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The Cassels Brock Report

The Cassels Brock Report - November 2011

Published: 11/22/2011

By Imran Ahmad, Casey Chisick, Jessica Fingerhut, Chris Hersh, Bernice Karn, Chad Matheson, John McKeown, Ravi Shukla

In This Issue

1. A Matter of Deference
2. Trade-mark Licences and Controlled Corporations
3. Summary Trial
4. Interpreting Industrial Design Registrations
5. Enforceability of Online Agreements
6. Supreme Court Clarifies Role of Hyperlinks in Defamation Case
7. Untruth in Advertising: Competition Bureau Cracks Down on Misleading Advertising

A Matter of Deference

By John McKeown

A recent decision of the Federal Court illustrates that there are uncertainties associated with opposition proceedings and subsequent appeals. Individuals may have conflicting views concerning whether specific trade-marks are confusing.

The Facts

The Applicant filed trade-mark applications based on proposed use for the trade-mark LYNXMASTER in association with garage door openers. These applications were opposed. The primary ground of opposition was that the applied-for-marks were confusing with the trade-mark LIFTMASTER for use in association with garage door openers.

The Opponent filed evidence to show use of its LIFTMASTER trade-mark since at least 1990. In the years 2000 to 2005, sales were in the range of 90,000 to 140,000 units per year. There was also significant advertising. The LIFTMASTER garage door openers enjoyed a considerable market share which was somewhere between 33% to 65% of the market.

The Decision of the Trade-marks Opposition Board

The essential basis for the decision of the Hearing Officer of the Trade-marks Opposition Board related to the degree of resemblance between the respective marks. The Hearing Officer said that marks must be considered in their totality and it was not a correct approach to compare and observe similarities or differences among the elements or the components. However, the first component was more important for the purposes of distinction. Also, when a word is a common, descriptive word it is entitled to a narrower range of protection than an invented or unique word.

Overall it was concluded that there were significant differences between the marks in appearance, sound and the ideas suggested. Although each mark comprised a single syllable word that commenced with the letter “L” followed by the word “master” the differences between the marks was more significant than the similarities. In particular, there was a great difference between the words LIFT and LYNX both in appearance and sound, and most importantly in the ideas suggested, that counteracted any similarities between the marks. Although the marks shared the common word MASTER, the common feature was not the dominant portion of the Applicant’s mark and the word MASTER is an ordinary dictionary word which carried a laudatory suggestion.

The Appeal to the Federal Court

The Opponent appealed to the Federal Court. On appeal, evidence in addition to that presented before the Trade-marks Opposition Board may be presented. The Opponent's evidence included a decision of the United States Trademark Trial and Appeal Board between the same parties which had found that LYNXMASTER was confusing with LIFTMASTER.

The Judge found that the additional evidence filed on the appeal was of no particular value. This meant that the standard of review was reasonableness by itself. If the additional evidence had materially affected the findings below, the Court would have decided the issue anew with little reference to the decision appealed from.

The standard of review of “reasonableness” was further described by the Trial Judge, relying on previous authoritative decisions, as meaning the Court will often be forced to accept that a decision is reasonable even if it is unlikely that the Court would have decided as the Board did. The question is whether the Board’s decision is supported by reasons that can withstand “a somewhat probing” examination and is not “clearly wrong”.

The Court said that in the context of confusion, the approach to be adopted was the mindset of an ordinary casual consumer somewhat in a hurry who sees the mark in issue at a time when he or she has no more than an imperfect recollection of it and does not pause to give the matter any detailed consideration or scrutiny nor to examine closely the similarities or differences between the marks.

Given this hypothetical person as the touchstone against which confusion is to be measured, the Trade-marks Act requires that confusion be considered not in a strict yes or no sense, but in the sense of what is “likely”.

In the appeal there was no dispute that the wares were identical and that the channels of trade into which the wares were sold were not different. It was also undisputed that the LIFTMASTER product had been on the market for 15 years and enjoyed significant sales, market share and advertising. There was no evidence that LYNXMASTER product had ever been sold in Canada. The two trade-marks closely resembled each other and differ only by three letters within the body of the mark L***MASTER. There was little or no evidence concerning the use of the formative MASTER in association with garage door openers or relevant third party registrations containing the formative.

