer products under these Acts. If, however, such a claim is made, then it must be neither false nor misleading. In assessing such claims, the Bureau will consider the "general impression" conveyed by the claim, including any visual elements or illustrations that may alter its meaning or which create an impression that the good is a product of Canada. Additionally, the Guidelines introduce a new distinction between "Made in Canada" claims and "Product of Canada" claims, the latter being subject to a more stringent standard for Canadian origin.
The Bureau is unlikely to challenge a "Made in Canada" claim where the "last substantial transformation of the good occurred in Canada," and at least 51 per cent of the total direct costs of production were incurred in Canada. Such claims, however, must be accompanied by a qualifying statement, which may take forms such as "Made in Canada with Imported Parts" or "Made in Canada with Domestic and Imported Parts." Likewise, where a good is represented as a "Product of Canada," its last transformation must have occurred in Canada. However, the standard requiring the total direct costs of production to have been incurred in Canada is much higher, requiring "all or virtually all" (at least 98 per cent) of these costs to have been incurred in Canada.
Consequently, when determining whether to make a "made in" or "product of" Canada claim in respect of its product, a manufacturer is required to consider its "total direct costs of production." The Guidelines explain that the cost of production includes both expenditures on materials incurred in production and manufacturing, and expenditures on labour that relate to the production or manufacturing of the goods. In contrast, general overhead is typically not considered. Manufacturers must also identify the location of the "last substantial transformation of the product in question." A substantial transformation is defined as a "fundamental change in form, appearance, or nature" such that the resulting goods are "new and different" from their status prior to the transformation.
The new Guidelines are scheduled to come into force on July 1, 2010, and in early May, the Bureau released a clarification of its enforcement policy on these claims. The announcement indicates that the Bureau is looking for "good faith" attempts to comply with the new Guidelines by July 1, and effectively adds a further six-month "transitional period" during which the Bureau will only consider enforcement action in "circumstances of bad faith." Absent bad faith, the Bureau will limit its enforcement action during the transitional period to education and warning letters. Previously, the Bureau's formal position had been that the July 1 implementation date was essentially inflexible and that enforcement action might even be taken immediately with respect to non-compliant product shipped before July 1, but appearing on-shelf as of that date. The announcement clarifies that after July 1, the Bureau will consider a number of factors in assessing a complaint before it takes action, including the following:
- the nature of the products and the representations involved;
- whether the claims being made comply with the previous version of the Guidelines;
- whether "good faith" plans and steps have been or are being taken to comply with the Guidelines; and
- any genuine challenges experienced by the company in complying with the Guidelines by the implementation date, including the volume of non-compliant products in the supply chain to be relabeled, and product turnover rates.
This is a very important clarification, but does not mean that manufacturers should not still be moving forward assiduously to implement their plans to make any necessary adjustments to packaging by the July 1 date.
Québec Amends the Consumer Protection Act
Proposed amendments to the Québec Consumer Protection Act received royal assent on December 4, 2009 and will come into force no later than June 30, 2010. The amendments may affect the validity of several standard terms currently used in consumer contracts. More specifically, general contractual clauses by which merchants reserve the right to unilaterally amend the terms and conditions of sale, or to modify the prices of products without notice, may be invalid or subject to conditions as to content. Secondly, contractual clauses by which merchants reserve the right to unilaterally cancel fixed-term contracts involving sequential performance will be prohibited, as will contractual clauses which exclude the right of consumers to cancel contracts of service and enterprise. Meanwhile, the prohibition against the payment of costs by consumers who default on their obligations is expanded. Contracts which contain any such terms must specifically identify the clauses that are inapplicable in Québec. As well, the amendments introduce specific rules with respect to the conditions of sale of pre-paid cards and additional warranties, and the content and cancellation of contracts involving sequential performance for a service provided at a distance. The amendments also introduce a ban on the automatic renewal of contracts of service lasting more than two months and those offering free trials of goods and services. Finally, certain consumer advocacy groups will have standing to apply for injunctions against prohibited practices and stipulations in consumer contracts.
