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Government Gouvernement of Canada du Canada Report from the Competition Bureau Misleading Advertising and Deceptive Marketing Practices Raymond Pierce Deputy Commissioner of Competition Fair Business Practices Branch Canadian Bar Association Annual Fall Conference on Competition Law October 3-4, 2002 Ottawa Congress Centre, Ottawa Check against delivery I. Branch Mandate It is recognized that a vibrant, fair and competitive marketplace is essential to consumer confidence. This means that when making their purchasing decisions in the marketplace, consumers must trust that they are comparing competitively-priced goods and services; that they are being offered the widest possible variety of quality goods and services; and that they are being provided with sufficient product information upon which to make their decisions. To ensure that this happens, it is our mandate at the Fair Business Practices Branch to promote fair competition in the marketplace by discouraging deceptive business practices and by encouraging the provision of sufficient information to enable informed consumer choice. This goal is achieved through the application of the misleading advertising and deceptive marketing practices provisions of the Competition Act (the “Act”), the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act. It is my intention to outline to you the significant developments which have taken place over this past year. II. The Branch’s activities over the past year (A) Civil Provisions This past year has seen an increase in our activity in relation to the civil provisions of the Act. Numerous matters were resolved through either information contacts, negotiated undertakings or consent orders and many other matters are still in progress. Ordinary Selling Price • The Competition Act provides specific provisions for ordinary selling prices. These provisions provide a framework to sellers for making claims about regular prices. They are designed to ensure that when products are promoted at sales prices, consumers are not misled by reference to “inflated’ regular prices. On July 23, 2002, the Bureau filed with the Competition Tribunal its first application under the ordinary selling price provisions, established under the Competition Act on March 18, 1999. The Commissioner’s application alleges that Sears Canada Inc. deceived consumers about the real value of their savings by referring to “inflated” regular prices when advertising certain tires at “sale” prices during the year 1999. The tire industry in Canada during 1999 was valued at approximately $1 billion. The Commissioner is requesting that the Tribunal issue a prohibition order for ten years and order Sears to cease and desist the alleged conduct, publish a correction notice, and pay a monetary penalty. False and Misleading Representations • On December 13, 2001 a consent order was filed under section 74.01 of the Competition Act, which deals with misleading representations, unsubstantiated performance claims and purported guarantees which have no reasonable prospect of being carried out. The order was filed with respect to the marketing practices of Antirouilles Électroniques TP and Garantie Express Inc. and Mr. Jacques Nadeau, the president and secretary of these companies, for the promotion of Total Protection. The $300 device claimed to protect the entire body of a car against rust. Tests submitted by Mr. Nadeau did not demonstrate that the Total Protection device could protect the entire surface of a vehicle against corrosion. Under the terms of the consent order, the companies in question and Mr. Nadeau have agreed to cease marketing the product and the extended anticorrosion guarantee. The parties have also agreed to not market similar products in Canada unless adequate and proper tests are carried out. The order further stipulates that affected consumers be informed by letter that they have a choice to either keep the two products and obtain a complete eight-year anticorrosion insurance policy or get their money back. • A consent order was filed with the Competition Tribunal on May 10, 2002 against Phone Directory Company Inc., a U.S.-based company operating in British Columbia as Western Phone Directories. The company made false and misleading representations concerning their directories by failing to fulfill promises concerning publication dates, number of copies to be distributed and areas of distribution. Under the terms of the order, Phone Directories Company Inc. agreed to not make false or misleading representations by any means, including via the Internet. In addition to the foregoing, the company has paid a $5,000 administrative penalty. • On May 31, 2002 the Competition Tribunal ruled that a gas-saving device known as the Platinum Vapour Injector (PVI), marketed by PVI International Inc., did not work and the company’s claims of saving fuel and reducing emissions were false and unsubstantiated by “adequate and proper tests”. PVI International Inc. and its two owners Mr. Michael and Mr. Darren Golka, were ordered to cease making representations with respect to the gas- saving device for