On reviewing the decision below the judge found that the Hearing Officer, in dealing with the issue of confusion, had made the following errors:

a)   dissected the competing marks into components rather than viewing them in their totality;

b)   did not give sufficient weight to the 15 years of significant sales and advertising of the LIFTMASTER product compared to none for the applied-for marks;

c)   did not give sufficient regard to the fact that the wares were identical and the channels of the trade would not be different;

d)   did not give sufficient weight to the lack of any significant use or registration by any third party of garage door openers in association with a MASTER formative mark; and

e)   did not give due regard to the onus borne by the Applicant to show that the application complied with the Act.

The Judge also said that from time to time statements contained in a US decision might be helpful. However, there was no evidence concerning what the US law was or how it might be the same or different from Canadian law so as to make the decision in any way pertinent. As a result, the decision had no effect and was not considered.

Conclusion

Normally on appeals of this nature the decisions of the Trade-marks Opposition Board are given a significant degree of deference since Hearing Officers are seen to have significant expertise in a trade-mark context. This decision appears to go against those cases and may encourage more appeals.

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Trade-mark Licences and Controlled Corporations

By John McKeown

A recent decision of the Federal Court shows the importance of making sure that any licence of a trade-mark in Canada satisfies the requirements of the Trade-marks Act.
 
The Facts

Spirits International BV (“Spirits”) owned a Canadian trade-mark registration for the trade-mark MOSKOVSKAYA RUSSIAN VODKA & DESIGN. An interested party caused a notice to be issued under section 45 of the Act. As a result, notice was given to Spirits requiring it to show whether the trade-mark was in use in Canada at any time during the three-year period immediately preceding the date of the notice.

Spirits submitted an affidavit in which the deponent stated that “My Company”, which was defined as including the S.P.I. Group and its affiliate companies as well as Spirits, had direct or indirect control over the character and quality of the vodka sold in association with the MOSKOVSKAYA trade-mark in Canada.

A hearing took place before a Hearing Officer of The Registrar of Trade-marks. The Hearing Officer observed that in order to satisfy the requirements of the Act relating to licensing, a registrant or a licensee needed to clearly state that the control required by the Act existed or, alternatively, to provide a description of the control or a copy of the license agreement containing provisions pertaining to control. It is clear that the existence of a common directing mind or control through a corporate structure by itself does not allow the Registrar to infer that a registered owner has control over the character or quality of the wares used in association with a licensed trade-mark.

The Hearing Officer found that no description of the control allegedly exercised had been provided.  A copy of the license agreement had not been furnished nor were any details provided concerning the individuals involved in “My company”.  As a result there was not sufficient evidence of control to allow the Hearing Officer to conclude that sales of the vodka in association with the trade-mark enured to the benefit of Spirits.

The Appeal

Spirits appealed from this decision and filed additional evidence to clarify the existence of control over the trade-marked vodka during the relevant period. In substance, the new evidence suggested that an additional company had been licensed by Spirits to use the trade-mark and that Spirits set the standards of the character and quality of the vodka labelled with the trade-mark. Under the license, Spirits delegated to other affiliated companies the obligation to conduct periodic testing for compliance with the standards of character and quality that had been set.

The standard of review on such an appeal is similar to that in an opposition. If the additional evidence would have materially affected the Hearing Officer’s finding, the Court is required to determine anew whether the evidence satisfied the requirements of section 45. Absent such evidence, the Hearing Officer’s decision is to be reviewed on a reasonable standard.

The Court was not convinced that the additional evidence addressed the issues of control. For example, it was not clear what the additional affiliate did under the license nor did the evidence establish that Spirits exercised control over the production, labelling or selling of the vodka through its licensing. In addition there was no clear statement concerning when the license began or ended, and as a result, it was not possible to temporally link the license and the other evidence of use advanced.  Because of these shortcomings, it was found that this evidence was vague and ambiguous and did not materially affect the Hearing Officer’s decision.