Eye on the Competition Bureau: Recent Decisions and Consent Agreements
Misleading Contest Leads to Fine
A Bureau investigation of Manitoba-based Elkhorn Ranch & Resort Ltd. has resulted in Elkhorn agreeing to pay $170,000 for running a misleading promotional contest. The investigation concluded that Elkhorn's contests created a misleading impression by implying in the large print that the grand prize was a brand new SUV, while the fine print indicated that the prize was actually a one to two year lease on an SUV, with strict conditions attached to it (e.g., a security deposit to be paid by the winner and a pledge to return the vehicle in "immaculate condition"). The Bureau also considered that Elkhorn's contests failed to disclose the odds of winning, and the number and value of the prizes being offered.
Ticketmaster and Live Nation Ordered to Divest Assets to Promote Competition
On January 25, 2010, the Bureau announced that it had reached a consent agreement with Ticketmaster and Live Nation in respect of their proposed merger intended to promote competition in the ticketing services market. The agreement follows a review by the Bureau which concluded that the proposed merger would create concerns regarding competition in the Canadian marketplace, and would create barriers that may have prevented other companies from entering the ticket selling business. The agreement requires Ticketmaster to sell Paciolan, a subsidiary ticket selling business, to either Comcast-Spectator or another buyer approved by the Commissioner of Competition. In addition, it is required to license its ticketing system to Anschutz Entertainment Group (AEG), the principal competitor of Live Nation. Finally, Ticketmaster has been forbidden from retaliating against venues that elect to use another company's ticketing services.
Undisclosed Conditions in Gift Card Promotions Considered Misleading
An investigation by the Bureau recently considered the disclosure of terms and conditions attached to gift card promotions. The Bureau addressed gift card promotions run by major clothing retailers Mexx and Liz Claiborne, and raised concerns over a requirement for a minimum purchase to redeem Mexx gift cards, as this condition had not been disclosed to consumers. The Bureau stressed that such terms and conditions must be clearly disclosed to consumers in advertising and other promotional activities, including in-store signs and oral representations. Both retailers have agreed to fully disclose all of the terms and conditions attached to their gift card promotions in any future representations they make to consumers.
Warnings of False Bamboo Textile Claims
The Competition Bureau has issued a statement in respect of textile articles that are represented as having been derived from bamboo. Such products may use the generic description "bamboo" only when they actually contain bamboo fibres that have been mechanically processed from the plant. The Bureau expressed concern that some textiles labelled with the term "bamboo" were in fact processed from bamboo pulp through a chemical process which actually results in the production of rayon fibres. This statement is expected to require the relabelling of over 450,000 textile articles and the correction of 250 websites. The Bureau has indicated that it will continue to monitor the marketplace for products bearing false or misleading labels related to textile fibre content contrary to the Textile Labelling Act and Regulations.
Pharmacies Told Not to Sell Unauthorized Natural Health Products
The National Association of Pharmacy Regulatory Authorities (NAPRA), a voluntary association of provincial and territorial pharmacy regulatory bodies, issued a position statement last month encouraging member associations and pharmacists not to sell natural health products that have not been licensed with a Drug Identification Number (DIN), or a Natural Product Number (NPN). NAPRA takes the position that such products lack "confirmation that the product was properly assessed for its safety, efficacy and quality." This position statement has already been adopted by the Ontario College of Pharmacists, which is discouraging pharmacists to purchase or accept for sale Natural Health Products possessing neither a DIN nor a NPN.
These developments follow the expiry of the deadline for natural health products registered with transitional DINs to transition to registration under the Natural Health Products Regulations on December 31, 2009, and come amidst industry concerns regarding a current backlog for the processing of such applications at the Natural Health Products Directorate. A manufacturer who has missed the December 31, 2009 application deadline may still apply to have its product licensed as a natural health product, however, the abbreviated transitional application process will no longer be available. As such, it will be necessary for such products to undergo the full licensing application process, including the submission of safety and efficacy data.
Save the Earth...and be Sued?
The automobile manufacturer American Honda Motor Co. has been sued for trade-mark infringement in California by the environmental group Save the Earth, which objects to the presence of an actor wearing a T-shirt bearing its logo in a Honda Civic commercial. The group had registered the trade-mark "Save the Earth" in the United States in 2001. Save the Earth alleges that the commercial implies it endorses both Honda and the Civic as being environmentally friendly and working to "save the earth." Honda, in turn, alleges that the group is attempting to exert ownership over a phrase commonly used to express concern regarding the environment. The lawsuit seeks to restrain future use of the "Save the Earth" logo by Honda, as well as recover any profits resulting from the advertising campaign. While the lawsuit has not yet been decided, advertisers and marketers should be cautious not to inadvertently include registered trade-marks in their promotional materials so as to imply an endorsement they do not have.
