Performance Claims: Ontario Superior Court Orders Rogers to Pay $500,000 Administrative Monetary Penalty in Chatr Case
On February 21, 2014, the Ontario Superior Court of Justice (OSCJ) released its penalty decision in Commissioner of Competition v. Chatr Wireless Inc. and Rogers Communications Inc.1 Further to an application by the Commissioner of Competition (Commissioner), the OSCJ previously found that, in certain cities, Rogers/Chatr had failed to conduct adequate and proper testing prior to launching an ad campaign about having fewer dropped calls than new wireless carriers, contrary to the Competition Act (Act). The Commissioner sought an administrative monetary penalty (AMP) of $5-7 million, and a prohibition order not to engage in similar reviewable conduct for a period of 10 years. The Court ordered Rogers/Chatr to pay an AMP of $500,000 and denied the Commissioner’s request for a prohibition order.
The Commissioner filed an application in November 2010 alleging that representations made by Rogers/Chatr (Chatr is a wireless brand owned by Rogers) about having fewer dropped calls than the new wireless carriers were materially false or misleading, and that Rogers/Chatr did not conduct "adequate and proper testing" of said representations, in contravention of sections 74.01(1)(a) and (b) of the Act. In the main decision released in August 2013,2 the OSCJ dismissed most of the Commissioner’s application on the basis that Rogers/Chatr’s representations were in fact true, and that Rogers/Chatr did conduct "adequate and proper testing" to substantiate its claims. However, the OSCJ found that, in certain cities, Rogers/Chatr had failed to conduct such adequate testing prior to making its claim. Although proper tests conducted after the launch of the ad campaign supported the "fewer dropper calls" claim, making the claim prior to valid testing was contrary to the Act. The penalty hearing was held to determine the appropriate sanction for having published the untested fewer dropped calls claims.
Section 74.1(3) of the Act precludes the imposition of an AMP if the liable party is able to establish that it exercised due diligence. The OSCJ found that Rogers/Chatr did not exercise due diligence because, despite policies outlining the requirement to conduct appropriate testing, there was a deliberate decision to rely on "technological facts" (including higher cell site density and indoor transmission systems) suggesting the superiority of its network in support of the impugned representations, rather than proper testing.
The Commissioner sought an AMP of $5-7 million.3 In rejecting that argument and deciding to order an AMP of $500,000, the Court distinguished this case from other precedents for the following reasons:
- The Commissioner failed to prove that the fewer dropped calls claim was false and misleading;
- Rogers/Chatr continued testing the fewer dropped calls claim after publicly making it; and
- Rogers/Chatr’s post-claim testing substantiated the fewer dropper calls claim.
The OSCJ considered the statutory factors listed in section 74.1(5) of the Act to determine the appropriate amount of AMP, including the following:
- Effect on Competition: The Court found that competition was harmed, because the market was exposed to the risk that the representations would be false. However, the representations were, in fact, true. As such, the harm to competitors and the public was mitigated.
- Respondent’s Financial Position: The Court indicated that this is a significant relevant consideration for determining the AMP level, but did not consider Rogers’ significant revenues as an aggravating factor because of the reputational risk associated with such a proceeding.
- Respondent’s History of Compliance: Rogers has never been found liable for misleading advertising under the Act before, but, in another matter, the British Columbia Court of Appeal upheld an injunction against Rogers precluding it from making reliability representations that it had not properly tested. This previous case was considered as an aggravating factor.
Ironically, in addition to the statutory factors, the OSCJ considered that, because this was a case where the untested performance claims were later substantiated, the reputational harm caused to Rogers/Chatr by comments made by the complainants was a mitigating factor.
The Commissioner also requested a prohibition order precluding Rogers from engaging in reviewable conduct in the future. The OSCJ declined to make a prohibition order, recognizing that Rogers/Chatr have suffered reputational harm and incurred significant costs as a result of the Commissioner’s application.
Although this case is unique as the impugned representations were found to be true but untested in certain cities prior to publication, this is an important decision that will be relevant to future determinations regarding AMPs. Due to the large number of factors at play in determining the magnitude of an AMP or whether one should be ordered at all, it is difficult to predict outcomes with certainty. In light of the Commissioner’s aggressive enforcement approach with respect to misleading advertising, it is important to consistently adhere to robust compliance programs and ensure that adequate and proper testing is conducted prior to making performance claims.
1 2014 ONSC 1146.
2 2013 ONSC 5315.
3 The maximum AMP is $10 million for first time offenders and $15 million for repeat offenders.