The Judge observed that while it is not necessary to produce a formal license agreement to prove the existence of a license, the other requirements that one would find in a licence must be dealt with. The mere fact that there is some common control between a registered trade-mark owner and other corporate entities is not sufficient to establish that the use of the trade-mark was controlled such that a licensing can be inferred. Clear evidence of control has to be adduced.

The Judge said that review according to the reasonableness standard is concerned with the existence of transparency, intelligibility and justification in decision-making. Decisions should not be disturbed by a reviewing court unless the reasoning process used was flawed such that the resulting decision falls outside the range of possible, acceptable outcomes, defensible on the facts and in law.

As a result, it could not be said that the Hearing Officer’s conclusion was unreasonable and the appeal was dismissed.

Conclusion

There have been a number of cases which have reached similar results. The moral of the story for trade-mark owners is to ensure that the registered owner uses any trade-mark itself or that there is a written license in place between it and the party who uses the trade-mark, and that the registered owner exercises control of such use. The trade-mark owner should be prepared to prove that it exercised such control.

Even though a related company controls another company by virtue of its share holdings as in a parent and wholly owned subsidiary relationship, such control is not sufficient to comply with the requirements of the Act.  The law in Canada and the US differ on this point.

The use of an appropriate trade-mark notice can provide some help. For the purposes of the Act, to the extent that public notice is given of the fact that the use of a trade-mark is a licensed use and of the identity of the owner, it will be presumed, unless the contrary is proven, that the use is licensed by the owner of the trade-mark and the character or quality of the wares or services is under the control of the owner. However, this presumption may be rebutted if evidence to the contrary is presented.

It is interesting to note that significant deference was given to the decision under appeal.

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Summary Trial

By John McKeown

Two recent decisions of the Federal Court have granted motions seeking summary trial in intellectual property cases.

Summary Trial

The Federal Courts Rules provide that a plaintiff or defendant may apply to the Court for summary trial judgment in an action for which a defence has been filed but before the time and place for trial have been fixed. If the Court is satisfied that there is sufficient evidence for adjudication, regardless of the amounts involved, the complexities of the issues and the existence of conflicting evidence, the Court may grant judgment either generally or on an issue, unless the Court is of the opinion that it would be unjust to decide the issues on the motion.

This recent amendment to the Rules was made in order to allow the Court to dispose summarily of actions in a greater range of circumstances than previously allowed under the prior Rules, which allowed for summary judgment only in matters where there was "no genuine issue for trial", and had been judicially interpreted to prevent summary judgment where credibility was an issue, where the evidence was conflicting, and/or where the outcome of the motion turned on the drawing of inferences.

If the Judge can find the facts as he or she would at a trial, the Judge should grant summary judgment, unless to do so would be unjust, regardless of complexity or conflicting evidence. In determining whether summary trial is appropriate, the Court considers factors such as the amount involved, the complexity of the matter, its urgency, any prejudice likely to arise by reason of delay, the cost of taking the case forward to a conventional trial in relation to the amount involved, the course of the proceedings and any other matters that arise for consideration.

A summary trial has the potential to save costs since a full trial will not be necessary and the motion will proceed on the basis of affidavits.

Recent Cases

Judgment on summary trial has been recently granted in a case relating to the manufacture, importation, distribution, sale and offer for sale of counterfeit goods, even with multiple defendants, a complex fact pattern, numerous investigations and affidavits, and relatively large damages awards.

In another recent case involving patents and the related proceedings involving the NOC regulations for pharmaceutical patents, a motion for summary trial was again granted.

Conclusion

The prospect of seeking a summary trial in cases involving the infringement of intellectual property is a recent development which merits careful consideration in the right case.

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Interpreting Industrial Design Registrations

By John McKeown

In September of 2010, we discussed an English trial decision that illustrated important principles concerning the scope of protection available for registered industrial designs. Please click here to view the article.

The Facts

Dyson Ltd. was the first manufacturer to introduce two-stage cyclone dust-separation technology for vacuum cleaners as an alternative to the use of porous bags. Initially, an upright cleaner was introduced to the marketplace and then a cylinder cleaner. The design of the cylinder cleaner vacuum is regarded as a classic design. It has received numerous accolades and awards as a result of its novel and striking appearance. It has also been exhibited in a number of museums.