a period of 10 years. Furthermore, the company was ordered to pay an administrative penalty of $75,000 while the owners were each ordered to pay $25,000. On July 16, 2002 the Bureau commenced a cross-appeal against the decision in order to force the Edmonton-based company to inform consumers, through corrective notices in newspapers across Canada and on the Internet, that its gas-saving device does not work. (B) Criminal Provisions On the criminal matters side of the Branch, we continued to devote significant resources in our efforts to combat deceptive telemarketing and deceptive mail solicitations involving materially false or misleading representations where we believe the element of intent or recklessness exists. We also pursued cases involving multi-level marketing and pyramid selling and cases under the standard-based statutes. Deceptive Telemarketing • On October 24, 2001, seven charges were laid against Tamec Inc. and its subsidiaries Commercial Information Bank of Canada and Deev. Inc., for their involvement in deceptive telemarketing practices and misleading advertising aimed at Canadian business, government institutions and religious, educational and non-profit organizations in Canada. From February 1997 to August 2002, telemarketers misrepresented the purpose of their calls, provided false information with respect to the prior existence of a business relationship with Tamec, and did not disclose restrictions which applied to the return of products. Telemarketers allegedly did not disclose that, by agreeing to accept delivery of one edition of a Tamec business directory, they were actually entering into a multi-edition subscription. The accused parties pleaded guilty in the Court of Quebec on June 19, 2002 and were fined $300,000. The court also imposed an order valid for a period of ten years prohibiting the convicted parties and their officers from engaging in similar deceptive marketing practices. Tamec also agreed to commit an additional $180,000 towards a restitution program which will offer victims up to $300 each in free goods and services. • On March 18, 2002, criminal charges were laid against the directors, two administrators and seven telemarketers of two Montreal-based telemarketing companies. The deceptive telemarketing practices were carried out by 3636135 Canada Inc., which conducted business in Montreal as Alexis Corporation and 3587932 Canada Inc. This was the first case in which the Competition Bureau used wiretaps to obtain evidence following amendments to the Criminal Code in 1999. Wiretaps were conducted with the assistance of the RCMP. The deceptive practices targeted consumers in Australia and New Zealand who were contacted by phone and told they were chosen to receive valuable prizes. Payment was required prior to the delivery of prizes to contestants which is a contravention of the Competition Act. It is alleged that consumers were misled about the nature, value and quality of the prizes and products at the time of the transactions. Furthermore, the quantity and value of the prizes and products were not revealed and consumers were offered a grossly overpriced product in exchange for prepayment. • On June 4, 2002, Mr. Marvin Redler of Dollard des Ormeaux, Quebec, pleaded guilty to nine misleading advertising and deceptive telemarketing charges and is waiting sentencing. The guilty pleas follow a lengthy criminal investigation by the Bureau relating to deceptive telemarketing and mail solicitations carried out by a number of Montreal-based telemarketing firms from 1994 to 1999. Mr. Redler was a former telemarketer with S.S. Viking Industries and C.S.R.H. Heritage Group Inc., which were charged with misleading advertising under the Act in December 1999 and May 2000. Both companies and their directors pleaded guilty and received sentences ranging form large fines to jail terms. Mr. Redler was also the director of two telemarketing companies, F.D.G. Fortune One Group and FNG First National Galleries, which were charged with deceptive telemarketing by the Bureau on September 21, 2000. Canadian consumers contacted by Mr. Redler and his telemarketing employees were told they had been specifically selected to win various prizes or “premiums”. Consumers were required to purchase items such as pens, coins and lithographs at highly inflated prices as a condition of receiving the prizes. The prizes were determined to be of a much lower quality and value than consumers were led to believe. Payment of additional fees was also a requirement of prize collection. These fees were not disclosed, or were only partially disclosed, to consumers at the time of purchase. There were approximately 3,100 consumer complaints filed against the four companies involved and reported losses of approximately $1,040,000. • On July 18, 2002, further criminal charges were laid against two telemarketers for making false and misleading representations to the public under the business names S.D. Prestige Enterprises Limited and J.C. & A. Ms. Janice Gold and Mr. Doron Kunin were charged with five counts each for making representations to consumers with respect to the winning of prizes and the quality, value and nature of prizes and other promotional products that were false and misleading in a material respect. These charges follow similar charges laid against S.D. Prestige Enterprises Limited, Farber Blake Corporation and J.C.