The Cineplex Decision – A New Chapter Opens in Canadian Competition Law

The Competition Tribunal released its reasons in Commissioner v. Cineplex on October 3, 2024. It is the first decision under the Competition Act’s "drip pricing” misleading advertising provision, which was added in 2022. This Update discusses important insights from the decision about (i) how the Competition Act’s misleading advertising provisions apply to online sales portals, and (ii) how the Competition Act’s reformed provisions may be enforced in the coming years.

Key takeaways:

1. For online sales portals, the charging of mandatory additional fees that are not displayed "concurrently” with an advertised price (e.g., displayed only later in the purchasing funnel, or displayed only after scrolling down) may constitute illegal drip pricing and illegal misleading advertising.
2. Administrative monetary penalties for breaching the Competition Act’s civil provisions, including the drip pricing provision, are more likely to be significant, and will "often” be calculated initially on the basis of a company’s gross revenue arising from its misrepresentation.
3. The Tribunal understands that aspects of Parliament’s reform of the Competition Act are intended to "simplify” its "assessment by removing any need to analyze and determine separately” certain components of the misleading advertising provision, which is likely to ease the burden on the Competition Bureau (and private applicants) in future litigation.

Background

Section 74.01(1)(a) of the Competition Act permits the Tribunal to make orders against persons whose advertisements are false or misleading in a material respect. In 2022, Parliament created the so-called "drip pricing” provision, subsection 74.01(1.1). It provides that a false or misleading representation includes "a representation of a price that is not attainable due to fixed obligatory charges or fees” (unless those fees are imposed on a purchaser of the product by a federal or provincial law, such as a sales tax). The new drip pricing provision is one of several reforms to the Competition Act in recent years.

In 2023, the Bureau alleged that Cineplex, a cinema chain, had engaged in both misleading advertising and drip pricing. Cineplex offered visitors to its website a per ticket price. When a ticket was selected, a subtotal appeared on a "floating ribbon” at the bottom of the screen (i.e., "above the fold”, the part of a website that is visible before scrolling down). The subtotal included, but did not break out, an additional $1.50 online booking fee. The floating ribbon included a "call to action” button for the consumer to "PROCEED” with the purchase. The additional fee was also disclosed at the bottom of Cineplex’s webpage "below the fold”, which a consumer can see if they scroll down; scrolling down in this manner was not necessary to proceed with the purchase. The Bureau alleged this disclosure was insufficient, and that Cineplex had contravened the Competition Act.

Only the Bureau may bring an application alleging misleading advertising. However, beginning June 20, 2025, some private litigants will also be permitted to pursue applications if they obtain the Tribunal’s permission.

Insights From the Decision

How the Competition Act Will Apply to Online Sales Portals

• Online Sales Portals Must Display Additional Fees Concurrently. The Tribunal found a consumer would only be aware of Cineplex’s additional fee if they did "mental math” to subtract the originally advertised price from the higher subtotal presented in the floating ribbon. In addition, the Tribunal found that an "ordinary” consumer is unlikely to scroll down below the fold (i.e., the part of a website visible before scrolling), unless clearly directed to do so. As a result, the additional fee had not been advertised "concurrently” with the original advertised price of the ticket. The Tribunal concluded that even a consumer who does mental math or scrolls below the fold, "immediately sees and feels the deception of the [originally advertised] ticket price”. All of this permitted the Tribunal to conclude that (i) Cineplex’s advertised per ticket price was misleading in a material respect, and (ii) Cineplex’s additional fee constituted drip pricing, contrary to the Competition Act.

Key Takeaway: Businesses that operate online sales portals should ensure that any mandatory fees they charge, in addition to an advertised price for a product or service, are presented (i) "concurrently” with the original advertised price (e.g., on the same webpage, and not on a secondary webpage later in the purchase funnel, which may include the homepage of a website), and (ii) in such a manner that an "ordinary” consumer is made aware of the additional fee (e.g., "above the fold,” without any need to scroll down, and broken out from the subtotal).

• Website Design Features Matter. Cineplex made other efforts to disclose details about its additional online booking fee, including offering "i” buttons that a consumer could hover over or click on for more information, and prominently advertising an alternative subscription service that permitted the avoidance of the additional fee. None of these efforts at disclosure were sufficient to satisfy the Tribunal that the additional online booking fee was not deceptive.