Health Canada Considers Changes to Precautionary Labelling of Priority Allergens
Health Canada and the Canadian Food Inspection Agency are considering four potential policy options to update their position on precautionary labelling of priority allergens. Precautionary labelling allows manufactures to alert consumers that priority allergens may be in a food product, even where these allergens have not been intentionally added as an ingredient. Currently, precautionary labelling is done on a voluntary basis. The four potential policy options are: an "enhanced voluntary" approach; an "enhanced voluntary approach with consumer notification;" a "mixed voluntary and regulatory approach;: and a "regulatory" approach.
Under a potential enhanced voluntary system, precautionary labelling would not be mandatory. However, Health Canada would publish guidelines to establish good manufacturing practices for handling allergens, and to standardize the risk assessment process for allergen cross contamination. A limited list of specific wordings for use in precautionary labelling would be published. An enhanced voluntary approach with consumer notification would include these changes. However, this approach would further allow manufacturers who voluntarily adopt precautionary labelling to participate in a notification system which would inform consumers whether a risk assessment was conducted in relation to products that do or do not bear a precautionary label. Health Canada has indicated that this is its preferred option.
A mixed voluntary and regulatory system would also allow manufacturers to voluntarily include precautionary labels on their products. However, Health Canada would publish a list of required wordings for precautionary labelling, and would require a risk assessment before these wordings were used. Improper use of precautionary labels would be prohibited through regulation, with potential legal action for non-compliance.
Finally, under a regulatory approach, manufacturers would be required to follow a set of guidelines establishing good manufacturing practices for allergen handling. Risk assessments for cross contamination with allergens would be required for all products, and a defined set of precautionary labels would be published for use on products which may contain priority allergens. Health Canada recently concluded a public consultation on these proposed changes, and is currently reviewing the results. Should it decide to respond by adopting new regulations, a draft version of the proposed regulations would first be published in Part I of the Canada Gazette, giving stakeholders and the Canadian public an opportunity to submit comments on the regulations before they are formally adopted.
Buy Now, Pay Later Offers and the Québec Consumer Protection Act
A recent decision by the Court of Appeal of Québec aims to remind business operators of the importance of complying with the Québec Consumer Protection Act when carrying on retail business in the province. In Brault & Martineau v. Riendeau, the Court of Appeal re-examined and essentially confirmed an earlier decision of the Superior Court, requiring Brault & Martineau (B&M) to pay punitive damages of $2 million in a class action for violations of the Consumer Protection Act.
B&M, a well-known Québec furniture and electronics retailer, advertised offers of purchases by equal instalments or by deferred payment. The advertising, however, did not disclose that financing was arranged by a third party, namely Visa Desjardins. As such, when a purchase was made by a customer who did not already have a Visa Desjardins credit card, the customer was required to fill in a credit application to obtain a variable credit contract.
Pursuant to an agreement between B&M and Visa Desjardins, B&M paid Visa Desjardins substantial amounts to provide the financing offers to its customers. Most of the customers of B&M availed themselves of the financing offers (as was the case with the complainant, Mr. Riendeau). It seems, however, that Mr. Riendeau felt deceived when he learned of the financing terms associated with his purchases, and particularly with respect to the obligation to immediately pay taxes.
The Court of Appeal addressed four main questions in its judgment:
1. How should the amounts paid by B&M to Visa Desjardins be considered?
Riendeau, the respondent before the Court of Appeal, argued that the payments made by B&M to Visa Desjardins constituted credit charges that had to be disclosed to consumers. The Court disagreed and determined that these payments were part of the capital costs of the goods sold. Indeed, these payments are part of the cost of the goods sold in store, irrespective of whether a consumer avails himself of the financing offered. As such, the payment can be considered as costs of sales, similar to advertising, delivery and the like.
2. What is the general impression created by the advertising of B&M?
With respect to this second issue, the Court of Appeal confirmed the decision of the Superior Court, which had held that B&M's advertising constituted a prohibited practice under the Consumer Protection Act. According to the Court, B&M advertised the availability of credit. In doing so, it was required to comply with the provisions of the Consumer Protection Act and the associated regulations. It could not rely on the fact that financing was offered by Visa Desjardins. By advertising any condition of financing, B&M had the obligation to disclose them all. The advertising omitted to disclose relevant facts and therefore constituted a prohibited practice.
