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Focus: Bureau showing teeth on ordinary prices

Focus
|Written By Julius Melnitzer

The $3.5-million settlement reached between arts and crafts store Michaels of Canada ULC and the commissioner of competition in May 2015 is yet another sign that the Competition Bureau is serious about ramping up its enforcement focus in the area of misleading advertising.

“The settlement is of note because it is consistent with the bureau’s renewed interest in ordinary or regular pricing representations,” says Anita Banicevic of Davies Ward Phillips & Vineberg LLP.

“It is also indicative of the bureau’s interest and active enforcement in the advertising area in general.”

The ordinary price provisions in the Competition Act are, in a nutshell, in place to ensure that a bargain offered to consumers really is a good deal. The upshot is that a supplier can’t claim that a product’s price is its ordinary or regular price unless it or those in the market generally have sold a substantial volume at the represented amount, or higher, within a reasonable time before or after making the representation.

In the alternative, it must have offered the product for sale in good faith at the represented ordinary price for a substantial period of time before or immediately after making the representation.

In this case, the bureau alleged Michaels didn’t ensure it had offered certain products for sale in good faith before promoting them at discounts.

The seminal case in the area is the 2005 decision of the Competition Tribunal in Commissioner of Competition v. Sears Canada Inc. It established the guiding principles for determining an ordinary or regular price. The tribunal imposed an administrative monetary penalty of $100,000.

Michaels paid 35 times as much, albeit in an era where the maximum penalty for a first-time offence has increased to $10 million. “The magnitude of the [penalty] imposed here makes it evident that the bureau is quite serious about ordinary price representation enforcement,” says Banicevic.

James Musgrove of McMillan LLP in Toronto says the $3.5-million penalty was high.

“The Competition Bureau is not shy about AMPs,” he says. “But an AMP of this magnitude causes me to continue to believe that sooner or later a court will say that certain AMPs are penalties and unconstitutional [as criminal law] despite the recent Supreme Court of Canada holding [in Guindon v. Canada] to the contrary.”

Before the Michaels case, enforcement around ordinary price representations had been below the radar for some time. Still, its emergence doesn’t surprise Banicevic.

Sears provided companies with a clear understanding of how ordinary price claims should work,” she says. “Then the marketplace corrected itself, we had a quiet period, and now we’re starting to see more enforcement activity again.”

According to Musgrove, the bureau began ramping up advertising enforcement about two or three years ago, but the size of the penalty in the Michaels case has brought the issue to the fore.

“Things tend to go in waves, and I think somebody’s got to get a good whack before people start paying attention anew,” he says.

Enforcement has ramped up in other advertising-related areas as well.

Since Bell Canada agreed in 2011 to pay a $10-million administrative monetary penalty, the maximum allowed under the legislation, for misleading representations about its prices by failing to disclose additional mandatory fees, the bureau has been consistent in its focus on those types of cases.

“Virtually every sector has been struggling with how to disclose additional fees in a way that complies with the legislation,” says Banicevic.

The tribulations of one of Canada’s largest car rental companies, Avis Budget Group. Inc., are a case in point.

In March 2015, the bureau filed an application with the Competition Tribunal alleging that the advertised prices of the group’s subsidiaries, Avis and Budget, were “not attainable due to additional fees imposed during the rental process.” The bureau also alleged the companies improperly characterized the additional fees as taxes, surcharges, and amounts that governments and agencies required them to collect from consumers. The additional fees, the bureau stated, had increased rental costs by up to 35 per cent and amounted to more than $35 million since 2009.

Consequently, the regulator is seeking $30 million in administrative monetary penalties and refunds for consumers from the three corporate entities involved.

Of particular interest in these cases is the bureau’s reliance on recent amendments designed to address false or misleading commercial representations online.

“Many of the alleged misrepresentations were made online and that has allowed the bureau to focus on the subject line in the communications,” says Banicevic.

“What’s interesting about that is that the amendments don’t require materiality in the misrepresentations that were allegedly made online.”

In response, Avis and Budget take the position that they disclosed the additional fees at some point in the rental process.

“The hot point is whether that is enough or does disclosure of the additional fees have to be incorporated in every representation?” says Banicevic.

“My view is that it is sufficient if disclosure is made at any time before payment.”

Also ongoing are contested actions initiated by the bureau in 2013 against Leon’s Furniture Ltd. and the Brick Ltd. regarding the companies’ promotions that allow customers to buy now and pay later. In proceedings brought before the Ontario Superior Court of Justice, the bureau alleged they improperly required many customers to pay upfront administration or processing fees.

“Canadian consumers must receive clear and accurate information about what must be paid at the time of purchase, and what the actual cost of a particular item is if they use a deferred payment option,” said John Pecman, commissioner of competition, in a 2013 press release.

“Retailers cannot hide details of additional fees in lengthy disclaimers.”

Despite all of the activity recently, it’s not clear that Pecman’s regime is any tougher on the advertising front than that of his predecessor, Melanie Aitken.

“Generally speaking, the previous regime adopted an aggressive enforcement stance and Pecman has continued it,” says Musgrove.

“This having been said, there is definitely more outreach and co-operation from the current regime.”  

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