An industrial design registration was obtained relating to the cylinder cleaner. The registration provides that the features of the design for which novelty was claimed reside in the shape and the configuration applied to the article as shown in the application.

The defendant launched a multi-stage cyclone vacuum cleaner. The plaintiff objected and initiated proceedings.

Photographs of side views of the respective products are reproduced below.



Figure 1 (above): Side view of Dyson Ltd. cylinder cleaner

Figure 2 (below): The defendant launched a multi-stage cyclone vacuum cleaner.
 

The Trial

The Judge did not accept that there were any significant constraints on design freedom. As a result, the plaintiff’s design was entitled to a fairly broad scope of protection because of the differences between it and pre-existing designs and because of the degree of freedom available to the designer.

The Judge observed that while it is proper to consider both similarities and differences between the respective designs, what matters was the overall impression produced on the informed user by each design having regard to pre-existing designs and the degree of freedom of the designer.

While considerable attention was directed to the specific elements making up the designs, the Judge concluded that standing back from the details and considering the overall impression created by the respective designs, the informed user would not consider the similarities as being significant and would notice the differences between the respective designs. The overall impression produced by the registered design was a vacuum that was smooth, curving and elegant. The overall impression produced by the defendant’s design was a rugged, angular industrial vacuum. As a result, the action was dismissed.

The Appeal

On appeal to the UK Court of Appeal, the question was whether the Judge had erred in his conclusion that the defendant’s product produced a different overall impression on an informed user. The Court said the most important things in a case about a registered design are:

 (i) the registered design,

(ii) the accused object, and

(iii) the prior art,

and the most important thing about each of these is what they look like. Of course, the plaintiff, defendant and the Judge have to try to put into words why they say a design has “individual character” or what the “overall impression produced on a informed user” is. But, it takes longer to articulate what is in issue than to see it and words frequently are insufficiently precise by themselves. As a result, the place for evidence in a case of this nature is limited and it should be possible to decide a dispute in a limited period of time.

Not only is the question apparently straightforward, it is actually straightforward. It is possible to produce much elaborate argument and evidence, some of which could touch upon metaphysics, but generally none of this matters. What really matters is what the Court can see with its own eyes.

The Court concluded that the Trial Judge had made no error when he found that the overall impression created by the defendant’s product on an informed user was different than that of the plaintiff’s. An informed user looking at the two designs would notice the difference between them because the overall impressions are different “smooth curving and elegant” versus “rugged angular and industrial”. They were different designs. As a result, the appeal was dismissed.

A number of statements were made in this judgment about the lack of the benefit of expert evidence in cases of this type. Similar statements have been made by the Supreme Court of Canada in a recent case involving trade-marks. This appears to be a new continuing theme.

Comment

While the Canadian Industrial Design Act does not use exactly the same words in dealing with infringement of industrial designs, all of the same concepts described by the UK Court of Appeal can be applied in a specific case. In addition, a UK appellate decision is more persuasive, although not binding, in Canada.

Obtaining registration under the Act can be an important element in protecting product shape and appearance, but the protection available only goes so far.

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Enforceability of Online Agreements

By Chad Matheson, Ravi Shukla

On September 2, 2011, the British Columbia Supreme Court issued a lengthy decision in which it upheld the enforceability of a browse wrap agreement (i.e. website terms and conditions for which formal acceptance is not required). Additionally, issues relating to claims of copyright infringement and the trespass to chattels were examined.
 
In Century 21 Canada Limited Partnership v. Rogers Communications Inc., 2011 BCSC 1196, the main defendant Zoocasa, a wholly owned subsidiary of Rogers Communications Inc., created a vertical search engine, indexing property listings from a number of real estate websites. In particular, this search engine copied photographs and property listings from the Century 21 Canada website. The plaintiffs sought an injunction and damages against the defendants for their conduct in accessing their website and copying photographs and text from the website without consent.

