Drip pricing banned
Increased penalty for deceptive marketing
Competition Bureau takes action against Health Canada licensed product
“Import for personal use” option for regulated products
Power of platforms
This article highlights key tips, traps and trends for advertisers for 2023.
The term “dark patterns” was first coined over a decade ago but appears to have been more widely on the radar of regulators and consumers only recently. It refers to the use of deceptive user interfaces to manipulate or trick consumers to engage in certain behaviour contrary to their original intention. Dark patterns can encompass a range of tactics, including “roach motel”, “misdirection” and “sneak into a basket”.
Certain jurisdictions, including the United States and the European Union, have introduced new initiatives or actions explicitly addressing dark patterns. In Canada, although the “dark patterns” term is not yet widely used, regulators have also taken action against dark patterns. For example, in 2020, the Competition Bureau warned Canadians about “no-strings attached” trial offers“, following up in 2021 with a fine against a Canadian company of C$15 million for a “subscription trap scam“.
In terms of new legislation, Bill C-27 (currently at second reading), which proposes to replace the Personal Information Protection and Electronic Documents Act with the Consumer Privacy Protection Act, regulates private-related dark patterns. Section 16 states: “An organization must not obtain or attempt to obtain an individual’s consent by providing false or misleading information or using deceptive or misleading practices“. (Emphasis added.)(1)
In Canada, most types of dark patterns are only regulated pursuant to general provisions against:
- false and misleading advertising (eg, in the Competition Act);
- unfair practices (eg, in provincial consumer protection legislation); and
- privacy laws.
However, at least one dark pattern is already explicitly addressed by legislation – namely, drip pricing (see section 74.01(1.1) of the Competition Act). “Drip pricing” refers to the practice of offering a product or service at a price which is unattainable due to additional mandatory charges or fees. This practice was previously ubiquitous in certain industries (eg, ticket sales, flights and rental cars), causing the Competition Bureau to take action against various companies in those industries.
Since drip pricing practices continued, the 23 June 2022 amendments to the Competition Act resulted in drip pricing explicitly deemed to be false or misleading under both the criminal and civil provisions, unless the additional fees are government imposed (eg, sales tax).(2)
Environmental claims generate significant scrutiny and interest from the public, resulting in them being a high priority area for the Competition Bureau (see the Competition Bureau’s C$3 million settlement on 6 January 2022 with Keurig Canada Inc regarding recycling claims for its single-use coffee pods). For example, the Competition Bureau is currently investigating two environmental claims, further to complaints through the “six-resident” application process.
Specifically, on 29 September 2022, the Competition Bureau announced its inquiry into the marketing practices of the Royal Bank of Canada (RBC) in response to an application supported by Ecojustice and Stand.earth regarding whether RBC had made false or misleading environmental representations. Additionally, the Competition Bureau confirmed on 4 November 2022 that, further to an application supported by the Canadian Association of Physicians for the Environment, it had commenced an inquiry regarding the alleged “deceptive marketing practices” relating to the environmental impact of natural gas by the Canadian Gas Association.
Environmental claims are not only an issue of importance to advertising regulators, but securities regulators too. The Canadian Securities Administrators (CSA) published the CSA Staff Notice 51-364 in November 2022 as part of its continuous review of disclosure by reporting issuers. This notice highlights an increase in reporting issuers making misleading or overly promotional “greenwashing” claims, and warns issuers against the broad use of “greenwashing” language in disclosure.
Any advertiser wishing to make environmental claims must consider their strategy carefully, including ensuring their claims are appropriate under the Competition Bureau’s 2022 “Environmental Claims and Greenwashing” guidance (which replaced the Competition Bureau’s more prescriptive 2008 “Environmental Claims: A Guide for Industry and Advertisers”). This extends to both explicit and implicit environmental claims within trademarks, which is becoming increasingly common.
In addition to the numerous categories of human influencers, ranging from mega to niche influencers, there are also virtual influencers. These computer-generated image characters can be created:
- by a brand for themselves (eg, Magalu, the Brazilian retail giant, created Lu);
- by an agency for use with multiple brands (eg, Lil Miquela has starred in numerous campaigns ranging from Samsung to Prada); or
- as a combination of the two (eg, KFC‘s virtual Colonel Sanders was originally created to mock virtual influencers but, after being surprisingly successful, pivoted to endorse third party brands like Dr Pepper, TurboTax and Old Spice).
In principle, the rules governing human influencers (eg, disclosure of material connection through use of “#ad”) generally apply to virtual influencers too. However, there are nuances and differences. For example, for virtual influencers who resemble humans (as opposed to those who are obviously not human, such as Nobody Sausage), it may be necessary to disclose that the influencer is not human. This disclosure need not take the form of a blunt disclaimer (eg, “#influencer is not human”), and can instead be creatively incorporated as part of the virtual influencer’s story. Further, representations by a virtual influencer may need to be adjusted to take into account that they are not humans (eg, “This product tastes great” instead of “I tasted this product and it’s great”).(3)
The Competition Act is the main federal legislation of general application in Canada for advertising. It regulates misleading advertising, among other marketing practices, and therefore applies to the various practices referred to earlier – namely:
- dark patterns;
- drip pricing;
- greenwashing; and
- adequate disclosure of material connection when influencers are used.