& A, their directors and individual telemarketers in June 2001. On July 26, 2002, Mr. Gerald Goldstein was charged in the district of Montreal under the Competition Act for aiding and abetting, as provided under the Criminal Code, for his participation in misrepresenting the quality, value and nature of prizes or other promotional products under the above mentioned business names. Deceptive Mail • Two Toronto corporations, HMS Direct Limited and Hallstone Products Ltd. and their director Mr. David Stucky and employees, Ms. Sylvia Carbone, Mr. Norm Pemberton, Mr. Jan Swanson along with two Vancouver corporations, 483775 B.C. Ltd. and Ravenshoe Services Limited and their director, Mr. Tom Taylor, were charged under the Competition Act and under the illegal gaming provisions of the criminal code for their involvement in making unsolicited deceptive mailings promoting participation in the purchase of lottery tickets. Several million mailings were sent out to residents of the United States, United Kingdom, Australia and New Zealand and under various names. Mailings asked recipients to send a payment to participate in various international lotteries. The Bureau alleges that the mailings exaggerated the amount that consumers could win, exaggerated the odds of winning, misrepresented the mailings as being associated with the government body issuing the lottery tickets and led consumers to believe they had already won a substantial amount of money. • On May 28, 2002, Mr. Perter Kuryliw, the sole Director of 1473253 Ontario Incorporated, operating as Yellowbusiness.ca, pleaded guilty to targeting over 40,000 businesses and non-profit organizations with a deceptive mailout for an Internet directory. The mailout, dated May 25, 2001, asked recipients to send a payment of $85.55 to a postal box in the Toronto area for an Internet business directory that listed the details of their organizations. The mailings were made to appear like invoices from an existing service provider when in fact, they were invoices of Yellowbusiness.ca and the recipients of the invoices were not customers of Yellowbusiness.ca. Mr. Kuryliw was fined $30,000 and was given 90 days to pay the fine and dissolve 1473253 Ontario Incorporated. Further charges were laid on July 4, 2002 against Mr. James Tetaka for his role in this deceptive marketing practice. Representations as to Compensation, Multi-Level Marketing/ Pyramid Selling • On March 8, 2002, NSV Nutrinautes Inc., a Quebec company operating a multi-level marketing plan known as Cocooning Club, was charged with 11 counts under the multi-level marketing provisions of the Act. Further charges were laid against Mr. Richard Guertin and Mr. Richard Arsenault, two directors of NSV Nutrinautes Inc., on July 19, 2002, for their participation in this deceptive marketing practice. The Bureau alleges that Mr. Guertin and Mr. Arsenault were the directing minds of NSV Nutrinautes Inc., which through Cocooning Club and its participants, its web sites and a TV infomercial, recruited new participants by exaggerating income expectations without disclosing the income of a typical participant. Under the Act, it is illegal to make reference to earnings in a multi-level marketing plan without disclosing a typical participant’s income. Mr. Guertin and Mr. Arsenault were also charged with operating an illegal scheme of pyramid selling and making false and misleading representations on their company’s web site. • On April 8, 2002, the Bureau sent out 450 warning letters to Canadian participants in an international chain letter, advising them that the scheme appeared to make unrealistic earning disclosures not based on “typical” participants’ earnings and warning that the scheme appeared to be based on recruitment fees to generate income rather than on product sales. This e-mail chain letter attracted the attention of law enforcers because it falsely suggested that the plan was endorsed by the U.S. Federal Trade Commission. The warning letters were issued through a coordinated effort by the Northwest Netforce, an international initiative targeting deceptive “spam” (unsolicited e-mail) and Internet fraud. Partners in Netforce include the U.S. Federal Trade Commission and law enforcement agencies in nine U.S. states and three Canadian provinces. • on August 29, 2002, ACN Canada, All communications Network of Canada Co./ACN, Reseau De Toutes Communications Du Canada C.R.I. was charged, with 8 counts under the multi-level marketing and pyramid selling scheme provisions of the Competition Act. The Bureau alleges that ACN Canada as it is known, and its participants, through its web sites and at public meetings recruited new participants by making exaggerated income representations without disclosing the actual income of typical participants on the plan as required by the Act. ACN Canada was also alleged to be operating as illegal scheme of pyramid selling by offering recruitment