The Perils of Unsubstantiated Claims: The Aftermath, Competition Bureau Activity, and Takeaways
In Part I of this two-part series, we addressed a number of key considerations related to using social media influencers for marketing purposes in light of recent warning letters issued by the Competition Bureau for non-compliance with the Competition Act. In this Part II, we review how the Bureau has been responding to businesses that decided not to heed similar warning letters in the past, with a particular focus on weight-loss claims.
Competition Bureau’s Warning With Respect to Unsubstantiated Weight Loss Claims
In February 2019, the Competition Bureau published a news release calling on all sellers and marketers of natural health products in Canada to review their advertising to ensure that their weight loss claims were not false, misleading or unsubstantiated. The Bureau warned that it may take action to address claims that failed to comply with the Competition Act.
Further, in Volume 5 of the Bureau’s Deceptive Marketing Practices Digest, Commissioner of Competition, Matthew Boswell, warned businesses that should they defy the rules, the Bureau would take action to protect consumers from misleading weight-loss claims.
Making Good on Their Promise
A year later, in a March 2020 news release, the Competition Bureau reported on legal action it commenced in response to a weight-loss company that did not comply with its prior warning. The Bureau asked the Competition Tribunal to issue a temporary order requiring Nuvocare Health Sciences Inc. and its President and CEO, Ryan Foley, to cease making weight-loss and fat-burning claims in the marketing of certain natural health products. In response to the Bureau’s action, it would appear Nuvocare failed to provide any testing to support its claims.
The temporary order would be in respect of conduct allegedly contravening paragraph 74.01(1)(b) of the Competition Act, which requires that any claim about the performance or efficacy of a product be based on adequate and proper testing conducted before the claim is made. The onus is on the person making the representation to prove that it was based on an adequate and proper test.
In his opening remarks at the 2019 Canadian Bar Association Competition Law Spring Conference, the Commissioner of Competition, Matthew Boswell, emphasized that the Bureau is prepared to “use all of the tools at [its] disposal to address what [it] believe[s] to be problematic conduct. This will include increased consideration of the use of tools such as injunction applications”. The Commissioner went on to note that he also intends to “use these tools more frequently to interrupt or halt the conduct in question, pending a full hearing.”
The Commissioner is making good on this promise. There has been an increase in the use of court-ordered document productions and depositions to support the Bureau’s investigations and, as evidenced here, an application for a rarely used interim injunction, which allows a court to prohibit conduct or the supply of a product if it appears to the court that: (a) serious harm is likely to ensue unless the order is issued; and (b) the balance of convenience favours issuing the order.
How Can Companies Protect Themselves from Bureau Action on Performance Claims?
In guiding businesses towards compliance, the Bureau provided some key considerations with respect to performance claims, specifically that:
- Claims about the performance or efficacy of a product must be based on “adequate and proper” testing. Though there is no legislative definition for “adequate and proper” testing, the Bureau provides some insight into problematic testing:
- Test results cannot be overbroad or generalized;
- Care must be taken to avoid unsubstantiated quantitative comparatives (e.g., product Z is three times better than product Y);
- The test must be reliable and achieve similar results on repetition;
- The test must account for test weaknesses and, at minimum, require a control group; and
- The test sample must be representative so as not to bias the results to the population.
- Testing must be conducted before a claim is made about the performance or efficacy of a product;
- Companies must ensure that any and all marketing materials do not create a false or misleading general impression. Words, images and design all matter; and
- Sellers and marketers of natural health products must also comply with the Food and Drugs Act, enforced by Health Canada.
The Next Wave of Enforcement: Social Media Influencers
Over the years, the Bureau has begun to show a consistent pattern of warnings followed by enforcement. In recent years, the Bureau has issued three waves of warnings: first, with respect to drip pricing, then with respect to weight-loss claims, and now, with respect to social media influencers. The Bureau followed through with enforcement action on the former two, so one can only expect that the pattern will continue for influencers.
From 2016 to 2018, the Bureau was particularly active in fighting drip pricing, a practice in which additional mandatory fees are disclosed later in the purchasing process so that the overall price of a product or service ends up being higher than the initial advertised price:
- In 2017, the Bureau issued a public statement calling on all sporting and entertainment ticket vendors to review their marketing practices and display the real price of tickets upfront. In 2018, it took action against Ticketmaster and its parent company, Live Nation, for allegedly making deceptive claims to consumers who were required to pay additional fees added later in the purchasing process. The case ultimately settled, with the respondents, among other things, paying administrative monetary penalties and costs of $4.5 million.
- In 2018, the Bureau reported on its fourth settlement agreement to address drip pricing in the car rental market. In these cases, the Bureau determined that the advertised rental prices were unattainable due to mandatory fees added later during the purchasing process. It also found that advertised rebates were not being properly applied, and that fees imposed by the car rental companies were disguised as taxes or third-party surcharges. Settlements in these cases ranged from $700,000 - $3.25 million in administrative monetary penalties and costs.
Last year, the Bureau warned businesses about making unsubstantiated weight-loss claims, the results of which we are currently witnessing, as described above.
In her speech earlier this year, Deputy Commissioner Josephine Palumbo focused on social media influencer marketing practices, sending close to 100 letters to brands and marketing agencies in the health and beauty, fashion, technology and travel sectors advising them of their requirements under the Competition Act.
There is little doubt that the Bureau intends to make good on these warnings, as it has in the past. Part I of this series offers best practices for businesses with respect to influencer marketing.