The Court of Appeal did, however, part company with the Superior Court by holding that the advertising was not advertising "with respect to credit" and by specifying that Section 245 did not apply. Section 245 of the Consumer Protection Act provides that in an advertisement concerning credit, no one may incite a consumer to purchase a good or a service nor illustrate a good or a service. With respect to the immediate payment of taxes, the Court of Appeal held that advertising sufficiently disclosed this obligation, albeit in small characters.
3. What recourse is available to consumers?
The Court of Appeal essentially stated that the civil remedies available under Section 272 of the Consumer Protection Act, including the right to claim punitive damages, were available to consumers in case of violation of the provisions of the Act concerning prohibited practices.
4. Can punitive damages be granted alone?
In light of the drafting of Section 272, the Court of Appeal came to the conclusion that punitive damages could be granted alone, without any award of compensatory damages. Indeed, in this case, Mr. Riendeau had failed to establish a prejudice or loss before the Superior Court. The direct effect of this aspect of the decision is that consumers now have a recognized right to enforce the application of the Act through claims for punitive damages. It is anticipated that this is a right that consumer groups will seek to exercise when Bill 60 comes into force later this year. With respect to the amount of punitive damages, the Court held that this was in the discretion of the trial court and essentially confirmed the award of the Superior Court.
Injunction Against Rogers' "Canada's Most Reliable Network" Claim Upheld on Appeal
The British Columbia Court of Appeal has upheld a decision of the British Columbia Supreme Court that prohibited Rogers Communications from advertising its wireless network as "Canada's most reliable network," finding that while the Competition Act did not provide for injunctions at the behest of a private party, such orders were nonetheless within the jurisdiction of the Supreme Court.
Rogers had supported its reliability claim using empirical research which demonstrated that the Rogers network had a small advantage over the TELUS network when the percentage of dropped calls and call clarity were considered. However, this comparison was based on TELUS' older Code Division Multiple Access network (CDMA) rather than its newly created network based on the more recent Global System for Mobile communications (GSM) technology. While the majority of TELUS customers continued to use the CDMA network, TELUS argued that its new HSPA/HSPA+ (GSM) network was expected to be as reliable as Rogers' HSPA/HSPA+ (GSM) network. As a result, it alleged that Rogers' "most reliable network" claim was false or misleading, and sought an injunction prohibiting further advertising containing this claim, as well as damages under the Competition Act.
The British Columbia Supreme Court granted the injunction, finding that most consumers would understand Rogers' advertising to mean that it had the most reliable network in Canada. However, the comparison this claim was based on was no longer apt, as it compared Rogers' HSPA/HSPA+ technology network with TELUS' CDMA technology network, rather than the newer, more directly comparable TELUS HSPA/HSPA+ network. The court likened this comparison to comparing "apples to oranges." Rogers was not assisted by a disclaimer that explained that its claims were based on a comparison of its HSPA/HSPA+ network to TELUS' CDMA network, as most consumers would not understand the significance of the technical terminology contained in the disclaimer. As a result, it was ineffective in altering the general impression created by the "most reliable network" claim.
This decision was upheld on appeal, with the Court of Appeal noting that while the Competition Act only provided for injunctions sought by the Attorney General, it did not exclude the court's inherent jurisdiction to grant injunctions. To determine that the advertising was misleading, the court was required to identify the general impression it conveyed to consumers, then assess whether that impression was false or misleading in a material respect, having regard to extraneous evidence if necessary. In the present case, the general impression of reliability created by Rogers' advertisements depended on the underlying technology of its network, rather than a proven track record. As such, the fact that TELUS' HSPA/HSPA+ network was new did not mean that it could not be considered as "reliable" as a network based on similar technology. This impression was not altered by the disclaimer, as the word "most" is a superlative which would imply that Rogers' network was more reliable than all other networks, not only a single specified network. Further, the disclaimer did not alert consumers to the fact that it was intended to undercut the claim it purported to explain. While this decision will be of particular interest to wireless network service providers, all advertisers should be aware of the need to base their comparative advertising on relevant comparisons which are supported by empirical evidence and clarified, rather than contradicted, by disclaimers which are comprehensible to consumers.