bonuses. Activities Under the Standards-Based Statutes We have also been actively pursuing cases under the labelling statutes enforced by the Bureau: • On November 14, 2001, Gotham Industries Inc., a chemical company based in Ste- Thérèse, Quebec, pleaded guilty to three counts of false and misleading representations on the net quantity of their products. The Court of Quebec imposed a $500 fine for each charge, totaling $1500, under the Consumer Packaging and Labelling Act. The Court ordered correction of 248 packages of paint thinner, methyl hydrate and antifreeze found in violation. • On December 5, 2001, Laurentide Chemicals Atlantic Ltd., a chemical company based in Richibucto, New Brunswick, pleaded guilty to four counts of false and misleading representation of net quantity of their products. The Court of New Brunswick imposed a $1500 fine for each charge, totaling $6,000, under the Consumer Packaging and Labelling Act. The products in question were certain lots of paint marketed under a number of brand names. • On July 15, 2002, five charges were laid against a Quebec company under the net quantity provisions of the Consumer Packaging and Labelling Act. Modugno-Hortibec Inc. is a Quebec company that specializes in packaging and sales of garden products such as top soil and compost. Detailed inspections were carried out by Bureau officers on five types of packing of compost and marble chips. Inspections revealed that the net quantity of certain items was not the same as that indicated on the labels, thus allegedly deceiving consumers about the quantity of product. Approximately 150,000 bags were seized until repackaged by the company with accurate labels. Matter expected to go to court this fall. (C) Enforcement Policy The Branch has been very active in developing a number of policy initiatives and voluntary code projects. Some of the key projects include: • Scanner Price Accuracy Voluntary Code In June 2002, the Bureau endorsed the Scanner Price Accuracy Voluntary Code, which evolved from the collaborative efforts of the Retail Council of Canada, the Canadian Association of Chain Drug Stores, the Canadian Federation of Independent Grocers and the Canadian Council of Grocery Distributors. These associations are composed of national, regional, and local retailers selling a wide assortment of general merchandise, as well as pharmaceutical and food products. The purpose of the code is to: visibly demonstrate retailer commitment to scanner price accuracy; provide retailers with a consistent national framework for dealing with scanner price accuracy issues; and provide the retail industry with a means for consumer redress in scanner price accuracy cases, to be managed by a Scanner Price Committee. • Marketing and Advertising of Diamonds The Bureau completed a consultation exercise to obtain public comments on the application of the “Made In Canada” guide to the marketing and advertising of diamonds. On November 13, 2001, the Bureau released its enforcement policy on the marketing of Canadian diamonds. The policy clarifies whether the substantial transformation test described in the Bureau’s guide to “Made In Canada” claims meant that a diamond had to be mined, cut and polished in Canada to be advertised as a Canadian diamond. The new guidelines state that diamonds which are mined in Canada would be regarded as having been made in Canada. The guidelines also state that although diamonds may undergo refining processes, a fundamentally different product does not emerge. The guidelines state that diamonds mined outside of Canada would not meet the criteria even though they may undergo cutting and/or polishing in Canada since these processes do not result in a fundamentally different product. In cooperation with the Bureau, a Committee representing a cross-section of industry stakeholders has developed a Voluntary Code for Authenticating Canadian Diamond Representations which the Bureau has been asked to endorse. The proposed code creates a series of warranties that sellers may provide to buyers as Canadian diamonds pass through the “pipeline” from the mine to the showcase. • Pet Food Labelling A new pet food labelling and advertising guide for dog and cat food was issued by the Bureau on September 21, 2001. The guide addresses consumers’ concerns about the lack of uniformity and monitoring of pet food labelling and is the result of extensive consultation with the Canadian public and key industry stakeholders. The Guide for the Labelling and Advertising of Pet Foods was developed by the Working Group on the Labelling and Advertising of Pet Food in Canada, which is comprised of the Pet Food Association of Canada, the Pet Industry Joint Advisory council of Canada, the Canadian Veterinary Medical Association, the Canadian Kennel Club, the Canadian Animal Health Institute, Agriculture and Agri-Food Canada, Health Canada and the Competition Bureau. • Internet Advertising Guidelines The Branch is in the process of finalizing its Internet advertising guidelines which should be publicly released soon. The guidelines are being developed to provide businesses clear understanding on how to comply with the provisions