The Court began its examination of the issue of the enforceability of browse wrap agreements with a comprehensive review of Canadian and US jurisprudence related to shrink wrap, click wrap and browse wrap agreements. After this review the Court applied its findings and held the act of browsing past the initial page of the website or searching the site is conduct indicating agreement with the terms of use if: (i) those terms are provided with sufficient notice, (ii) are available prior to acceptance, and (iii) clearly state that proceeding further is acceptance of the terms.

Although the Court indicated that issues related to the reasonableness of the terms or the sufficiency of notice given to the users may arise in future cases, none of those issues arose in this case because (i) the defendants were sophisticated commercial entities employing similar online terms of use, (ii) the defendants had actual notice of Century 21 Canada’s website terms of use; and (iii) the defendants had conceded the reasonableness of the terms of use through admissions on discovery and by their own adoption of similar terms of use.

Accordingly, the Court concluded that Century 21 Canada’s website terms of use constituted a binding contract between the parties. The Court placed particular emphasis on the fact that the defendant, Zoocasa, had actual knowledge of the terms of use (the defendant acknowledged that it became aware of the existence of the terms of use after they were brought to its attention in a letter on October 6, 2008) and this factor may limit its precedential value. The Court went on to hold that in continuing its actions after receiving notice of the terms of use, Zoocasa had breached those terms. The Court also found that Rogers was not liable for inducing a breach of contract and refused to “pierce the corporate veil” in order to make Rogers liable for the actions of its subsidiary.

The claim of copyright infringement was upheld, and in so finding the Court dismissed the defence that the impugned use was fair dealing. Furthermore, in examining the issue of trespass to chattels, the Court found that as the plaintiff had utilized the services of a hosting company which owned the relevant web servers, the plaintiff did not have the required possessory interest in those servers sufficient to ground a claim in the tort of trespass to chattels. 

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Supreme Court Clarifies Role of Hyperlinks in Defamation Case

By Casey Chisick, Jessica Fingerhut, Bernice Karn

On October 19th, the Supreme Court of Canada released its decision in Crookes v. Newton, unanimously upholding the British Columbia Court of Appeal decision that merely providing a hyperlink that connects to allegedly defamatory material will not itself be considered a publication of that material.

Background

Jon Newton owns and operates a website to which he posted an article containing hyperlinks to other articles containing allegedly defamatory information about Wayne Crookes. Crookes brought an action against Newton on the basis that the hyperlinks connected users to the allegedly defamatory material and that, by posting the hyperlinks, Newton had published defamatory information.

Analysis

In order for a defamation action to succeed, defamatory material must have been published. To prove publication, a plaintiff must establish that the material has been communicated to a third party and that the third party has received the message. The issue raised in this case was whether the posting of a hyperlink to defamatory material could be considered communication of that material and thereby constitute publication.

Posting hyperlinks as mere references does not constitute publication

A hyperlink was defined in the decision as “a device routinely used in articles on the Internet whereby a word or phrase is identified, often with underlining, as being a portal to additional, related information”. Justice Abella considered hyperlinks analogous to references or footnotes in that they may be inserted with or without the knowledge of the operator of the site containing the secondary article and give the primary author no control over the content in the secondary article. Although both hyperlinks and references communicate that something exists, they are content neutral and do not control the content to which they refer. In addition, they both require some act by a third party before access to the content is provided. Accordingly, the Court found that “making reference to the existence and/or location of content by hyperlink, without more, is not publication of that content”.

Hyperlinking may amount to publication under certain circumstances

Although there was unanimous consent that mere hyperlinking to defamatory information would not, by itself, constitute publication of that material, the concurring judgments considered under what circumstances hyperlinking to defamatory material may constitute publication. Justice Abella found that where a hyperlinker presents content from the hyperlinked material in a way that actually repeats the defamatory content, that content may be considered published.

Chief Justice McLachlin and Justice Fish noted that a combination of text and a hyperlink may amount to publication of defamatory material if the text indicates “adoption or endorsement” of the hyperlinked text. They held that where the text “communicates agreement” with the linked content, the hyperlinker should be liable if that content is defamatory.

