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May 31, 2017

Misrepresentations in marketing: Private damage claims coming soon

By Paul K. Grower and Jenna R. Seavers

Have you ever been deceived, even if for just a second, by an e-mail from your favourite clothing store claiming “50% OFF EVERYTHING,” only to realize that the fine print of the e-mail effectively excludes everything but last year’s styles?

Subsection 74.011(1) of the Competition Act addresses the making of false or misleading representations in electronic messages and makes them reviewable by the Commissioner of Competition. While this legislation has existed for some time, new changes are coming to Canada’s Anti-Spam Legislation (“CASL”), that create a private right of action for individuals who allege to be affected by false or misleading digital marketing.

Although the new legislation may reduce those moments of disappointment resulting from your e-mail inbox, the new provisions of CASL have resounding implications for businesses marketing to the Canadian public, the most notable being the potential for class action litigation.

Effective July 1, 2017, CASL opens up the realm of private damage claims for anyone who alleges that there are false or misleading representations in electronic messages. Currently, such marketing practices are only enforceable by the Commissioner of Competition.

Subsection 74.011(1) of the Competition Act provides that a person engages in reviewable conduct who, for the purpose of promoting any business interest or the supply or use of a product:

  1. Sends or causes to be sent a false or misleading representation – whether material or not – in the sender information or subject matter information of an electronic message; or
  2. Sends or causes to be sent in the body of an electronic message a representation that is false or misleading in a material respect.

The definition of “electronic message” is broad. It captures e-mails, social media, text messaging, image messaging and potentially even website advertising of businesses.

An example of an improper marketing practice recently reviewed by the Commissioner of Competition relates to car rental companies. Certain companies made representations on websites, mobile apps, and e-mails that created the impression that consumers could rent cars at discounts that were not in fact attainable due to non-optional fees that were added and made to look like they were taxes or fees imposed by government. The non-optional fees would increase the cost of a car rental by 10% to 57% of the allegedly “discounted” prices. The Commissioner concluded that the car rental companies had misled consumers contrary to the Competition Act, and ordered they cease such practices as well as imposed a monetary penalty.

Notably, the new private damages provisions of CASL encompass all aspects of subsection 74.011(1), including that they require no materiality regarding representations made in the sender information (the part of the message that identifies the sender of the message), or the subject matter information (the part of the message that summarizes the contents of the message).

This is especially important as it means that the plaintiff is not required to prove that a representation in a subject line affected them in a material way. Any misrepresentation, however trivial, can be subject to potential litigation. The intent of the materiality safeguard is to reprimand bold assertions in the subject line of messages to draw attention, only to then qualify them in the body of the message. Considering the new penalties associated with the marketing violations, however, the lack of materiality safeguard is concerning. It creates a relatively low threshold for plaintiffs who are seeking to be compensated, leading to growing concern of the potential for class action litigation.

Of note, officers, directors and agents of corporations that engage in false or misleading representations can be liable for contraventions of the marketing provisions. Furthermore, those who merely permit a false or misleading representation to be made or sent can be liable, such as a company who authorizes an affiliate marketing agent to advertise on their behalf.

In terms of damages, the remedy for a successful litigant under the new legislation is compensation in an amount equal to the actual loss or damage suffered or expenses incurred. In addition, it also provides for statutory damages of $200 per occurrence, not exceeding $1 million for each day of the occurrence. When considering the vast amount of consumers affected by advertising and the potential for class actions, it is clear that these provisions could have significant litigation risk for businesses.

Businesses who market to the Canadian public will need to be cautious in order to avoid these penalties. The new CASL private damanges provisions may cause legitimate businesses and advertisers to have significant exposure to litigation relating to potentially inconsequential misrepresentations that may not have caused any harm. Just a few short months away, the new legislation could give rise to substantial class action litigation.

There are a number of ways businesses can protect themselves from the potential private damage claims that may arise out of the new provisions. Businesses should ask themselves the following questions:

  • Do we have any forms of digital marketing, such as by employees, agents, affiliates, or third party agencies that we need to consider?
  • How can we avoid potentially misleading statements – material or not – in the subject line or sender information of our digital marketing?
  • How can we avoid material misrepresentations in the body of our digital marketing messages?
  • Do we have a person of authority reviewing all digital marketing for potentially false or misleading representations?
  • Do we use a one-size-fits-all approach when advertising, that needs to be adjusted for the Canadian market?

These are just a few suggestions for businesses to consider in the months leading up to the changes on July 1, 2017. Businesses should tread lightly to see how the legislation plays out in the next few years, and may even want to consider adjusting their marketing strategies in the near future.  

**This article provides a brief summary of CASL. Specific questions about its applicability in any specific situation should be discussed with your lawyer.**

Paul K. Grower is a partner with Fillmore Riley LLP who practises primarily in the areas of taxation litigation, privacy law, and general commercial litigation. You can reach him at (204) 957 8369 or pgrower@fillmoreriley.com. Jenna R. Seavers articled at Fillmore Riley and will join the firm as an associate after her expected Call to the Manitoba Bar on June 15, 2017. You may reach her at (204) 957 8365 or jseavers@fillmoreriley.com.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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