The 23 June 2022 amendments to the Competition Act significantly increased the maximum penalty for deceptive marketing and, now, under the civil regime, the penalty for corporations can reach the greater of:
- C$10 million (C$15 million for each subsequent violation); and
- three times the value of the benefit derived from the deceptive conduct, or, if that amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenue.
Previously, penalties for corporations were capped at C$10 million (C$15 million for each subsequent violation).
According to Canada’s Disability Inclusion Action Plan 2022, over 6.2 million Canadians live with a disability. New accessibility regimes help limit accessibility barriers, such as inaccessible web page design (eg, by ensuring people with visual impairments can access the information). The Accessible Canada Act, which applies to the federal government and organisations regulated by the federal government, came into effect in 2019, and aims to create a barrier-free Canada by 2040. Several provinces have also enacted provincial accessibility laws, with Ontario setting the precedent in 2005 with the Accessibility for Ontarians with Disabilities Act (AODA). The AODA requires that all public websites be accessible if the website is controlled by a designated public sector organisation or a business or non-profit organisation with 50 or more employees in Ontario.
Another important development is making both products and packaging more accessible for people with disabilities. Although adaptive functionality is not new, it continues to grow in popularity. Microsoft famously released its Xbox adaptive controller in 2018. More recently in 2022, Microsoft released a surface adaptive kit providing tactile additions for a computer to create a versatile user experience. Adaptive functionality is also notable within the beauty industry, including:
Adaptive design extends to food too. In December 2022, Kellogg announced it is incorporating innovative NaviLens technology into the packaging of four of its cereal brands. Such functionality creates an enhanced user experience while making products more universally accessible.
Though less frequently used than “greenwashing”, advertisers should be aware of the term “healthwashing”, which will likely be more well known in the future. It refers to advertisers trying to promote their products as “healthy” because one aspect is beneficial even though the product cannot reasonably be considered healthy when considered as a whole. For example, a product may be fortified with calcium, but loaded with sugar. Alternatively, a product may be free of artificial flavours and colours but full of sodium.
Per section 5(1) of Canada’s Food and Drugs Act, a food label or ad must not be false, misleading or deceptive, or be likely to “create an erroneous impression regarding its character, value, quantity, composition, merit”. In addition to potential enforcement action by regulators, advertisers must also remember that lawsuits or negative publicity have been associated with products with brand names or other claims that suggest the product is healthier than it may be. As with “dark patterns”, “healthwashing” will increasingly be on the radar of both the public and regulators.
Even though a product is licensed by Health Canada, it can still be the subject of enforcement action by other regulators for false and misleading claims. This is important since not only can regulators have different enforcement powers, but they may also have different priority areas for enforcement. For instance, the Competition Bureau, working with Health Canada, investigated NuvoCare Health Sciences Inc in relation to certain weight loss claims, an area of interest for the Competition Bureau.
Although the products were licensed by Health Canada as natural health products (NHPs), they were not approved for weight loss claims and the necessary tests to substantiate the weight loss claims had not been conducted prior to making the claims. This ultimately led to NuvoCare and the founder entering into a settlement agreement with the Competition Bureau for C$100,000 in total penalties. This enforcement action is interesting since it confirms that the Competition Bureau, which has broad enforcement powers and is active in enforcing false and misleading claims, will take action against products already licensed by Health Canada rather than deferring to Health Canada to take action.
“Import for personal use” option for regulated products
Drugs (including NHPs), medical devices and cosmetics are subject to a myriad of laws before they can be sold in Canada. Complying with these requirements before the product can even be marketed in Canada can take significant time and money, and may not always be viable for a business, given the size of the Canadian population.
One option foreign businesses can consider is “direct to consumer” sales, which can sometimes result in an “import for personal use” scenario, exempting the activity from complying with certain regulatory requirements. Although this approach does not mean no Canadian laws apply (eg, this approach may not be exempt from advertising laws), this can be a very helpful option in certain circumstances.
Advertisers have always had to navigate and comply with the terms and conditions of platforms (eg, social media). However, the power of such platforms to make a company act a certain way is increasingly rivalling or even exceeding actual laws, especially since platforms can and do suspend accounts even faster than regulators when they view businesses as off-side. This gatekeeping power materially impacts businesses that rely heavily or exclusively on a particular platform to operate or promote their business (eg, App Stores, Amazon, YouTube), with Elon Musk notably calling out Apple for allegedly threatening to “pull” Twitter from the IOS app store.
For further information on this topic please contact Alice Tseng or Alexandra Johnson Dingee at Smart & Biggar by telephone (+1 416 593 5514) or email ([email protected] or [email protected]). The Smart & Biggar website can be accessed at www.smartbiggar.ca.