Justice Deschamps noted that hyperlinking to defamatory content could constitute publication if, by a deliberate act, the hyperlinker makes the defamatory information readily available to a third party and if that third party receives and understands the information. Justice Deschamps held that an act is “deliberate” if the hyperlinker plays more than a passive instrumental role in making the information available. The Justice provided a number of factors for a court to consider in determining whether hyperlinked material is “ready available”, including whether the hyperlink is user-activated or automatic, whether it is a shallow or deep link and whether the linked information is available to the general public (as opposed to being restricted). Although Justice Deschamps found that Newton’s posting of the hyperlinks was a deliberate act and that one of the hyperlinks in question was a deep hyperlink, making the content readily available, because there was no evidence that the allegedly defamatory material was viewed by a third party, Justice Deschamps concluded that there was in fact no publication and that the defamation action must therefore fail.

Comment

The Supreme Court has previously expressed its strong support for the importance of the Internet to the flow of information in contemporary society (see, for example, SOCAN v. Canadian Association of Internet Providers, [2004] 2 S.C.R. 427). Toward the end of the majority decision, Justice Abella offers another passionate affirmation of that view, along with some specific comments about the centrality of hyperlinks to that flow:

The Internet cannot, in short, provide access to information without hyperlinks.  Limiting their usefulness by subjecting them to the traditional publication rule would have the effect of seriously restricting the flow of information and, as a result, freedom of expression.  The potential “chill” in how the Internet functions could be devastating, since primary article authors would unlikely want to risk liability for linking to another article over whose changeable content they have no control.  Given the core significance of the role of hyperlinking to the Internet, we risk impairing its whole functioning.  Strict application of the publication rule in these circumstances would be like trying to fit a square archaic peg into the hexagonal hole of modernity.

Strong words like this will no doubt make it tempting to draw sweeping conclusions about the impact of this decision. However, it would be dangerous to conclude that Crookes v. Newton amounts to a “get out of jail free” card for defamation on the Internet. For example, the decision quite clearly leaves the door open to the prospect of liability where the hyperlink is presented in a way that suggests adoption or endorsement of the content of the hyperlinked text, as well as to the likelihood that different technologies could give rise to different results in future cases.

It will also be important to exercise caution in attempting to extend the logic of this decision too far into other areas of law. For example, while the decision makes clear that simply hyperlinking to defamatory content does not itself constitute publication of the defamation, it is very possible that hyperlinking to content that infringes copyright might itself infringe copyright, either directly or by “authorizing” infringement by others. The decision of the British Columbia Supreme Court in Century 21 Canada v. Zoocasa, 2011 BCSC 1196, also underlines the risks of providing hyperlinks to content located on webpages whose terms and conditions prohibit linking.

In other words, Crookes v. Newton is by no means the last word on the legal implications of hyperlinking in Canada. It does, however, establish important guidelines that should be considered very closely by anyone whose online activities rely on hyperlinks to communicate information.

The assistance of Brie Lastman, student-at-law, in preparing this article is gratefully acknowledged.
 

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Untruth in Advertising: Competition Bureau Cracks Down on Misleading Advertising

By Imran Ahmad, Chris Hersh

The recent sanctioning of the Canadian distributor of Nivea skincare products highlights the significant number of cases brought over the past few months by the Commissioner of Competition under both the criminal and civil misleading advertising provisions of the Competition Act. These cases underscore both (i) the Competition Bureau’s aggressive enforcement approach in this area and (ii) the need for businesses to take proactive steps to ensure their promotional activities comply with the Act. They also highlight the potentially significant compliance concerns associated with the use of disclaimers/fine print, performance claims, and promotional training provided to employees.

The recent enforcement actions taken against Beiersdorf Canada Inc., Ambus Registry Inc., Bell Canada and Rogers Communications Inc., signals the willingness of Commissioner and the Bureau to aggressively pursue companies under the misleading advertising provisions of the Act by seeking to impose maximum sanctions including pulling products from stores, making financial restitution to customers, paying multi-million dollar fines and serving prison terms.