The Physiological Effect of Colour
On February 18, 2010, Health Canada began seeking public consultation on its proposal to amend the Food and Drug Regulations (FDR) to improve the labelling requirements for food colouring agents in food products. With respect to most food products, the FDR currently allows manufacturers the choice between listing the individual colouring agent by the common name, or collectively listing all colouring agents under the heading "colours." Health Canada is of the view that although the evidence is not conclusive, there are certain colouring agents that may have a physiological effect on certain individuals (e.g., hyperactivity in school children), and certain colouring agents have also been associated with adverse reactions. Therefore, the goal is to provide Canadians with the information required to make an informed choice. Two possible options Health Canada is considering in its proposal are: i) require labelling of all food colours by their individual common name or a numerical identifier (i.e., a colour identification number); and ii) require labelling by the individual common name of all synthetic colours that do not occur in nature and require a certification process, as well as the natural colours cochineal, carmine and annatto (each of which have been associated with allergic or sensitivity responses). All remaining natural colours could be permitted to be identified either by the generic term "colour" or by the common name.
Bring on the HST
Effective July 1, 2010, British Columbia and Ontario will replace their provincial sales taxes and the federal Goods and Services Tax (GST) with a single Harmonized Sales Tax (HST). The HST rates will be 12 per cent in British Columbia and 13 per cent in Ontario. This will bring the total number of provinces with an HST to five, including New Brunswick (at 13 per cent), Newfoundland (at 13 per cent), and Nova Scotia (which just announced an increase of its HST rate from 13 per cent to 15 per cent for July 1). Businesses are beginning to advertise that consumers may "Save the HST!" by purchasing goods and services before the end of June. However, these claims may be misleading if the goods or services are currently subject to both the federal tax and either of the B.C or Ontario provincial sales tax. Since the combined rate of the provincial sales tax (7 per cent in British Columbia and 8 per cent in Ontario) and the federal GST rate (of 5 per cent) equals the new HST rates in these provinces, there are no tax savings where the good or service was previously subject to both taxes.
It is fairly common for a business to advertise that it will "Pay the Tax," or otherwise relieve the customer from GST/HST and provincial sales taxes. After the transition, a retailer advertising such claims will only have to address the technical requirements for GST/HST. The more onerous requirements for provincial sales tax compliance in British Columbia and Ontario will no longer be necessary. The change from a provincial sales (or consumption and use) tax to a multi-stage, value-added tax in the form of the HST should benefit many businesses, streamlining compliance by replacing two sets of transaction tax rules with a single comprehensive regime. A single set of rules will save millions of dollars in compliance costs for businesses and in administration costs for the governments of British Columbia and Ontario. Provinces that continue to maintain their sales tax regimes are Manitoba, Saskatchewan and Prince Edward Island, though they are being encouraged by the federal government and the business community to make the switch.
Gift Card Update - PEI
On April 8, 2010, the government of Prince Edward Island introduced legislation that will regulate gift cards. If passed in its current form, the proposed Gift Cards Act will prohibit expiry dates on most gift cards, prohibit most administration fees, and require clear disclosure of all fees and other terms and conditions. The new legislation will apply to gift cards, gift certificates or any other voucher sold with a monetary value attached. Some exemptions will be made for cards issued for marketing or promotional purposes, for charitable purposes, or for a specific good or service (e.g., a gift card for a round of golf).
Alberta Privacy Update
Alberta's Bill 54 which came into force on May 1, 2010, fine-tunes the Alberta Personal Information Protection Act (PIPA), which regulates how private sector organizations collect, use, disclose, protect and provide access to personal information. Now, organizations operating in the Alberta private sector must comply with more stringent privacy requirements. The amendments prescribed by Bill 54 clarify and expand organizations' obligations under PIPA relating to collecting, using or disclosing employee information. Specifically, the definition of "personal employee information" is expanded to include information about a former employee as well as information used for managing a post-employment relationship, providing for a more consistent standard of handling the personal information of employees. Further, organizations now have a positive obligation to destroy or anonymize personal information once the organization no longer requires it for legal or legitimate business purposes. Lastly, the new amendments also increase the ambit of penalties for noncompliance. The "wilful" requirement has been removed such that an organization could commit an offence even if it acted unintentionally. Perhaps the most important amendments to PIPA are the new notification provisions requiring organizations to notify individuals before transferring personal information to a foreign service provider, and to notify the Privacy Commissioner of Alberta if personal information is lost, accessed or disclosed without authorization.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.