• Why all the Chatr? Substantiating Performance Claims in Canada
  • April 28, 2014 | Author: Jayda A. Sutton
  • Law Firm: Smart & Biggar/Fetherstonhaugh - Toronto Office
  • The Ontario Superior Court of Justice recently released its decision on remedies in Commissioner of Competition v Chatr Wireless Inc and Rogers Communications Inc (“Chatr”), 2014 ONSC 1146, confirming that performance claims made about a product or service must be substantiated before the claim is made to the public and that validation of the claim after publication is not enough to avoid penalty under the Deceptive Marketing Practices provisions of the Canadian Competition Act. The decision also provides guidance as to the application of the administrative monetary penalty provisions under the Competition Act.

    Background

    Rogers, a major provider of mobile telephone services in Canada, and Chatr Wireless, a discount service offered by Rogers, marketed the Chatr services as having “fewer dropped calls” than other wireless telecommunications providers. In 2010, the Competition Bureau initiated legal proceedings against Rogers/Chatr, alleging that the claims were false or misleading and that Rogers/Chatr had failed to conduct adequate and proper testing, as required under law, to substantiate the claims. In late-2013, a decision issued by the Ontario Superior Court of Justice, concluded that the claims were not false or misleading, but found that Rogers/Chatr had failed to substantiate the claims against other providers of mobile telephone services in certain parts of Canada. In early 2014, the Court issued its decision regarding penalties applicable to Rogers/Chatr under the Competition Act.

    Misrepresentations to the public

    While the “fewer dropped calls” claims were substantiated after the claims were published, the Court held that Rogers/Chatr had engaged in reviewable conduct under the Competition Act.

    The Court stated that:

    [p]ermitting untested claims to be made in the marketplace will decrease consumer confidence because some claims will turn out to be false or misleading. Section 74.01(1)(b) - prevents false or misleading claims because it requires testing prior to publication. The ultimate objective - is the protection of consumers, competitive firms and competition from the harmful effects of untested performance claims.

    Rogers/Chatr asserted a defence of due diligence to avoid the administrative monetary penalty. However, the Court concluded that Rogers/Chatr made a “deliberate decision” to make the claims based on technological specifications, despite having adequate testing protocols in place, and “knowing that it was necessary to test performance claims before making them”.

    Administrative monetary penalty

    Despite the Competition Bureau’s request for a penalty of $5 - $7 million, the Court reviewed a list of aggravating or mitigating factors as set out by the Competition Act and ultimately ordered Rogers/Chatr to pay a penalty of $500,000.

    The Court stated that “[a]n administrative monetary penalty cannot be imposed with a view to punishment or deterring others who might contemplate making unsubstantiated performance claims - [but rather that the amount ordered] must be proportional to the nature of the person whose conduct one seeks to change”. In determining an appropriate and proportional penalty, the Court placed a great deal of emphasis on (a) the fact that subsequent testing had substantiated the “fewer dropped calls” claim, thereby mitigating any harm to the public and imposing “appropriate” harm on Rogers' competitors, and (b) the fact that Rogers/Chatr had suffered reputational harm due to publicity of the proceedings.

    However, the Court did state that “[a] monetary penalty in the range of $5 - $7 million might have been justified - if the fewer dropped calls claim had been false or misleading”.

    Prohibition order

    The Competition Bureau requested a 10 year prohibition order to help ensure compliance by Rogers/Chatr in the future. Despite evidence that Rogers had on a previous occasion been willing “to make aggressive representations prior to testing when it believed those untested representations [to be] true” (referring to a decision where Rogers was enjoined from claiming that it had “Canada’s Most Reliable Network” when it had failed to test its network against Telus), the Court found a prohibition order to be unnecessary because there had been no previous findings that Rogers had engaged in reviewable conduct per se and because the Court was “satisfied that reputational harm is a relevant consideration when deciding to impose a prohibition order. [Because] it is reasonable to think that genuine Canadian corporations, such as [Rogers/Chatr], would not repeatedly risk reputational harm [,]... the prospect of future proceedings will encourage compliance”.

    Conclusion

    This decision highlights that under the Competition Act, proper and adequate testing needs to be undertaken to substantiate performance claims prior to publication.

     

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