Beiersdorf Targeted for Unproven Claims

Beiersdorf, Nivea’s Canadian distributor, was alleged to have made false and misleading claims regarding the ability of Nivea’s “My Silhouette” products to “slim and reshape the body” and to lead to a “more toned and elastic skin”.  Following its investigation, the Bureau concluded that the performance claims in question “were not based on adequate and proper testing”.

Beiersdorf entered into an agreement with the Bureau whereby it agreed to withdraw the products in question from the Canadian marketplace, refund the purchase price and shipping costs to Canadian customers, pay an Administrative Monetary Penalty (“AMP”) of $300,000 as well as cover the Bureau’s investigation costs of $80,000. Beiersdorf was also required to publish a corrective notice on Nivea’s Canadian website.

As an interesting aside, the corrective notice initially published by Beiersdorf on the Nivea website stated the company disagreed with the Bureau’s findings and that the performance claims and testing at issue were supported by “independent research, which has always complied with Canadian requirements and guidelines.”  Not surprisingly the Bureau compelled Beiersdorf to remove the “inaccurate” public statement under the terms of the settlement between the parties. 

Makers of cosmetics product in particular should take note of this case, as the type of claims at issue are commonly used to promote personal care products, as it underscores the importance of having adequate and proper testing conducted before making performance claims. Additionally, the case demonstrates that the Bureau will take steps to ensure that corrective public notices required as part of a settlement agreement accurately reflect both the letter and spirit of the agreement, as well as the potential for increased negative publicity that can result in these situations

Ambus Employees Jailed for Deceptive Telemarketing

Four Ambus employees were sentenced to jail and another put on probation for their involvement in a cross-border deceptive telemarketing scheme promoting business directories.  Ambus targeted U.S. businesses and agencies and fraudulently caused victims to pay for directory listings by misleading them into believing that the company had committed to purchasing the listings. It is estimated that Ambus’ deceptive telemarketing strategy cost victims over $3.75 million.

In convicting the company and its employees, the Court viewed the materials used to train employees as evidence that Ambus intentionally engaged in a strategy designed to deceive its victims. This case highlights the need to ensure that all materials and training provided to employees comply with the Act.

Bell Pays $10 Million Fine for Fine Print

Recently, Bell voluntarily paid the maximum AMP of $10 million allowed under the civil misleading advertising provisions of the Act.  At issue were Bell’s representations regarding the prices offered to consumers for phone, internet, TV and wireless services. These representations were found to be misleading because the advertised prices were never available to consumers as they did not include additional mandatory fees which were effectively hidden from consumers in fine-print disclaimers.

In addition to the $10 million AMP, Bell agreed to make changes to any current non-compliant advertising and refrain from engaging in similar practices in the future. Bell also agreed to pay the Bureau $100,000 for costs related to its investigation. This case highlights the risks associated with making aggressive claims and then relying on disclaimers or fine print to modify those claims.

Case Against Rogers for Comparative Claims

Following a complaint by competitor Wind Mobile, the Bureau launched legal proceedings against Rogers in respect of its national ad campaign in which the company claimed that its discount cellular service, Chatr, had fewer dropped calls than any of its discount cellular competitors. The Commissioner is seeking an order requiring Rogers to not only pay a $10 million AMP and cease making the representations at issue, but to also pay restitution to affected customers and issue a corrective notice to the public.

The case was brought because the Bureau’s investigation concluded that there was no discernable difference in dropped call rates between Chatr and other discount cellular service providers. Rogers is vigorously contesting these allegations, and has stated that the statements at issue were based on independent third party testing. While these proceedings are ongoing, this case emphasizes the potential compliance issues associated with making comparative performance claims and the need to ensure that there is an objectively valid basis for these types of claims.

Lessons Learned

These cases clearly demonstrate the Bureau’s aggressive enforcement approach in the area of misleading advertising, including its willingness to seek significant fines (in particular under the civil provisions, where the maximum fine was increased in 2009 to $10 million) and jail terms. Accordingly, advertisers should be aware of potential compliance pitfalls when designing and implementing marketing and advertising strategies. This is especially the case when making representations that target the pricing or performance of competitors. Further, advertisers should realize that the Bureau will thoroughly scrutinize training or materials provided to employees in any investigation and may use this in any legal proceedings.
 

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