Key Takeaway: The Tribunal may not protect companies from liability if their additional fees are not disclosed with sufficient prominence to make the ordinary consumer "aware.” As a result, website design and evidence about how consumers use a website have legal significance. The decision does not address the effectiveness of other website design options, which may force a consumer to affirmatively acknowledge the charging of an additional fee in some manner before proceeding into the next step of the purchasing funnel. Examples of these options include forcing consumers to scroll to the bottom of a screen, requiring consumers to affirm they have read certain text (e.g., by clicking a box), and the use of pop-up windows with additional text. It is unclear whether these additional disclosure steps satisfy the requirement that additional fees be displayed "concurrently” with the advertised price of the product or service.

• All-Inclusive Pricing – Still an Open Question. The Bureau argued that the new "drip pricing” provision required the display of "all-inclusive pricing,” meaning advertising a price that is inclusive of any fixed obligatory fee. The Tribunal determined it was not necessary to rule on this issue, leaving the question "for a future case.” However, the Tribunal rejected Cineplex’s argument that the online booking fee was not a "fixed” fee (and therefore not subject to the drip pricing provision) because different classes of consumers paid a lower fee or no fee. The Tribunal held it would be contrary to the Competition Act’s remedial nature to allow businesses to circumvent the drip pricing rules simply because "they have created different categories of consumers for whom the fee is discounted or waived.”

Key Takeaway: Many online sales portals offer different options for "add-ons” later in the purchasing process, such that the merchant is aware at the beginning of the purchase process that the consumer is very likely (or even certain) to purchase at least one add-on. The decision did not address whether the minimum price of an add-on (such as a minimum shipping charge) must be disclosed "concurrently” with the product’s advertised price. However, the Tribunal accepted that the additional online booking fee constituted a "shrouded attribute” (that is, a feature of the price that cannot be or is hard to discover until the consumer takes a number of steps) and the academic literature has also described a range of common fees charged by online sales portals as "shrouded attributes.”

Enforcement of the Competition Act’s Reformed Provisions

• Penalties under the Competition Act are Likely to Grow – Cineplex is the first case where the Tribunal was required to make a determination about a significant administrative monetary penalty (AMP) (other cases where the Bureau sought a significant penalty were settled). The decision explains that financial penalties "should not be a cost of doing business. That would undermine, rather than advance, the objectives of the deceptive marketing provisions and would not promote conformity with the [Competition Act].” The amount of an AMP will "often” be "determined by the aggregate amount paid for a single product purchased by many consumers” – that is, gross revenues – and then adjusted by aggravating and mitigating factors. If future litigants seek a disgorgement remedy, the decision advises that the applicant’s pleadings should account for the challenges associated with the "practical implementation” of a restitution order (including "how to distribute individual refunds to consumers,” the cost of distribution, and whether additional Tribunal resources would be required to administer "the logistics of a refund order”).

Key Takeaway: Going forward, AMPs under the reformed provisions of the Competition Act are likely to be (i) proportionate to the amount of revenue a respondent company generated from its illegal conduct, and (ii) as a result, significantly higher than in the past. In addition, applicants seeking to obtain disgorgement should present the Tribunal with a well-thought-out plan for how such payments will be administered, which limits or avoids the use of the Tribunal’s resources. Access to the Tribunal by private applicants will expand significantly in June 2025 (including private applications relating to false and misleading representations, with permission of the Tribunal).

• Understanding the Reform of the Act – Cineplex is the first case where a court interpreted the recent reforms to the Competition Act. In important passages, the decision describes how the reformed misleading advertising provisions "advance the objectives of the Competition Act” and "provid[e] a specific means to support the achievement of the statutory goals.” More specifically, the decision describes how the creation of the drip pricing provision "simplifies the Tribunal’s assessment by removing any need to analyze and determine separately” a question of law that previously needed to be satisfied with complex evidence.

Key Takeaway: Many observers are keen to understand how changes to the Competition Act’s merger provisions – including the introduction of rebuttable market share presumptions and the removal of the efficiencies defence – will be applied by the Tribunal. Cineplex provides an example of how the Tribunal may apply the changes to the Competition Act, and that the burdens on companies when defending mergers (with regard to both evidence and the ultimate burden of proof) are likely to be greater than in the past.

For further information on how these insights from the Cineplex decision may apply to your business, please contact any member of our Competition and Foreign Investment Group.