Canada: Expands Misleading Advertising Rules and Creates New Private Litigation for Misleading Advertising

The Government of Canada has proposed legislation to amend the Competition Act (the “Act”) to, among other things, (i) expand the scope of what constitutes misleading advertising, and (ii) permit private parties to commence civil litigation against alleged misleading advertising (and seek different types of monetary awards in some circumstances). These changes create new compliance obligations and strategic considerations for advertisers in Canada.

Here are four things to know about this new legislation and misleading advertising in Canada:

New Type of Misleading Advertising – Environmental Claims

At present, the Act’s civil provisions provide that advertising can be “misleading” if it is “misleading in a material respect” or if it makes claims related to the “performance, efficacy or length of life of a product that is not based on an adequate and proper test thereof, the proof of which lies on the” advertiser. It can be difficult to establish that environmental claims in advertising are material to a purchaser’s decision to select a product (especially if the claims concern, for example, the effect of the product’s manufacture on the environment). It can also be difficult to establish that environmental claims in advertising relate to the performance of a product (e.g., the claim related to the product’s manufacture does not concern any aspect of the product’s performance). This has limited the applicability of the misleading advertising provisions to so-called “greenwashing claims”. Under the new legislation, misleading advertising will be expanded to include claims concerning “a product’s benefits for protecting the environment” or a product’s benefits for “mitigating the environmental and ecological effects of climate change,” if those claims are not based on adequate prior testing.

Key Takeaways

• Advertising that contains environmental claims, including so-called “greenwashing claims” that convey an impression about the positive environmental benefit of a product or service, can contravene the Act even if they do not materially influence a purchasing decision or concern the performance of a product.
• Advertisers will need to assess carefully if they have “adequate and proper” testing in hand before making environmental claims.

New Private Litigation for Misleading Advertising, Including Monetary Penalties and Awards

At present, only the Commissioner of Competition has standing to challenge advertising as misleading and contrary to the civil provisions of the Act. Under the new legislation, private parties can seek leave from the Competition Tribunal to bring proceedings alleging that advertising is misleading and contrary to the Act. However, the Tribunal will only grant such leave if the Tribunal “is satisfied that it is in the public interest to do so.”

Private parties that obtain leave can use the existing legislation to request that the Tribunal order that an advertiser pay an administrative monetary penalty (which is due to the government). In addition, and only if private parties successfully prove that advertising is misleading in a material respect, private parties can use the existing legislation to request that the Tribunal issue an order that the advertiser “pay an amount, not exceeding the total of the amounts paid to the [advertiser] for the products in respect of which the conduct was engaged in, to be distributed among the persons to whom the products were sold… in any manner that the court considers appropriate.”

Key Takeaways

• Private parties can challenge all types of misleading advertising, if the Tribunal accepts that such a challenge is in the public interest.
• The ability to obtain a financial award that is to be distributed to third parties, including persons other than the plaintiffs (such as all consumers that purchased a product), may create incentives for the class-action plaintiff’s bar to attempt to launch misleading advertising litigation.

New Enforcement Abilities for Breach of Consent Agreements

At present, many misleading advertising investigations by the Commissioner are resolved via a consent agreement with an advertiser. However, it is challenging for the Commissioner to take action against alleged breaches of those consent agreements. The new legislation makes enforcement by the Commissioner significantly simpler. The new legislation permits the Commissioner to apply to a court or the Tribunal for civil enforcement of the consent agreement, including an order to prohibit advertisers from engaging in conduct that breaches the consent agreement and an “administrative monetary penalty in an amount not exceeding $10,000 for each day in which they fail to comply with the agreement…”

Key Takeaway

• It will be significantly easier for the Commissioner to take enforcement action against advertisers that breach consent agreements.

New Processes for Settling Private Misleading Advertising Litigation

Under the new legislation, all settlements of private misleading advertising litigation must be served on the Commissioner. The new legislation creates a process for the Commissioner to apply to the Tribunal to vary or rescind the settlement agreement if the agreement “is not in conformity with the purposes of” the misleading advertising sections of the Act. The language in this new legislation is vague, and so the Commissioner’s actual scope to challenge a settlement agreement is unclear. Separately, settling parties are permitted to have their settlement agreement registered with the Tribunal, which will result in it becoming publicly accessible. The new legislation gives the Commissioner the right to enforce a privately negotiated consent agreement as if it were the Commissioner that had entered into that consent agreement.

Key Takeaway

• Given the multitude of processes that apply to the settlement of private misleading advertising litigation, achieving acceptable terms of settlement may be made more complex.

Looking Forward

The proposed legislation is contained in the Government’s budget and is expected to become law late this year or early next year. While the new expanded definition of misleading advertising and the Commissioner’s ability to enforce breaches of consent agreements will come into force immediately, the new processes for private litigation will not come into effect until one year after the legislation becomes law.

For further information concerning this draft legislation, please contact any member of our Competition and Foreign Investment Group.