of the Competition Act when advertising on-line. • National Advisory Teams In order for the Branch to keep up-to-date on the policy front, national teams of excellence have been established within the Br. The teams will provide expertise, advise and guidance on all issues related to the administration and enforcement of the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act. They will be responsible for assisting with regulatory amendments and any future legislative review exercises, providing input on domestic and international policy and enforcement issues, and for providing guidance on training strategies. • Review of Precious Metals Marking Regulations The Bureau is undertaking a regulatory review of the Precious Metals Marking Regulations. In September 2002, a draft consultation letter was distributed to approximately 50 Canadian businesses and their associations involved in the manufacturing and importing of precious metal articles (gold, silver, platinum, palladium). The first phase of the consultation is to seek comments and suggestions on the key areas of the regulations that may require review. A second, broader consultation will take place later this fall after areas of potential review have been identified. (D) Partnerships/International Co-operation The Bureau continues to dedicate resources to pursuing and implementing strategic partnerships with other law enforcement agencies, aiming to improve on information sharing and enhancement of cooperative efforts in combating deceptive telemarketing and deceptive mail solicitations. Our cooperative initiatives include participation in the Ontario Strategic Partnership, the RCMP’s Project Emptor, and the RCMP’s Project Colt. These task forces of Canadian and American law enforcement agencies were created to coordinate and conduct investigations of fraudulent telemarketers operating in Ontario, British Columbia and Quebec and targeting Canadian and U.S. citizens. • The Bureau hosted the “New Partners in Law Enforcement” conference in Ottawa on March 14, 2002. The purpose of the conference was to allow North American law enforcement agencies to develop new partnerships and improve those already established to help fight consumer and business-type crimes. More than 125 participants attended from Canada and the U.S. to examine topics such as investigating telemarketing and consumer fraud cases, technology’s role in anti-competitive offences and investigations, and following money trails to find parties responsible for crimes. • As a member of the International Marketing Supervision Network (IMSN), the Bureau participated in the annual International Sweep Day in January 2002. The target subject for this year’s sweep was web sites making deceptive or misleading health product and/or service claims, and to identify issues for possible enforcement action over the next year. The IMSN was established in 1992 and is a membership organization consisting of consumer protection authorities from 30 countries and representatives from the European Commission and the Organization for Economic Cooperation and Development. Its objective is to help prevent and redress deceptive international marketing practices through knowledge sharing and promotion of fair business practices. • The Mass Marketing Fraud Forum (formerly Deceptive Telemarketing Forum), a collaboration among consumer groups, law enforcement and government agencies, and private sector firms is chaired by the Bureau. In a joint effort, Forum members will work collectively to develop public outreach campaigns that are aimed at educating and empowering consumers against criminal marketing schemes. • To assist in advancing enforcement co-operation efforts against telemarketing, mail scams and other misleading and deceptive marketing practices, the Bureau and the U.S. Federal Trade Commission have agreed on a proposal for sharing information on practices that impact each country. (E) Bill C-23 Amendments Changes to the Competition Act and Competition Tribunal Act contained in Bill C-23 came into force on June 21, 2002. There are several new provisions in the Competition Act which directly affect the Fair Business Practices Branch. Section 53 of the Act prohibits the sending of a notice that gives the recipient the impression that he/she has won a prize and where the recipient is asked to pay money or incur a cost to obtain the prize. The provision applies to notices sent by any means, including regular or electronic mail. Any person convicted under this section is liable to a fine at the discretion of the court or to imprisonment for a term not exceeding five years, or to both. Summary conviction could yield a fine not exceeding $200,000 or to imprisonment for a term not exceeding one year, or to both. The new part III of the Act has been included to enable the Bureau to request formal assistance from other countries in obtaining and transmitting evidence located outside Canada in non-criminal matters. The new framework mirrors existing procedures with respect to criminal matters under the Mutual Legal Assistance in Criminal Matters Act.
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